2018
Annual Report & Accounts
John Laing Group plc
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The international
infrastructure
investor and
asset manager
04 – 05
Chairman’s
Statement
1–OVERVIEW
At a Glance
Chairman’s Statement
02
04
16 – 17
Making
infrastructure
happen in
North America
2–STRATEGIC REPORT
Chief Executive Officer’s Review
Our Integrated Approach
Our International Reach
06
12
14
16 North America – Making infrastructure happen
18
20
22
24
26
32
40
41
47
Primary Investment
Europe – Making infrastructure happen
Asset Management
Asia Pacific – Making infrastructure happen
Portfolio Valuation
Financial Review
Viability Statement
Principal Risks and Risk Management
Corporate Responsibility
3–GOVERNANCE
56 Directors and Company Secretary
Corporate Governance
58
Audit & Risk Committee Report
64
68 Nomination Committee Report
70 Directors’ Remuneration Report
88 Directors’ Report
92
93
4–FINANCIAL STATEMENTS
Statement of Directors’ Responsibilities
Independent Auditor’s Report to the Members
of John Laing Group plc
100 Group Income Statement
101 Group Statement of Comprehensive Income
102 Group Statement of Changes in Equity
103 Group Balance Sheet
104 Group Cash Flow Statement
105 Notes to the Group Financial Statements
138 Company Balance Sheet
139 Company Statement of Changes in Equity
140 Company Cash Flow Statement
141 Notes to the Company Financial Statements
156 Additional Financial Information (Unaudited)
159 Shareholder Information
20 – 21
Making infrastructure
happen in Europe
06 – 11
Chief Executive
Officer’s Review
24 – 25
Making
infrastructure
happen in
Asia Pacific
John Laing / Annual Report and Accounts 2018
John Laing Group plc (John Laing or the Company or the Group)
is an international originator, active investor and
manager of greenfield infrastructure projects.
We are one of the world’s most trusted brands in
the field of infrastructure thanks to our expertise
and credentials, with investments in more than
140 projects.
Our business is focused on major transport, social and environmental projects
awarded under public-private partnership (PPP) programmes, and renewable
energy projects, across a range of international markets in Europe, Asia Pacific
and North America.
We typically invest in infrastructure projects at the greenfield, pre-construction
stage and apply our management, engineering and technical expertise to help
guide the project through construction and into its operational phase. We invest
in 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.
01
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
AT A GLANCE
SUMMARY FINANCIAL INFORMATION
£ million (unless otherwise stated)
Net asset value (NAV)
NAV per share1, 2
Retirement benefit obligations
Profit before tax
Earnings per share (EPS)3
Dividends per share4
Primary Investment portfolio
Secondary Investment portfolio
Total investment portfolio
Future investment commitments backed by letters of credit or cash collateral
Gross investment portfolio
New investment committed during the period5
Proceeds from investment realisations
Cash yield from investments
PPP pipeline5
Renewable energy pipeline5
Year
ended
or as at
31 December
2018
Year
ended
or as at
31 December
2017
1,586.5
1,123.9
323p
(40.1)
296.6
63.1p
9.50p
868.6
691.6
1,560.2
295.6
1,855.8
302.0
296.1
33.8
1,543
830
281p
(40.3)
126.0
31.9p
8.92p
580.3
613.5
1,193.8
335.4
1,529.2
382.9
289.0
40.2
1,585
565
1. Calculated as NAV at 31 December 2018 of £1,586.5 million divided by the number of shares in issue at 31 December 2018 of 490.78 million
2. NAV per share at 31 December 2017 of 281p is the previously reported NAV per share of 306p multiplied by the Rights Issue bonus factor6
3. Basic EPS (adjusted for the Rights Issue; see note 6 to the Group financial statements)
4. Total dividend per share for the year ended 31 December 2017 of 8.92p is after adjustment for the Rights Issue
5. For further details, see the Primary Investment section of the Strategic Report
6. For details of the Rights Issue bonus factor, see note 6 to the Group financial statements
7. Rebased portfolio value is described in the Portfolio Valuation section on page 27
02
John Laing / Annual Report and Accounts 2018
NAV per share at
31 December 2018
323p
(31 December 2017 – 281p2)
NAV at
31 December 2018
£1,586.5m
(31 December 2017 – £1,123.9m)
Increase in NAV per share
since 31 December 2017
15.0%
Increase in NAV per share
since 31 December 2017
including dividends
paid in 2018
18.2%
Investment commitments
£302.0m
(2017 – £382.9m)
Portfolio value
at 31 December 2018
£1,560.2m
representing 29.4% increase
on rebased portfolio value7 at
31 December 2017
Proceeds from
investment realisations
£296.1m
(2017 – £289.0m)
Profit before tax
£296.6m
(2017 – £126.0m)
Final dividend per share
Total dividend per share
7.7p
in line with policy (including a
special dividend of 4.1p per share)
9.5p
(2017 – 8.92p4), an increase
of 6.5% from 2017
Strong pipeline of
investment opportunities
£2.4bn
at 31 December 2018
1 for 3 rights issue in
March 2018 raising
£210.5m
net of costs
(the Rights Issue)
OverviewStrategic ReportGovernanceFinancial Statements
John Laing / Annual Report and Accounts 2018
CHAIRMAN’S STATEMENT
2018 was a significant year for John Laing. As well as undertaking
a successful rights issue in March, we continued to increase
our international footprint. Consistent with this expansion,
we moved to a regional management structure to enable us
to focus more effectively on value creation in each region;
and we are already seeing some benefits of this.
Through our regional teams, we work hard on developing our
key relationships with international partners, the results of
which can be seen in our strong pipeline of investment
opportunities. And because of the rights issue, we are well
positioned to bid for a higher proportion of these opportunities.
John Laing is clearly differentiated from other participants in the
infrastructure sector; we focus on greenfield infrastructure and
we invest our own capital. Our purpose is to create value for all
our stakeholders by investing in, developing and managing
infrastructure projects, including renewable energy, which
respond to public needs, foster sustainable growth and improve
the lives of communities around the world.
To achieve our purpose, we continued to operate our tried and
tested business model during 2018, namely: origination of
greenfield investments; active management of construction and
operational risk; and either hold to maturity or if appropriate
divest in order to realise the value of our investments and
redeploy the proceeds in new investment. Our focus remains on
investments in public private partnership (PPP) and renewable
energy projects, but our business model is nimble and flexible
enough to respond to opportunities in other sectors and
geographies, as and when they arise.
While we committed capital in each of our three core regions
– Asia Pacific, Europe and North America – the lion’s share of
investment commitment took place in Australia and the US.
Looking forward, we expect this to continue, as markets in
Europe remain relatively subdued.
Since our IPO in early 2015, we have grown net asset value (NAV)
per share (including dividends paid) by 15.8% compound per
annum (adjusted for the Rights Issue). The business delivered
another strong financial performance in 2018:
• NAV grew to £1,586.5 million or 323p per share at
31 December 2018, from 281p per share at 31 December 2017
(as adjusted for the Rights Issue), an increase of 15.0%;
•
Investment commitments reached £302.0 million, ahead of
our guidance for 2018 of approximately £250 million;
• Realisations of investments were £296.1 million, again ahead
of our guidance of approximately £250 million; and
• We are proposing a final dividend for 2018 of 7.7p per share
made up of a final base dividend of 3.6p per share and a
special dividend of 4.1p per share.
In May 2018, we welcomed Andrea Abt to the Board as a
Non-executive Director. Her skills in finance, logistics and
procurement fit well with those of other Board members and
she has contributed actively and positively to the Board’s
deliberations. The Board needs a good balance of skills, diversity
and experience in order to perform most effectively and
maintaining this will guide any new appointment.
In May 2018, I took over from Phil Nolan as Chairman and I would
like to take this opportunity to thank Phil for his strong contribution
and leadership during the eight years he served as chairman of the
Company. There were no other Board changes during the year.
On 23 January 2019, we announced the appointment of Luciana
Germinario as Chief Financial Officer designate with effect from
25 April 2019. This follows the decision of Patrick O’D Bourke,
Group Finance Director, to retire after the Annual General
Meeting (AGM) in May 2019. We are delighted that Luciana will
soon be joining us. John Laing has a strong track record of
identifying investment opportunities in the infrastructure and
renewable energy sectors. Demand for both is increasing and
Luciana will bring strong operational capability with a real focus
on driving investment performance. On behalf of the Board, I
would also like to express our particular appreciation to Patrick
for his invaluable contribution to the business and wise counsel
to the Board. We wish him well for the future.
2018 HIGHLIGHTS
> NAV per share
> New investment committed
323p
£302.0 million
04
John Laing / Annual Report and Accounts 2018
OUR PURPOSE
Our purpose is to create value for
all our stakeholders by investing in,
developing and managing infrastructure
projects, including renewable energy,
which respond to public needs, foster
sustainable growth and improve the
lives of communities around the world.
During the year under review, the Board complied with all
applicable provisions of the UK Corporate Governance Code
(the 2016 Code). We have also been preparing ourselves for the
updated version of the Code issued in July 2018 (the 2018 Code)
and, in anticipation of this, David Rough, our Senior Independent
Director, took over from me as Chairman of the Nomination
Committee in October 2018.
As well as our regular Board meeting schedule, we took time
away from the business in June and in October 2018 to address
its future strategy and direction. In these reviews, we confirmed
our commitment to the existing business model and to creating
further shareholder value from growth in NAV; and we tested the
resilience of our existing portfolio against a backdrop of political
and economic uncertainty. We also reviewed our ESG approach
and our plans to improve diversity among our employees as well
as endorsed the Principles, People and Performance focus
described in the Chief Executive Officer’s Review.
On behalf of the Board, I would like to thank all employees for
their dedication and commitment during the year. I would also
like to extend the Board’s thanks to all the Group’s stakeholders
for their continued support, in particular to our shareholders for
making our Rights Issue such a success.
Our dividend policy remains unchanged. It has two parts:
• an annual base dividend of £20 million (starting from 2015)
growing at least in line with inflation; the Board is
recommending a final base dividend for 2018 of 3.6p 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 2018 of
4.1p per share. This reflects 6.8% of 2018 realisations of
£296.1 million.
The total final dividend for 2018 therefore amounts to 7.7p per
share, which, together with the interim dividend of 1.8p per
share paid in October 2018, makes a total dividend for 2018 of
9.5p per share, an increase of 6.5% over 2017 (as adjusted for
the Rights Issue). The final dividend will be put to shareholders
for their approval at the Company’s AGM which will be held on
9 May 2019. At the Company’s last AGM on 10 May 2018, all
resolutions were approved by shareholders.
Our business is in good shape and we are well prepared for both
the opportunities and challenges ahead.
Will Samuel
CHAIRMAN
> Realisations of investments
> Final dividend per share
£296.1 million
7.7p
05
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
CHIEF EXECUTIVE OFFICER’S REVIEW
I am pleased to report that in 2018 we
maintained our track record of strong results.
Our NAV per share (including dividends paid)
grew by 18.2% and, since our IPO in early 2015,
has grown by 15.8% compound per annum.
In March 2018, we launched a 1 for 3 Rights Issue raising
£210.5 million, net of costs. The purpose of the Rights Issue
was to enable the Group to take advantage of a higher number
of the opportunities available to it, consistent with the Board’s
intention to increase the scale of the business over the
medium term.
In the Rights Issue prospectus, the Directors stated their belief,
subject to the specific investment commitments entered into
with the proceeds of the Rights Issue and the timing thereof,
that the Rights Issue should be accretive to NAV per share
(adjusted accordingly) within two years, compared to the position
without it. Our NAV per share performance for the year ended
31 December 2018 is consistent with this statement.
The Rights Issue has given us the expanded capital base we
needed to continue our international growth. In addition, the
management reorganisation around our three core regions
– North America, Asia Pacific and Europe – has allowed us to
continue to scale up our business model through a transfer of
responsibility for value creation to each regional team, while
all the time retaining reinforced oversight at Group level for
investment and divestment decisions and risk management.
The financial highlights of the year included:
Outlook for our markets
The overall outlook for private investment into new public
infrastructure markets remains strong even if political and
regulatory landscapes mean that some of the best opportunities
will not necessarily come from our existing markets or sectors.
We are taking advantage of our flexible investment model to
focus on new countries and sectors and in so doing reduce our
exposure to local public policy uncertainty.
As we have said before, our view is that, while the need for new
infrastructure is affected by many factors and trends including
GDP, the biggest driver comes from a combination of population
growth, urbanisation and climate change. Other contributory
factors include governmental policy towards regulation and
investment, the demand for energy and the availability of capital,
both private and public sector. And a trend common to all these
factors is a strong push for new infrastructure to be sustainable,
not just from an environmental and financial perspective, but
also in terms of future resilience.
These factors and trends apply to each of the infrastructure
sectors in which we invest:
•
transport and transport-related infrastructure, such as roads,
tunnels, bridges and rail assets (including rolling stock);
• Strong value creation: NAV per share of 323p per share
at 31 December 2018, a 15.0% increase since 31 December
2017 (281p per share as adjusted for the Rights Issue);
• environmental infrastructure, such as renewable energy
(including wind and solar), biomass, water treatment and
waste management; and
• 18.2% increase in NAV per share, including dividends
paid in 2018;
• New investment commitments of £302.0 million
(2017 – £382.9 million);
• Realisations of £296.1 million from the sale of three
investments (2017 – £289.0 million);
• Profit before tax of £296.6 million compared to
£126.0 million in 2017;
• Cash yield from investment portfolio of £33.8 million
(2017 – £40.2 million); and
• Final dividend of 7.7p per share, giving a total 2018
dividend of 9.5p per share, an increase of 6.5% from 2017.
• social infrastructure, such as schools, hospitals, university
accommodation, stadiums, social housing and justice and
other public sector buildings.
The need for new infrastructure is evident in many parts of the
world, both because existing infrastructure is not keeping pace
with the changes brought about by the above trends, but also
because the infrastructure market as a whole has historically
seen under-investment. Infrastructure matters to people and
businesses everywhere.
Coupled with the pressures on public sector finances, this
background provides a strong incentive for the growing use of
PPPs for greenfield infrastructure. As well as access to private
capital, PPPs enable governmental and other public sector
bodies to benefit from fixed price arrangements which transfer
very significant risks to the private sector, especially design,
construction and operational delivery risks.
06
John Laing / Annual Report and Accounts 2018
> Pipeline of investment
opportunities at
31 December 2018
£2.4 billion
In each of the three regions where we currently operate, our
teams benefit from a healthy pipeline of future opportunities.
For the first time, our pipeline also includes a small number of
opportunities in Latin America and we are also looking at some
potential projects in South East Asia.
Many of these opportunities arise through our strong
relationships with international partners, including construction
companies, rolling stock manufacturers and renewable energy
developers. These partners see the benefits of working with
John Laing because of our track record, our credentials, our
construction heritage and, in particular, our ability to devote
experienced asset management resource to projects, especially
where not everything is going according to plan. On several
occasions, we have invested alongside the same international
partner in more than one project across different jurisdictions
and in different sectors – this is an endorsement of the strength
of our relationships.
We entered 2019 with a strong pipeline of £1,543 million of
PPP opportunities looking out three years as well as nearer
term renewable energy opportunities of £830 million. Within
the PPP pipeline, we have positions in 10 shortlisted PPP
consortiums, representing a total potential investment of
approximately £320 million.
• North America: seven of the 10 shortlisted PPP positions
are for potential investments in North America. We have
maintained strong momentum following our breakthrough
year in the US in 2017 and invested further in 2018 in PPP
projects in Massachusetts and Michigan as well as in five
solar farms in North Carolina. In the US, public sector
procurement for greenfield infrastructure, including PPP,
takes place predominantly at state or city, rather than
federal, level. Consistent with the above drivers of population
growth and urbanisation, all the states containing major
metropolitan areas have some form of PPP-enabling
legislation. State policy is also a key driver for the US
renewable energy market. A majority of states have adopted
renewable energy targets and, in addition, many states
maintain a commitment to the Paris Climate Accord.
• Asia Pacific: we remain very active in the Australian PPP
market. We expect to be working on a number of PPP
projects in 2019 which should reach financial close in 2020.
The longer term pipeline also looks promising, particularly
in the transportation sector, driven by the significant growth
predicted in the populations of both Melbourne and Sydney.
In renewable energy, we have continued to benefit from the
impetus given to the market by the Federal Renewable
Energy Target and we made several investments in 2018 in
both wind and solar farms.
• Europe: three of the 10 shortlisted PPP positions are for
potential investments in Europe. The market for new
infrastructure projects is currently subdued especially in
some of the larger countries, including the UK. Even if the
need for new investment is clear, it will probably take some
time for a new sizeable pipeline to develop. Nonetheless,
we are currently bidding for road projects in the Netherlands
and for the Silvertown Tunnel project in the UK, a planned
additional crossing under the Thames near London City
Airport. Our European team is also looking at opportunities
in Poland, where we have invested successfully in the past,
and in Israel, which has an active pipeline of transport and
renewable energy projects. The latter would be a new
country for us; as part of our assessment of Israeli
opportunities, we have taken a decision not to invest in any
projects located in disputed territory.
Our pipeline also includes two potential projects in Colombia,
which has recently joined the OECD, and where there is a
substantial PPP programme, particularly in the transportation
sector. We are looking at these opportunities in conjunction with
partners we have worked with before and we are confident that
a secondary market for operational infrastructure assets in
Colombia will develop in the coming years.
We also continually assess other infrastructure asset classes
that might fit our business model. Among the most promising
is broadband, as governments in both Europe and North
America seek to make high speed networks accessible to
wider populations.
07
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
CHIEF EXECUTIVE OFFICER’S REVIEW (CONTINUED)
Business model
Our business model has two 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. Once the
projects reach the end of construction and move into the
operational phase, the investments become part of our
Secondary Investment portfolio.
• Asset Management: we actively manage our own Primary
and Secondary Investment portfolios and provide investment
advice and asset management services, including to John
Laing Environmental Assets Group (JLEN), through John
Laing Capital Management Limited (JLCM), which is
regulated by the Financial Conduct Authority (FCA).
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 commitment.
The principal value creation mechanism inherent in our
business model is the difference between the hold-to-maturity
Internal Rate of Return (IRR) at the financial close of a
greenfield investment and the discount rate applied to that
investment once the underlying project has reached the
operational stage. Although we have in recent years experienced
pressure on hold-to-maturity IRRs as our Primary Investment
teams bid for new greenfield projects, this has typically been
accompanied by a reduction in secondary discount rates.
This has allowed the Group to maintain attractive “yield shifts”
which drive one of the principal measures applied to the
Group’s investments, namely the annualised rate of return.
The value of investments in our Primary Investment portfolio
should grow progressively with a reasonable 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. We continue to see strong demand for
operational infrastructure assets, as evidenced by the number
of infrastructure funds recently raised by international investors.
> Total commitment to
new investments in 2018
£302.0 million
08
Our asset management activities focus on management and
reduction of project risks, especially during the construction
phase, together with enhancement of project cash flows. The
latter involves identifying and implementing value enhancement
initiatives that can increase future cash flows to project investors
compared to the cash flows originally forecast at the start of the
project. We look at a wide range of such value enhancements,
for example:
• Optimisation of SPV management costs and project insurance
premiums through bulk purchasing or efficiency gains;
• Optimisation of major maintenance and asset renewal costs
over the life of an infrastructure project; and
• Maximisation of working capital efficiency within projects.
Opportunities for value enhancements may arise at any time
during a project’s life and may vary significantly from one
investment to another.
Objectives and outcomes
Consistent with our purpose, which is to create value for all
stakeholders, our strategy focuses on NAV per share growth and
dividends as key measures for shareholders:
•
In 2018, our NAV per share grew by 15.0% from 281p per
share at 31 December 2017 (adjusted for the Rights Issue)
to 323p per share at 31 December 2018, or 18.2% if we add
back the dividends paid in 2018.
• We are proposing total dividends of 9.5p per share for 2018
compared to 8.92p per share for 2017 (adjusted for the
Rights Issue). This represents growth of 6.5% over 2017.
To deliver our strategy, we have set ourselves the two core
objectives below, while maintaining the discipline and analysis
required to mitigate and manage the delivery, revenue and
operational risks associated with investments in greenfield
infrastructure projects:
• growth in primary investment volumes (new investment
capital committed to greenfield infrastructure projects) over
the medium term; 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.
Through the strong partner relationships referred to earlier,
we enter into consortiums to bid for PPP projects, sometimes
following a competitive selection process. Once part of a
consortium, we compete with other shortlisted consortiums
to bid for and win PPP projects in accordance with public
procurement timetables. In renewable energy, through
negotiations with developers, we compete with other investors
to secure greenfield projects.
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, legal, regulatory and taxation framework;
• a commitment to the development of privately-financed
infrastructure;
•
•
•
the ability to form relationships with strong supply chain
partners, preferably those we have worked with before;
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 2018 was
£302.0 million, made up of £247.5 million in renewable energy
and £54.5 million in PPP assets. This was ahead of our guidance
of approximately £250 million. Our international growth
continued with all our investment commitments being made
outside the UK:
• MBTA Automated Fare Collection System in Boston (US) –
£17.5 million
• A16 road (Netherlands) – £21.7 million
•
I-75 road in Michigan (US) – £15.3 million
• Five solar farms in North Carolina (US) – £72.2 million
• Sunraysia & Finley solar farms (Australia) – £100.0 million
• Granville & Cherry Tree wind farms (Australia) – £75.3 million.
Management and enhancement of our investment portfolio
For John Laing, being an active investor means not only
participating actively in consortiums at the bidding stage, but
also being actively involved in a project during its construction
phase in order to protect the value of our investment and provide
advice and/or assistance when delays occur or problems arise.
We regularly apply our active management skills when issues
arise. 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 investment
base cases and, where appropriate, seeking to find additional
value. In the Asset Management section of this report, we
provide more detail on some of the situations where our active
management approach has been most relevant.
John Laing / Annual Report and Accounts 2018
We are proud of the fact that many of the projects we invest in,
or have invested in, have a positive environmental, economic or
social impact. These include: renewable energy projects which
help to reduce CO2 emissions; waste processing plants which
divert waste away from landfill; and electric rolling stock and
light rail systems which improve mobility, and help to reduce
inner city congestion and pollution. And of course we are very
proud of our prison investments in Auckland and under
construction in New South Wales which incentivise the operator
to reduce recidivism. More information is set out in the
Corporate Responsibility section.
At 31 December 2018, our portfolio comprised investments
in 48 infrastructure projects plus our shareholding in JLEN
(31 December 2017 – 41 projects plus shareholding in JLEN).
Our year end portfolio value, including the shareholding in JLEN,
was £1,560.2 million (31 December 2017 – £1,193.8 million).
The portfolio value increased by £342.1 million as a result of
cash invested in projects, offset by proceeds from realisations
and cash yield received from project companies. Fair value
movements of £354.2 million, or 29.4% of the cash rebased
portfolio value, increased the portfolio value to £1,560.2 million
at 31 December 2018. This growth is analysed further in the
Portfolio Valuation section.
The portfolio valuation represents our assessment of the fair
value of investments in projects on a discounted cash flow basis
assuming that forecast cash flows from investments are received
until maturity, other than shares in JLEN which are held at
market value.
The shape of our portfolio has evolved over the last few years:
•
In percentage terms, our European assets have reduced as
the underlying projects have reached the operational stage
and our investments have been realised;
• As part of this, we have reduced the percentage of our
portfolio attributable to UK investments, to 24% at
31 December 2018 from 58% at 31 December 2014;
• Correspondingly, we have increased our investment in the
North American and Asia Pacific regions;
•
•
In particular, we have successfully transitioned, from our
first renewable energy investments in relatively small UK
windfarms, to investing in utility-scale wind and solar farms
in the US and Australia;
Investments in wind and solar farms made up 42% of our
portfolio valuation at 31 December 2018 (31 December 2017
– 31%). We believe these larger renewable energy assets are
attractive to infrastructure investors and we have already
agreed our first major disposal in the US (see below);
• As the result of this increased investment in renewable
energy assets (the revenue of which varies according to
energy yield), as well as realisations of PPP investments in
2018, the percentage of our portfolio attributable to
availability-based projects fell to 49% at 31 December 2018
(31 December 2017 – 59%). While this percentage is hard
to predict with precision going forward (partly because it
depends on procurement timetables beyond our control),
we want to maintain a significant percentage of availability-
based investments in the portfolio for the foreseeable future.
09
OverviewStrategic ReportGovernanceFinancial Statements UK withdrawal from the European Union
In assessing the risks facing our business, we have considered
the implications of the manner in which the UK could withdraw
from the European Union (Brexit). We believe our business
model to be robust enough to weather any potential short-term
disruption which might arise.
Sterling’s net weakness in 2018 against the other currencies we
invest in contributed £9.7 million to the fair value movement for
the year (2017 – £11.0 million adverse). We continue to monitor
the impact of foreign exchange movements on our portfolio,
recognising that if Sterling were to strengthen during 2019 as a
result of Brexit or otherwise this would reduce the Sterling value
of our investments denominated in overseas currencies.
Funding
In July 2018, the Group’s corporate banking facilities were
increased to £650 million. The new facilities comprise £500 million
of five-year committed revolving credit banking and associated
ancillary facilities which expire in July 2023, and £150 million of
18 month committed revolving credit facilities which were
initially due to expire in January 2020, but have since been
extended to January 2021.
The Group’s banking facilities enable us to issue letters of credit
and/or put up cash collateral to back investment commitments.
We finance our new investments through a combination of cash
flow from existing assets, our corporate banking facilities and
realisations of investments in operational projects.
Organisation and staff
Our staff numbers were 169 at 31 December 2018 compared to
158 at the end of 2017. We now have 44% of staff located outside
the UK (31 December 2017 – 39%), consistent with our
increasing internationalisation. We have a diverse workforce
comprising around 25 nationalities.
As set out in the Chairman’s statement, we have appointed
Luciana Germinario as Chief Financial Officer designate with
effect from 25 April 2019. This follows the decision of Patrick
O’D Bourke, Group Finance Director, to retire following the AGM
on 9 May 2019. Patrick has been a crucial member of the team
and has been instrumental in our successful IPO in 2015 and
our move to a more internationally focused business. I have
thoroughly enjoyed working with him and we will be sorry to see
him retire. The Board and I are very pleased to welcome Luciana
to the team. Her previous international, financial and investment
experience will be an excellent addition to John Laing’s executive
team. I am looking forward to working with her as we continue to
grow the business.
John Laing / Annual Report and Accounts 2018
CHIEF EXECUTIVE OFFICER’S REVIEW (CONTINUED)
Overall, as set out in the Portfolio Valuation section, our
investment portfolio, including our increased renewable energy
portfolio, is well-diversified in terms of geography, currency,
revenue type and sector.
During the year, we completed realisations totalling £296.1 million
from the sale of three PPP investments. This was ahead of our
guidance for 2018 of approximately £250 million. In late
December 2018, we also agreed the sales of our shareholdings
in both the Rocksprings wind farm in Texas and the Sterling
wind farm in New Mexico. Once completed, these will represent
our first disposals of investments in the US. We are actively
considering a number of other realisations.
The cash yield in 2018 was £33.8 million (2017 – £40.2 million),
a yield of 5.2% (2017 – 7.4%) on the average Secondary
Investment portfolio. Cash yield represents cash receipts in the
form of dividends, interest and shareholder loan repayments
from project companies and listed investments.
External asset management
In August 2018, a consortium comprising funds managed by
Dalmore Capital Limited and Equitix Investment Management
Limited made a cash offer to buy the share capital of John Laing
Infrastructure Fund Limited (JLIF). This offer was subsequently
recommended by JLIF’s Board and completed in October 2018.
Shortly afterwards, the consortium gave 12 months’ notice to
terminate the Investment Advisory Agreement (IAA) between
JLIF (now renamed Jura Infrastructure Limited (Jura)) and
JLCM. While we are disappointed to lose the net fee income from
this agreement, it is important to note that it makes a relatively
small contribution to our profits compared to the fair value
movement from our investing activities.
We remain committed to our IAA with JLEN. JLCM not only
advises and provides management services to JLEN’s portfolio,
but also sources new investments on its behalf. During the year,
JLEN successfully undertook secondary equity issues and made
several acquisitions.
Fee income from external Assets under Management (AuM) was
£18.2 million for 2018, up from £16.7 million in 2017. As outlined
above, this fee income will reduce from mid-October 2019
onwards, together with certain related costs.
Profit before tax
Our profit before tax was £296.6 million in 2018, compared to
£126.0 million in 2017. Profit before tax is primarily driven by the
fair value movement on our investment portfolio. The increase
was principally due to:
•
the gain on disposal of our remaining 15% interest in
Intercity Express Programme (IEP) (Phase 1) and a
consequential impact on the valuation of our investment in
IEP (Phase 2); and
• a more favourable impact from power price forecasts and
foreign exchange movements, offset by a one-off Guaranteed
Minimum Pension (GMP) equalisation charge.
10
Since the beginning of 2018, the Primary Investment and Asset
Management teams in each of our three main geographical
regions have been reporting to single regional heads, each of
whom in turn reports to me. This reorganisation has enabled the
teams to focus more effectively on growth and value creation
across all stages of the investment and asset management cycle
in their individual regions. At the same time, oversight has been
reinforced at Group level in respect of investment, divestment
and capital allocation decisions.
In October 2018, we initiated an internal project to prepare the
business for the next phase in its growth. Under the headings
– Principles, People and Performance – we have launched a
number of workstreams which focus not just on how to sustain
financial growth, but also on how to improve employee
engagement and diversity while maintaining a background of
strong values and corporate responsibility. We are also taking
this opportunity to refresh our values.
We depend on high quality individuals and experienced teams
across our business. Once again, they have been instrumental
in making projects happen, whether in Adelaide, Amsterdam,
Sydney, Denver or Brisbane. I would like to thank each and
every one of our employees for their contribution to our success
this year.
Current trading and guidance
Our total investment pipeline at 31 December 2018 was
£2,373 million and included £1,543 million of PPP opportunities
looking out three years as well as nearer term renewable
energy opportunities of £830 million. Within this pipeline,
there were 10 shortlisted PPP positions with an investment
opportunity of approximately £320 million. These do not include
any late entry investment opportunities which may arise.
Our aim is to keep growing investment commitments in
line with the medium to long term nature of our business.
Consistent with this, we are extending the timeframe for both
investment commitments and realisations to a three-year
period. Accordingly, our guidance is for investment
commitments of approximately £1.0 billion over the three year
period 2019 – 2021, with realisations expected to be broadly in
line with investment commitments.
We continue to have confidence in our business model and its
ability to respond to a changing environment, both political and
macroeconomic, and we look forward to the future.
Olivier Brousse
CHIEF EXECUTIVE OFFICER
John Laing / Annual Report and Accounts 2018
11
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
OUR INTEGRATED APPROACH
Our purpose is to create value for all our stakeholders by
investing in, developing and managing infrastructure projects,
including renewable energy, which respond to public needs,
foster sustainable growth and improve the lives of
communities around the world.
OUR MARKETS
>>
OUR BUSINESS MODEL
>>
Infrastructure can be defined as the physical
assets and systems that support a country, state
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.
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.
Our business model, has two key areas of activity:
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.
PRIMARY
INVESTMENT
ASSET
MANAGEMENT
Renewable energy projects
Involve electricity generation assets which
produce green energy and can benefit from
fixed-price offtake agreements, including
power purchase agreements.
Reinvestment in
greenfield projects
Sale of operational assets
and yield from projects
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. The value of investments in our Primary Investment
portfolio should grow progressively with a reasonable degree of predictability
as the underlying assets move through the construction phase and their risk
correspondingly reduces. Once the projects reach the operational stage, the
investments move to our Secondary Investment portfolio.
Other
Opportunities in other infrastructure asset
classes that might fit our business model.
Asset Management
We actively manage our own Primary and Secondary Investment portfolios.
Our asset management activities focus on management and reduction of project
risk, especially during the construction phase, together with enhancement of
project cash flows.
Operational assets can be held to maturity or sold to secondary market
investors who target a lower rate of return consistent with the reduction in
risk. Proceeds from realisations are redeployed into new investments.
12
OperationalAssets John Laing / Annual Report and Accounts 2018
MEASURING OUR PERFORMANCE >>
Consistent with our purpose, our
strategy focuses on NAV per share
growth and dividends as key measures
for shareholders.
• NAV per share growth
15.0%
increase in NAV per share in 2018
15.8%
compound annual growth, including
dividends, since IPO in 2015
• Dividends
Total 9.5p dividend per share for 2018,
6.5%
increase from 2017
STRATEGIC OBJECTIVES
>>
MANAGING OUR RISKS
>>
To deliver our strategy, we have set
ourselves the two core objectives below,
while maintaining the discipline and
analysis required to mitigate and manage
the delivery, revenue and operational
risk associated with investments in
greenfield infrastructure projects.
Growth in primary investment
volumes (new investment capital
committed to greenfield infrastructure
projects) over the medium term.
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.
Effective management of the
principal risks identified below is
essential to the successful delivery
of the Group’s objectives.
• Governmental policy
• Macroeconomic factors
• Liquidity in the secondary market
• Financial resources
• Pensions
• Future investment activity
• Valuation
• Counterparty risk
• Major incident
• Future returns from investments
• Taxation
• Personnel
See the Principal Risks and Risk
Management section for details of
how the Group manages and mitigates
these risks.
13
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
OUR INTERNATIONAL REACH
John Laing has a well-established presence
in each of its core 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.
For the first time, our pipeline includes a small number of opportunities in Latin America.
OUR SECTORS
Our activities are focused on the
following infrastructure sectors:
Transport and transport-related
infrastructure, such as roads,
tunnels, bridges and rail assets
(including rolling stock)
Environmental infrastructure, such
as renewable energy (including wind
and solar), biomass, water treatment
and waste management
Social infrastructure, such as schools,
hospitals, university accommodation,
stadiums, social housing and justice
and other public sector buildings
NORTH AMERICA
• Social Infrastructure
• Transport
• Renewable Energy and Water
Brantley
Solar Farm
100%
Buckleberry
Solar Farm
100%
I-4 Ultimate
I-66 Managed
Lanes
50%
10%
Buckthorn
Wind Farm
90.05%
I-75 Road
40%
IS67
Solar Farm
100%
MBTA Automated
Fare Collection
System
90%
Rocksprings
Wind Farm*
95.3%
Denver
Eagle P3
45%
I-77 Managed
Lanes
10%
Sterling
Wind Farm*
92.5%
Fox Creek
Solar Farm
100%
IS54
Solar Farm
100%
LATIN AMERICA
• Social Infrastructure
• Transport
* Conditional sale agreed as at 31 December 2018.
Primary
Secondary
14
John Laing / Annual Report and Accounts 2018
A16 Road
47.5%
Glencarbry
Wind Farm
100%
A130
100%
Horath
Wind Farm
81.82%
EUROPE
• Social Infrastructure
• Transport
• Renewable Energy
A1 Germany
A6 Parkway
Netherlands
A15
Netherlands
42.5%
85%
28%
Cramlington
Biomass
44.7%
DARA Red
Dragon
100%
Alder Hey
Children’s
Hospital
40%
IEP (Phase 2)
30%
Sommette
Wind Farm
100%
Klettwitz
Wind Farm
100%
Speyside
Biomass
43.35%
Nordergründe
Wind Farm
30%
Pasilly
Wind Farm
100%
Rammeldalsberget
Wind Farm
100%
St. Martin
Wind Farm
100%
Svartvallsberget
Wind Farm
100%
Pipeline of investment opportunities
at 31 December 2018
> Europe
£416 million
> North America
£1,078 million
> Asia Pacific
£704 million
> Latin America
£175 million
15
ASIA PACIFIC
• Social Infrastructure
• Transport
• Renewable Energy
Auckland South
Corrections
Facility
30%
Cherry Tree
Wind Farm
100%
Clarence Correctional Centre
(formerly New Grafton
Correctional Centre)
80%
Finley
Solar Farm
100%
Granville
Wind Farm
49.8%
Hornsdale 1
Wind Farm
Hornsdale 2
Wind Farm
Hornsdale 3
Wind Farm
30%
20%
20%
New Generation
Rollingstock
New Royal
Adelaide Hospital
40%
17.26%
Optus
Stadium
50%
Kiata
Wind Farm
72.3%
Sunraysia
Solar Farm
90.1%
Melbourne
Metro
30%
Sydney
Light Rail
32.5%
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NORTH AMERICA
I-4 Ultimate
Orlando, Florida, USA (50% interest)
The I-4 Ultimate project is the largest single
infrastructure project in Florida’s history.
This project will reduce congestion and provide
additional capacity along a busy 21-mile section
of Interstate 4 (I-4), which serves as a major
tourist route through central Florida. Notably,
it has excellent sustainability and environmental
credentials; nearly all of the concrete and steel
removed from the old road and bridges is being
recycled, and recycled materials are being used
wherever practical in the new construction.
• Reconstruction of 21 miles of the I-4
• 15 major interchanges
• More than 140 new or reconstructed bridges
• Four variable toll lanes to be managed by the
Florida Department of Transportation
>> Nearly all of the concrete
and steel removed from
the old road and bridges
is being recycled.
>> Making infrastructure happen
in North America. Reducing
congestion and providing
additional capacity along
a busy 21-mile section of
Interstate 4 in central Florida.
16
John Laing / Annual Report and Accounts 2018
17
140
new or
reconstructed
bridges
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
PRIMARY INVESTMENT
Primary Investment teams operate in each
of our core regions, sourcing, originating, bidding for
and winning greenfield infrastructure projects.
Our new investment commitments for 2018 are summarised in the table below:
Investment commitments
A16 Road
Region
Europe
MBTA Automated Fare Collection System
North America
I-75 Road
Fox Creek/Brantley solar farms
IS54/IS67 solar farms
Buckleberry solar farm
Sunraysia solar farm
Finley solar farm
Granville wind farm
Cherry Tree wind farm
Total
* RE = renewable energy
North America
North America
North America
North America
Asia Pacific
Asia Pacific
Asia Pacific
Asia Pacific
PPP
£ million
RE*
£ million
Total
£ million
21.7
17.5
15.3
–
–
–
–
–
–
–
–
–
30.0
27.0
15.2
59.0
41.0
55.8
19.5
21.7
17.5
15.3
30.0
27.0
15.2
59.0
41.0
55.8
19.5
54.5
247.5
302.0
In February 2019, the Group committed £7.3 million to a PPP social infrastructure project comprising new
student accommodation for the University of Brighton in the UK.
Pipeline
At 31 December 2018, our overall investment pipeline of £2,373 million was higher than the pipeline of
£2,150 million at 31 December 2017. The pipeline comprises opportunities to invest 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 2017 reflects an increase in the pipelines in Asia
Pacific and North America offset by a reduction of opportunities in Europe, together with a new pipeline of
opportunities in Colombia in the Latin American market, a region which we have been monitoring for the
last two years.
Our overall pipeline is constantly evolving as new opportunities are added and other opportunities drop out.
Our total pipeline broken down by bidding stage is as follows:
Pipeline at 31 December 2018 by bidding stage
Number of
projects
PPP
£ million
RE
£ million
Total
£ million
Preferred bidder
Shortlisted/exclusive*
Other pipeline
Total
1
11
44
56
7
319
1,217
1,543
–
18
812
830
7
337
2,029
2,373
* includes exclusive position on one renewable energy project.
18
John Laing / Annual Report and Accounts 2018
As at 31 December 2018, we were part of 10 shortlisted PPP bids as summarised in the table below:
Shortlisted PPP projects
Financial close
expected by
Region
Description
Belle Chasse Bridge, Louisiana
Q2 2019
North America
Bridge and tunnel replacement project
in Louisiana
Hurontario LRT, Ontario
Hamilton LRT, Ontario
Santa Clara Water, California
Q3 2019
Q2 2020
Q2 2020
North America
Light rail system in the Greater Toronto area
North America
Light rail system in Hamilton, Ontario
North America Water purification system in Santa Clara,
Jefferson Parkway, Colorado
Q2 2020
North America
California
9.2-mile four-lane limited access toll
highway in Denver, Colorado
I-10 Mobile River Bridge, Alabama
Q4 2020
North America New six-lane bridge across the Mobile
Georgia Interstate Broadband, Georgia
Q4 2020
North America
Silvertown Tunnel, UK
Q4 2019
Europe
A9 BAHO, Netherlands
Q4 2019
Europe
Via15, Netherlands
Q2 2020
Europe
river, Alabama
Broadband network development for
Georgia Department of Transport
Tunnel below the Thames linking
Greenwich and Silvertown in East London
11km of road widening (from 3 to 4 lanes)
south of Amsterdam
12km greenfield road including a major
bridge in the east of the Netherlands
In terms of geography, our pipeline is well spread across our target markets:
Pipeline – estimated equity investment
At 31 December 2018
At 31 December 2017
£ million
Asia Pacific
North America
Europe (including the UK)
Latin America
Total
PPP
334
691
343
175
1,543
RE
370
387
73
–
830
Total
704
1,078
416
175
2,373
PPP
431
631
523
–
1,585
RE
Total
174
233
158
–
565
605
864
681
–
2,150
In North America (the US and Canada), which makes up 45% of
the pipeline, our focus is on what is becoming a very substantial
US PPP market, whilst continuing to progress our presence in
the renewable energy market, where we made five further
investments during 2018. We continue to explore PPP opportunities
primarily in the transportation sector and social infrastructure
sectors. The Canadian market also continues to demonstrate
strong PPP deal flow, which we are actively pursuing.
Some 30% 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 strengthened presence in the renewable energy sector in
Australia offers continued potential in the coming years.
18% of our pipeline is in Europe, where PPP activity remains
at a satisfactory level in countries such as the Netherlands.
The focus is on those countries which have, or will be, initiating
active PPP programmes such as the Netherlands and Poland.
The PPP pipeline also includes two opportunities in Colombia.
For some time, we have been tracking opportunities in both Chile
and Colombia, working alongside partners we already know.
Our overall renewable energy pipeline was £830 million at
31 December 2018, higher than at 31 December 2017. Of this,
short-term opportunities account for more than £400 million.
Selected countries in Europe, Asia Pacific and North America
will provide our main focus in 2018. The pipeline includes
potential wind and solar projects as well as some investment
opportunities in biomass.
In addition to the above, the Group continues to monitor new
geographic markets (including South East Asia) which offer
the potential to invest alongside established partners.
19
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
>> Making infrastructure happen
in Europe. This offshore
wind farm has a total capacity
of 110.7 MW.
20
EUROPE
Nordergründe Offshore
Wind Farm
North Sea north of Wilhelmshaven,
Germany (30% interest)
Located in water depths of up to 10 metres within
the 12 nautical mile zone of the German North Sea,
this 18 turbine offshore wind farm has a total
capacity of 110.7 MW, capable of providing
approximately 100,000 homes with green power.
>> The Nordergründe offshore
wind farm is capable of providing
approximately 100,000 homes
with green power.
John Laing / Annual Report and Accounts 2018
18
Senvion 6.15MW
turbines
21
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
ASSET MANAGEMENT
Asset Management teams operate in each of our core regions,
working alongside their Primary Investment colleagues. Asset
Management activities comprise Investment Management
Services (IMS) and Project Management Services (PMS).
Investment Management Services (IMS)
New Royal Adelaide Hospital (valuation £50 million – £75 million)
Our Asset Management teams actively manage each asset in
the Group’s investment portfolio from the time we first secure
the investment, through the construction stage and in the
operational stage. 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.
An important part of achieving this objective is managing each
asset through the construction stage, de-risking the investment
and increasing its value. John Laing employs certain staff who
are solely dedicated to projects in construction, as well as
provides directors to the boards of project companies, allowing
us to make an active contribution.
Since the projects we invest in are principally large and
sophisticated infrastructure assets, issues and delays can occur.
Our position as a purely equity investor enables us to be well
placed to manage the various parties when issues arise and help
achieve a resolution.
An update on significant projects, primarily those under
construction, or in the early stages of operation, that our teams
have been closely involved in during the year is set out below:
IEP (Phase 2) (valuation > £275 million)
The first trains for the East Coast mainline, which have a similar
design to the trains for IEP (Phase 1), are scheduled to be
accepted into service in Q1 2019. This follows certain system
modifications to be addressed by both the contractor and
Network Rail.
Denver Eagle P3 (valuation £75 million – £100 million)
As previously reported, both the A line and the B line have
been operating successfully since 2016 and are achieving 97%
on-time performance. Final certification of the overall project
is subject to approvals from both state and federal transport
regulators for the third line, the G line. Delays associated with
the legal and regulatory regime have led to certain claims by
the project company and these are currently the subject of
discussion or dispute between the parties involved, including
the public sector client. In trying to resolve these issues, the
project company’s focus is on achieving regulatory approval
for the G line, which would then lead to final certification and
trigger commencement of full service revenue.
Sydney Light Rail (valuation £50 million – £75 million)
As stated in our June 2018 results announcement, the contract
programme is running behind schedule (c.15 months), though
remains within the overall long-stop date. The delay is
principally attributable to below ground utility equipment not
identified before construction commenced and a number of
modifications to the project scope. Negotiations are well
progressed between the public sector client, the principal
contractor and the project company with a view to resolving
various commercial claims and disputes between the parties.
22
The hospital has been successfully treating patients since it
opened in September 2017. As previously reported, the project
company and the South Australian government are in
discussions about the application of the abatement regime
resulting from under-performance of the facilities management
services provider. In addition, arbitration proceedings are
ongoing with regard to legacy issues arising from the
construction phase. The project company is working with all
other parties to achieve negotiated commercial settlements.
I-4 Ultimate, Florida (valuation £25 million – £50 million)
As previously reported, this availability-based road project is
approximately eight months behind the contract schedule.
Settlement negotiations are currently taking place between the
Florida Department of Transport, the project company and the
construction joint venture to address, inter alia, claims submitted
by the construction joint venture in respect of the delays.
New Generation Rollingstock, Queensland (valuation £25 million –
£50 million)
The number of accepted trains is now 46, out of a total of 75,
with the final train due for delivery in Q4 2019. The project
company has recently agreed an amendment deed with the State
of Queensland which, inter alia, provides for a re-baselined train
delivery schedule as well as for the cost and programme for
undertaking various retrofitting and rectification issues required
on the trains.
In all instances, the impact of construction delays and a
judgement as to the potential outcome of ongoing issues are
taken into account when the portfolio valuation is prepared.
Transfers from the Primary Investment portfolio
During the year, seven investments completed construction
and transferred from the Primary Investment portfolio to the
Secondary Investment portfolio as the underlying projects moved
into the operational stage.
Cramlington Biomass, UK (44.7% interest)
This 28 MW Combined Heat and Power biomass plant in
Cramlington, England, generates enough electricity to power
52,000 homes for a year. It is also expected to reduce greenhouse
gas emissions by approximately 56,000 CO2 equivalent tonnes
annually, the equivalent of taking 25,000 cars off the road during
its lifetime.
St Martin Wind Farm, France (100% interest)
Located in St-Martin-L’Ars, in Western France, this project
comprises five Senvion MM92 turbines and has a total capacity
of 10.25 MW. Operations commenced in June 2018 and the wind
farm benefits from a 15 year feed-in-tariff arrangement.
Cypress Creek solar farms (100% interest)
The five US solar farms in which the Group invested in 2018 –
Fox Creek, Brantley, IS54, IS67 and Buckleberry – all commenced
operations in Q4 2018. The solar farms have a total capacity of
258.5 MW.
John Laing / Annual Report and Accounts 2018
Investment realisations
External IMS
During the year, three realisations were agreed and completed
for gross proceeds of £296.1 million.
• Our remaining 15% investment in IEP (Phase 1) was sold to
a third party in May 2018 for £232.0 million, in excess of the
valuation at 31 December 2017;
• Our investment in Lambeth Social Housing was sold to JLIF
in May 2018 for £9.5 million; and
• The sale of our investment in Manchester Waste TPS Co to
an existing co-shareholder was agreed in November 2018
and completed in late December 2018 for proceeds of
£54.6 million.
With regard to the sales of our investments in Lambeth Social
Housing and Manchester Waste TPS Co, prices were in line with
the most recent portfolio valuation.
Realisations agreed
Shareholding
Purchaser
IEP (Phase 1)
Lambeth Social Housing
15%
50%
Third party
JLIF
Manchester Waste TPS Co
37.43%
Third party
Total
Total
£ million
232.0
9.5
54.6
296.1
During 2018, the Company also sold its investment in A mobil
Services GmbH, a small joint venture services company
associated with the A1 Germany road project, for proceeds of
£0.1 million.
In late December 2018, we agreed the sales of both our 95.3%
shareholding in the Rocksprings wind farm in Texas and our
92.5% shareholding in the Sterling wind farm in New Mexico.
The sales are also subject to governmental and financing
partner consents and are expected to complete in the first half
of 2019.
Our IMS also include advisory services provided by JLCM to
JLEN and Jura under IAAs. JLCM has two separate dedicated
fund management teams whose senior staff are authorised and
regulated by the FCA.
As reported in the Chief Executive Officer’s Review, the IAA
between Jura and JLCM is due to terminate in mid-October
2019. Following that, one of the two First Offer Agreements
between Jura and JLCM, which covers certain rail assets, will
remain in place.
JLCM remains committed to the ongoing services provided to
JLEN. The JLCM team provides management services to JLEN’s
portfolio as well as sources new investments for and arranges
capital raisings by the fund. It operates behind information
barriers in view of the market sensitive nature of its activities
and to ensure the separation of “buy-side” and “sell-side” teams
if John Laing is selling investments to the fund. The fund has a
right of first offer over certain investments should they be
offered for sale by the Group. The fund maintains an independent
board of directors and is independently owned.
Fee income from external IMS grew from £16.7 million in 2017 to
£18.2 million in 2018, but will reduce from mid-October 2019
onwards, together with certain related costs.
Project Management Services (PMS)
The Group’s asset management teams also provide PMS, largely
of a financial or administrative nature, to project companies in
which John Laing, Jura or JLEN are investors. These services
are provided under Management Services Agreements (MSAs).
The Group earned revenues of £6.0 million from the provision of
PMS during 2018 (2017 – £6.1 million).
The Group’s PMS activities are principally focused on MSAs
relating to projects outside the UK. At 31 December 2018, the
Group held 24 MSAs (31 December 2017 – 24 MSAs).
> Investment realisations
£296.1 million
23
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
>> Making infrastructure happen
in Asia Pacific. The Sydney
Light Rail project will provide
sustainable and reliable
modern transport from the
CBD to Sydney’s South East.
ASIA PACIFIC
Sydney Light Rail
Sydney, Australia (32.5% interest)
12km of new light rail track from Circular Quay
(near the Sydney Opera House) through the
Central Business District (CBD), continuing to
the south-eastern suburbs. The project is also
delivering 60 new trams, two new maintenance
facilities and will operate the existing Inner West
Light Rail network.
With Greater Sydney forecast to grow from a city of
5 million to 8 million people over the next 40 years,
the light rail project will deliver more public
transport capacity and more reliable and efficient
services. Each vehicle will carry up to 450 people,
equivalent to nine standard buses, with a capacity
of 13,500 passengers per hour.
>> This light rail project will
deliver more public transport
capacity and more reliable
and efficient services.
24
450
people carried per vehicle,
equivalent to nine standard buses
John Laing / Annual Report and Accounts 2018
25
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
PORTFOLIO VALUATION
INVESTMENT PORTFOLIO AS AT 31 DECEMBER 2018
PRIMARY INVESTMENT
SECONDARY INVESTMENT
Clarence Correctional Centre
(formerly New Grafton
Correctional Centre)
80%
Health
Justice and
emergency
services
Defence
Other
accommodation
Alder Hey
Children’s Hospital
New Royal
Adelaide Hospital
40%
17.26%
Auckland South
Corrections
Facility
30%
DARA Red
Dragon
100%
Optus Stadium
50%
A6 Parkway
Netherlands
A16 Road
Denver Eagle P3
I-4 Ultimate
A1 Germany
A15 Netherlands
85%
47.5%
45%
50%
42.5%
28%
A130
100%
Other
I-66 Managed
Lanes
I-75 Road
I-77 Managed
Lanes
10%
40%
10%
MBTA Automated
Fare Collection
System
90%
Rail rolling stock
Melbourne Metro
Sydney Light Rail
30%
32.5%
IEP (Phase 2)
New Generation
Rollingstock
30%
40%
Waste and
biomass
Wind and solar
Cherry Tree
Wind Farm
Finley
Solar Farm
Granville
Wind Farm
Sunraysia
Solar Farm
Brantley
Solar Farm
Buckleberry
Solar Farm
Buckthorn
Wind Farm
Fox Creek
Solar Farm
100%
100%
49.8%
90.1%
100%
100%
90.05%
100%
Cramlington
Biomass
44.7%
Speyside
Biomass
43.35%
Glencarbry
Wind Farm
IS54
Solar Farm
IS67
Solar Farm
100%
100%
100%
Hornsdale 1
Wind Farm
Hornsdale 2
Wind Farm
Hornsdale 3
Wind Farm
30%
20%
20%
Horath
Wind Farm
81.82%
Kiata
Wind Farm
72.3%
Klettwitz
Wind Farm
Nordergründe
Wind Farm
Pasilly
Wind Farm
Rammeldalsberget
Wind Farm
100%
30%
100%
100%
Rocksprings
Wind Farm
Sommette
Wind Farm
St Martin
Wind Farm
Sterling
Wind Farm
95.3%
100%
100%
92.5%
Svartvallsberget
Wind Farm
100%
Investment commitment pre 2018
New investment commitment in 2018
26
E
R
U
T
C
U
R
T
S
A
R
F
N
I
I
L
A
C
O
S
T
R
O
P
S
N
A
R
T
L
A
T
N
E
M
N
O
R
I
V
N
E
John Laing / Annual Report and Accounts 2018
The portfolio valuation at 31 December 2018 was £1,560.2 million compared to £1,193.8 million at
31 December 2017. After adjusting for realisations, cash yield and cash invested, this represented a
positive movement in fair value of £354.2 million (29.4%).
Portfolio valuation at 1 January 2018
– Cash invested
– Cash yield
– Proceeds from realisations
Rebased valuation
– Movement in fair value
Portfolio valuation at 31 December 2018
Investments
in projects
£ million
Listed
investment
£ million
1,183.5
342.1
(33.2)
(296.1)
1,196.3
354.0
1,550.3
10.3
–
(0.6)
–
9.7
0.2
9.9
Total
£ million
1,193.8
342.1
(33.8)
(296.1)
1,206.0
354.2
1,560.2
Cash investment in respect of nine new renewable energy assets and two new PPP assets entered into
during 2018 totalled £229.5 million. In addition, equity and loan note subscriptions of £112.6 million were
injected into existing projects in the portfolio as they progressed through, or completed, construction.
During 2018, the Group completed the realisation of three investments for a total consideration of
£296.1 million.
Cash yield from the investment portfolio during the year totalled £33.8 million.
The movement in fair value of £354.2 million is analysed in the table below.
Unwinding of discounting
Reduction of construction risk premia
Value uplift on financial closes
Value enhancements and other changes
Impact of foreign exchange movements
Change in macroeconomic assumptions
Change in power and gas price forecasts
Change in operational benchmark discount rates
Movement in fair value
Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
98.0
42.8
43.6
130.1
9.7
(1.3)
(12.1)
43.4
354.2
80.0
53.6
50.1
15.1
(11.0)
4.1
(54.8)
23.6
160.7
The net movement in fair value comprised unwinding of discounting (£98.0 million), the reduction of
construction risk premia (£42.8 million), the change in operational benchmark discount rates (£43.4 million),
uplift on financial closes (£43.6 million), foreign exchange movements (£9.7 million) and a net movement
from value enhancements and other changes (£130.1 million), offset by adverse movements from lower
power and gas price forecasts (£12.1 million) and adverse movements in macroeconomic forecasts
(£1.3 million). Foreign exchange movements are addressed further in the Financial Review section.
The net benefit of £43.4 million from the amendment of benchmark discount rates for a number of
investments is in response to our understanding and experience of the secondary market.
There was a net increase of £115.0 million in value enhancements and other changes from 2017 to 2018.
This was principally due to a large increase in value from the sale of IEP (Phase 1) (£86.6 million) and
changes in assumptions for IEP (Phase 2) (£29.0 million).
27
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
PORTFOLIO VALUATION (CONTINUED)
The split between primary and secondary investments is shown in the table below:
Primary Investment portfolio
Secondary Investment portfolio
Total portfolio
The increase in the Primary Investment portfolio is due to cash
investments in the year of £318.5 million and positive movement
in fair value of £298.9 million, offset by investment realisations
of £232.0 million, and transfers to the Secondary Investment
portfolio of £97.1 million as certain projects became operational.
Portfolio valuation at 1 January 2018
– Cash invested
– Cash yield
– Proceeds from realisations
– Transfers to Secondary Investment
Rebased valuation
– Movement in fair value
Portfolio valuation at 31 December 2018
Primary
Investment
£ million
580.3
318.5
–
(232.0)
(97.1)
569.7
298.9
868.6
The increase in the Secondary Investment portfolio is due to
transfers from the Primary Investment portfolio of £97.1 million,
positive movement in fair value of £55.3 million and a cash
investment of £23.6 million, offset by investment realisations
during the year of £64.1 million and cash yield of £33.8 million.
Portfolio valuation at 1 January 2018
– Cash invested
– Cash yield
– Proceeds from realisations
– Transfers from Primary Investment
Rebased valuation
– Movement in fair value
Portfolio valuation at 31 December 2018
Secondary
Investment
£ million
613.5
23.6
(33.8)
(64.1)
97.1
636.3
55.3
691.6
31 December 2018
31 December 2017
£ million
868.6
691.6
%
55.7
44.3
£ million
580.3
613.5
1,560.2
100.0
1,193.8
%
48.6
51.4
100.0
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, a risk premium is added to reflect the
additional risk during the construction phase. The construction
risk premium reduces 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 2018,
derived from detailed financial models for each underlying
project. These incorporate the Group’s expectations of likely
future cash flows, which are stated net of project tax and
therefore reflect changes in tax legislation as at 31 December
2018 in the jurisdictions in which the Group operates, including
recent changes in the Netherlands and France. Expectations of
future cash flows also include expected value enhancements
and the Group’s expectations of future macroeconomic factors
such as inflation and, for renewable energy projects, power and
gas prices.
For the 31 December 2018 valuation, the overall weighted
average discount rate was 8.6% compared to the weighted
average discount rate at 31 December 2017 of 8.8%. The
decrease was primarily due to reductions in operational discount
rates for certain investments and progress in construction,
partially offset by the impact of new investments. The weighted
average discount rate at 31 December 2018 was made up of
8.8% (31 December 2017 – 9.3%) for the Primary Investment
portfolio and 8.1% (31 December 2017 – 7.9%) for the Secondary
Investment portfolio.
The discount rate ranges used in the portfolio valuation at
31 December 2018 were as set out below:
Sector
Primary
Investment
%
Secondary
Investment
%
PPP investments
6.9% – 11.7%
7.0% – 9.0%
Renewable energy investments
8.4% – 9.1%
6.8% – 10.0%
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 two principal inputs are (i) forecast
cash flows from investments and (ii) discount rate. 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.
The shareholding in JLEN was valued at its closing market price
on 31 December 2018 of 105.00p per share (31 December 2017
– 109.25p 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 2018.
28
John Laing / Annual Report and Accounts 2018
Macroeconomic assumptions
During 2018, changes in macroeconomic assumptions had a net
negative impact of £1.3 million. Deposit rates are anticipated to
remain at low levels in the short-term. As mentioned above,
movements of foreign currencies against Sterling over the year
to 31 December 2018 resulted in net positive foreign exchange
movements of £9.7 million (2017 – £11.0 million net adverse
foreign exchange movements).
Investments in overseas projects are fair valued based on the
spot exchange rate on the balance sheet date. As at 31 December
2018, a 5% movement of each relevant currency against Sterling
would decrease or increase the value of investments in overseas
projects by c.£59.4 million.
At 31 December 2018, based on a sample of five of the larger PPP
investments by value, 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 decrease the value
of PPP investments by c.£13 million. Certain of the underlying
project companies incorporate some inflation hedging.
On each valuation and review of the portfolio, the Group updates
the detailed financial model of each renewable energy project to
reflect the impact of the latest forecast power and gas prices on
the project’s revenue to the extent that prices are not fixed by
governmental support mechanisms and/or offtake arrangements.
The Group obtains forecasts for power and gas prices from
external parties who are recognised as experts in the market in
the relevant region, including by potential secondary market
buyers. During 2018, a net reduction in forecast power and gas
prices resulted in a £12.1 million adverse fair value movement
(2017 – adverse fair value movement of £54.8 million). At
31 December 2018, based on a sample of seven of the larger
renewable energy investments by value, a 5% increase in power
price forecasts is estimated to increase the value of renewable
energy investments by £17.6 million and a 5% decrease in power
price forecasts is estimated to decrease the value of renewable
energy investments by £17.7 million.
The table below summarises the main macroeconomic assumptions used in the portfolio valuation:
Assumption
Long-term inflation
Exchange rates
UK
Europe
US
Asia Pacific
31 December
2018
31 December
2017
RPI & RPIX
3.00%
2.75%
CPI
CPI
CPI
GBP/EUR
GBP/AUD
GBP/USD
GBP/NZD
1.75% – 2.00%
1.75% – 2.00%
2.20% – 2.50%
2.25% – 2.50%
2.00% – 2.75%
2.25% – 2.75%
1.1134
1.8096
1.2748
1.9000
1.1252
1.7311
1.3527
1.9055
Discount rate sensitivity
The weighted average discount rate applied at 31 December 2018 was 8.6% (31 December 2017 – 8.8%). The table below shows the
sensitivity of a 0.25% change in this rate.
Discount rate sensitivity
Portfolio valuation
£ million
Increase/(decrease) in valuation
£ million
+0.25%
–
-0.25%
1,525.1
1,560.2
1,597.2
(35.1)
–
37.0
29
OverviewStrategic ReportGovernanceFinancial Statements
John Laing / Annual Report and Accounts 2018
PORTFOLIO VALUATION (CONTINUED)
Further analysis of the portfolio valuation is shown in the following tables:
By time remaining on project concession/operational life
£ million
By revenue type
£ million
9.9 (0.6%)
- (-%)
41.5 (2.7%)
133.2 (8.5%)
262.1 (16.8%)
10.3 (0.9%)
8.8 (0.7%)
19.4 (1.6%)
167.9 (14.1%)
247.3 (20.7%)
1,113.5 (71.4%)
740.1 (62.0%)
9.9 (0.6%)
19.0 (1.2%)
764.7 (49.0%)
10.3 (0.9%)
19.4 (1.6%)
461.9 (38.7%)
766.6 (49.2%)
702.2 (58.8%)
Listed investment
Less than 10 years
10 to 15 years
15 to 20 years
20 to 25 years
Greater than 25 years
Listed investment
Shadow toll
Volume
Availability
Dec 18
Dec 17
Dec 18
Dec 17
PPP projects are based on long-term concessions and renewable
energy assets have long-term useful economic lives. As
demonstrated in the table above, 71.4% of the portfolio by value
had a greater than 25-year unexpired concession term or useful
economic life remaining at 31 December 2018, compared to
62.0% at 31 December 2017.
Availability-based investments made up 49.2% of the portfolio
value at 31 December 2018. 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.
Split between PPP and renewable energy
£ million
9.9 (0.6%)
514.1 (33.0%)
167.6 (10.7%)
182.5 (11.7%)
686.1 (44.0%)
10.3 (0.9%)
374.2 (31.3%)
229.0 (19.2%)
38.6 (3.2%)
541.7 (45.4%)
Listed investment
Secondary renewable energy
Secondary PPP
Primary renewable energy
Primary PPP
Dec 18
Dec 17
Primary PPP investments made up the largest part of the
portfolio, representing 44.0% of the portfolio value at
31 December 2018, with Secondary renewable energy
investments representing a further 33.0%.
By sector
£ million
9.9 (0.6%)
40.7 (2.6%)
655.9 (42.0%)
325.9 (20.9%)
375.4 (24.1%)
152.4 (9.8%)
10.3 (0.9%)
89.0 (7.4%)
369.2 (30.9%)
296.8 (24.9%)
288.1 (24.1%)
140.4 (11.8%)
Listed investment
Environmental –
waste and biomass
Environmental – wind and solar
Transport – rail rolling stock
Transport – other
Social infrastructure
Dec 18
Dec 17
Wind and solar farm investments represented 42.0% of the
portfolio value at 31 December 2018, with other transport
investments (excluding rail rolling stock) accounting for a
further 24.1%. Rail rolling stock investments made up 20.9% of
the portfolio by value, while social infrastructure investments
and waste and biomass investments made up 9.8% and 2.6%
respectively. The portfolio underlying the JLEN shareholding
consists of investments in a mix of renewable energy and
environmental projects.
30
John Laing / Annual Report and Accounts 2018
By currency
£ million
22.2 (1.4%)
465.3 (29.8%)
482.9 (31.0%)
218.6 (14.0%)
371.2 (23.8%)
21.8 (1.8%)
283.2 (23.7%)
269.4 (22.6%)
204.1 (17.1%)
415.3 (34.8%)
By investment size
£ million
9.9 (0.6%)
675.5 (43.3%)
10.3 (0.9%)
276.3 (17.7%)
598.5 (38.4%)
New Zealand dollar
US dollar
Australian dollar
Euro
Sterling
480.3 (40.2%)
233.8 (19.6%)
469.4 (39.3%)
Listed investment
Other projects
Next five largest projects
Five largest projects
Dec 18
Dec 17
Dec 18
Dec 17
The percentage of investments denominated in foreign
currencies increased from 65.2% to 76.2%. This is consistent
with our pipeline and the overseas jurisdictions we target.
By geographical region
£ million
9.9 (0.6%)
505.1 (32.4%)
465.3 (29.8%)
10.3 (0.9%)
291.2 (24.4%)
283.2 (23.7%)
218.6 (14.0%)
204.1 (17.1%)
361.3 (23.2%)
405.0 (33.9%)
Dec 18
Dec 17
Listed investment
Asia Pacific
North America
Continental Europe
UK
Investments in the UK decreased to 23.2% of the portfolio value
at 31 December 2018. Asia Pacific was the largest category at
32.4%. Investments in projects located in North America made
up 29.8% and investments in Continental Europe made up
14.0%. A substantial majority of the JLEN portfolio consists of
investments in UK-based projects.
The top five investments in the portfolio made up 38.4% of
the portfolio at 31 December 2018, a decline from 39.3% at
31 December 2017. The next five largest investments made
up a further 17.7%.
The valuation ranges for the five largest Primary Investments
and the five largest Secondary Investments are shown in the
tables below:
Primary
IEP (Phase 2)
Denver Eagle P3
Sunraysia Solar Farm
Finley Solar Farm
Sydney Light Rail
Secondary
Rocksprings Wind Farm
Buckthorn Wind Farm
New Royal Adelaide Hospital
Klettwitz Wind Farm
Kiata Wind Farm
31 December
2018
£ million
More than 275
75 – 100
50 – 75
50 – 75
50 – 75
31 December
2018
£ million
75 – 100
50 – 75
50 – 75
25 – 50
25 – 50
At 31 December 2018, the Group’s largest investment was its
shareholding in IEP (Phase 2). Nine out of its ten largest
investments were outside the UK.
31
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
FINANCIAL REVIEW
Basis of preparation
The financial information has been prepared on the historical
cost basis except for the revaluation of the Group’s investment in
John Laing Holdco Limited, through which the Group indirectly
holds its 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 Consolidated Financial Statements. 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”.
Re-presented financial results
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 its subsidiaries, joint
ventures and associates 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. 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 when making business decisions, including when
reviewing the level of financial resources and deciding where
these resources should be utilised. Therefore, the Directors
believe it is helpful to readers of these 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 and
also comprises income and costs that do not arise directly from
investments in this portfolio, including investment fees earned
from project companies by recourse subsidiaries that are held
at FVTPL.
32
John Laing / Annual Report and Accounts 2018
Group
Income
Statement
£ million
2018
Adjustments
£ million
Re-presented
income
statement
£ million
2017d
Re-presented
income
statement
£ million
354.2
3.6
8.7
366.5
20.0
6.0
4.0
0.9
30.9
397.4
(8.7)
(4.6)
(36.6)
(12.7)
(1.4)
(1.6)
(65.6)
(21.3)
310.5
(13.9)
–
296.6
–
(1.7)a
–
(1.7)
–
–
–
(0.6)b
(0.6)
(2.3)
–
0.6b
–
–
–
1.6c
2.2
21.3c
21.2
2.8a,c
(24.0)c
–
354.2
1.9
8.7
364.8
20.0
6.0
4.0
0.3
30.3
395.1
(8.7)
(4.0)
(36.6)
(12.7)
(1.4)
–
(63.4)
–
331.7
(11.1)
(24.0)
296.6
160.7
(2.1)
7.1
165.7
19.0
6.1
3.7
–
28.8
194.5
(8.6)
(2.7)
(33.9)
(12.7)
2.1
–
(55.8)
–
138.7
(10.1)
(2.6)
126.0
Year ended 31 December
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
Recovery of bid costs
Other income
Other income
Operating income
Third party costs
Disposal costs
Staff costs
General overheads
Other net costs
Post-retirement charges
Administrative expenses
GMP equalisation charge
Profit from operations
Finance costs
Post-retirement charges
Profit before tax
Notes:
a) Adjustment comprises £1.7 million of interest income reclassified from ‘fair value movements – other’ to ‘finance costs’.
b) Adjustment comprises £0.6 million of other income reclassified from ‘other income’ to ‘disposal costs’.
c) Under IAS 19 Employee Benefits, the costs of the pension schemes, including the post-retirement medical benefits, comprise a service cost of £1.6 million,
included in administrative expenses in the Group Income Statement, and a finance charge of £1.1 million, included in finance costs in the Group Income
Statement. These amounts are combined together as post-retirement charges under management reporting. The cost for 2018 also includes a one-off GMP
equalisation charge of £21.3 million.
d) For a reconciliation between the Group Income Statement and re-presented income statement for the year ended 31 December 2017, refer to the 2017 Annual
Report and Accounts.
33
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
FINANCIAL REVIEW (CONTINUED)
The results for the year are also shown by reportable segment in the table below.
Primary Investment
Secondary Investment
Asset Management
Total
2018
£ million
2017
£ million
2018
£ million
2017
£ million
2018
£ million
2017
£ million
2018
£ million
2017
£ million
Profit before tax for reportable segments
276.3
150.8
44.2
(28.1)
(0.2)
1.5
Post-retirement charges
Other net gain
Profit before tax
320.3
(24.0)
0.3
124.2
(2.6)
4.4
296.6
126.0
Profit before tax for the year ended 31 December 2018 was
£296.6 million (2017 – £126.0 million). The increase from 2017
was principally due to:
•
the gain on disposal of the interest in IEP (Phase 1) and a
consequential impact on the valuation of the Group’s
investment in IEP (Phase 2); and
• a more favourable impact from power price forecasts and
foreign exchange movements, offset by a one-off GMP
equalisation charge.
The main profit contributor in 2018 was the Primary Investment
division principally due to the value uplift on the investments in
IEP (Phase 1) and IEP (Phase 2). The higher contribution in 2018
from the Secondary Investment division was primarily due to the
reduction in value of the two Manchester Waste investments of
£25.5 million in 2017, together with a less adverse impact from
changes in power and gas price forecasts in 2018.
The movement in fair value on the portfolio for the year ended
31 December 2018, after adjusting for investments, cash yield and
realisations, was a £354.2 million gain (2017 – £160.7 million gain).
The higher value uplift is primarily due to the gain on disposal of
the interest in IEP (Phase 1), the consequential impact on IEP
(Phase 2) and the more favourable impact from power price
forecasts and foreign exchange movements, as mentioned above.
For further details of the movement in fair value on the portfolio,
see the Portfolio Valuation section.
Other fair value movements for the year ended 31 December
2018 comprised a £1.9 million gain, which included tax income
of £2.6 million in the recourse entities held at FVTPL (for further
details see the paragraph below on tax in this section of the
Financial Review).
The Group earned IMS revenue of £20.0 million (2017 –
£19.0 million) principally from investment advisory and asset
management services primarily to the external funds, Jura and
JLEN, with the small increase from last year due to higher
external Assets under Management. Of the total IMS revenue,
£18.2 million (2017 – £16.7 million) related to investment
advisory services to the external funds.
The Group also earned PMS revenue of £6.0 million (2017 –
£6.1 million).
The Group recovered bidding costs of £4.0 million in 2018
(2017 – £3.7 million).
Staff costs by operating division are shown below:
Staff costs
10.0
10.2
16.2
13.9
10.4
9.8
36.6
33.9
Primary Investment
Asset Management
Central
Total
2018
£ million
2017
£ million
2018
£ million
2017
£ million
2018
£ million
2017
£ million
2018
£ million
2017
£ million
Included within Asset Management staff costs are costs relating to:
Staff costs
11.5
10.0
4.7
3.9
16.2
13.9
Investment Management
Services
Project Management
Services
Total Asset
Management
2018
£ million
2017
£ million
2018
£ million
2017
£ million
2018
£ million
2017
£ million
34
John Laing / Annual Report and Accounts 2018
Higher total staff costs are due to pay increases in line with
inflation as well as an increase in the average number of staff,
consistent with the growth of the business.
Finance costs of £11.1 million in 2018 (2017 – £10.1 million)
include costs arising on the corporate banking facilities net of
any interest income, with the increase from last year primarily
due to the write off in 2018 of £2.1 million of unamortised
upfront fees relating to the previous corporate banking facilities.
The Group’s tax charge for the year ended 31 December 2018
of £0.3 million (2017 – £1.5 million credit) is shown in the
‘Tax (charge)/credit’ line of the Group Income Statement
and reconciled in note 12 to the Group financial statements.
An additional £2.6 million credit (2017 – £4.7 million credit)
is included within the ‘net gain on investments at fair value
through profit or loss’ line in the Group Income Statement.
This additional credit is primarily in relation to consortium
relief received from project companies.
The contributions made to the John Laing Pension Fund (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 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 tax losses in the Company but there are tax losses in
recourse group subsidiary entities that are held at FVTPL.
In January 2018, the Group initiated an internal reorganisation
under which the Primary Investment and Asset Management
teams in each of the three core geographical regions now report
to a single regional head. The principal objective behind this
revised structure was to enable the Group to focus more
effectively on value creation in each region. Accordingly, certain
regional performance targets for 2018 were set, principally in
relation to the investment portfolio in each region, including fair
value movements thereon.
The fair value movements on the investment portfolio by geographical region are shown in the table below:
Europe
North America
Asia Pacific
Listed investment
Total
2018
£ million
2017
£ million
2018
£ million
2017
£ million
2018
£ million
2017
£ million
2018
£ million
2017
£ million
2018
£ million
2017
£ million
Fair value movements –
investment portfolio
187.2
78.4
84.7
44.1
82.1
37.3
0.2
0.9
354.2
160.7
An analysis of the total fair value movement of £354.2 million is provided in the Portfolio Valuation section. The higher fair value
movement in Europe is primarily due to the gain on disposal of the interest in IEP (Phase 1) referred to earlier. The increase in the
fair value movements in North America and Asia Pacific from the previous year is principally due to new investments in 2018 and
higher value enhancements.
35
OverviewStrategic ReportGovernanceFinancial Statements
John Laing / Annual Report and Accounts 2018
FINANCIAL REVIEW (CONTINUED)
Re-presented balance sheet
The re-presented balance sheet is reconciled to the Group Balance Sheet at 31 December 2018 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
£140.3 million (31 December 2017 – £152.6 million) within 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.
2018
Adjustments
£ million
Re-presented
balance
sheet
£ million
2017f
Re-presented
balance
sheet
£ million
Re-presented balance sheet line items
–
0.1
2.1
Other long-term assets
(140.3)a
1,560.2
1,193.8
Portfolio value
131.7
0.1
133.1
Cash collateral balances
0.3
Non-portfolio investments
1,692.1
1,329.3
31 December
Non-current assets
Plant and equipment
Investments at FVTPL
Current assets
Trade and other receivables
Cash and cash equivalents
Group
Balance
Sheet
£ million
0.1
1,700.5
–
–
1,700.6
7.9
5.7
13.6
131.7b
0.1b
(8.5)
(7.9)c
2.2b
(5.7)
–
7.9
7.9
–
14.6
Cash and cash equivalents
14.6
1,343.9
Total assets
1,714.2
(14.2)
1,700.0
Current liabilities
Current tax liabilities
Borrowings
Trade and other payables
Net current liabilities
Non-current liabilities
Retirement benefit obligations
Provisions
Total liabilities
–
(0.4)
(65.7)
(20.0)
(86.1)
(72.5)
(40.1)
–
(1.5)
(41.6)
(127.7)
(3.9)b,c,d
0.4c
(3.8)d
20.0c
12.7
7.0
7.5e
(7.5)e
1.5c
1.5
14.2
(3.9)
–
(69.5)
–
(73.4)
(65.5)
(32.6)
(7.5)
–
(40.1)
(113.5)
(3.7) Working capital and other balances
–
(176.0)
Cash borrowings
–
(179.7)
(165.1)
(32.3)
Pension deficit (IAS 19)
(8.0)
Other retirement benefit obligations
–
(40.3)
(220.0)
Net assets
1,586.5
–
1,586.5
1,123.9
Notes:
a) Investments at FVTPL of £1,700.5 million comprise: portfolio valuation of £1,560.2 million and other assets and liabilities within recourse investment entity
subsidiaries of £140.3 million (see note 13 to the Group financial statements).
b) Other assets and liabilities within recourse investment entity subsidiaries of £140.3 million referred to in note (a) include: (i) cash and cash equivalents of
£133.9 million, of which £131.7 million is held to collateralise future investment commitments and £2.2 million is other cash balances, (ii) net positive working
capital and other balances of £6.3 million and (iii) non-portfolio investments of £0.1 million.
c) Trade and other receivables (£7.9 million), current tax liabilities (£0.4 million), trade and other payables (£20.0 million) and provisions (£1.5 million) are
combined in the re-presented balance sheet as working capital and other balances.
d) Borrowings of £65.7 million comprise cash borrowings of £55.0 million from the main facilities and £14.5 million of short-term bank overdraft from
uncommitted facilities less unamortised financing costs of £3.8 million, which are re-presented as working capital and other balances.
e) Total retirement benefit obligations are shown in their separate components as in note 20 to the Group financial statements.
f) For a reconciliation between the Group Balance Sheet and re-presented balance sheet as at 31 December 2017, refer to the 2017 Annual Report and Accounts.
36
John Laing / Annual Report and Accounts 2018
Net assets are also shown by reportable segment in the table below.
Portfolio valuation
Other net current liabilities
Group cash/(net borrowings)1
Retirement benefit obligations
Group net assets
Primary Investment
Secondary Investment
Asset Management
Total
2018
£ million
2017
£ million
2018
£ million
2017
£ million
2018
£ million
2017
£ million
2018
£ million
2017
£ million
868.6
580.3
691.6
613.5
–
–
1,560.2
1,193.8
(3.7)
70.1
(40.1)
(1.3)
(28.3)
(40.3)
1,586.5
1,123.9
1. Comprising: cash balances of £139.6 million (31 December 2017 – £147.7 million), of which £131.7 million was held to collateralise future investment
commitments (31 December 2017 – £133.1 million), net of short-term bank overdraft of £14.5 million (31 December 2017 – £nil) and short-term cash
borrowings of £55.0 million (31 December 2017 – £176.0 million).
The portfolio valuation by geographical region is shown in the table below.
Europe
North America
Asia Pacific
Listed investment
Total
2018
£ million
2017
£ million
2018
£ million
2017
£ million
2018
£ million
2017
£ million
2018
£ million
2017
£ million
2018
£ million
2017
£ million
Portfolio valuation
579.9
609.1
465.3
283.2
505.1
291.2
9.9
10.3
1,560.2
1,193.8
Net assets increased from £1,123.9 million at 31 December 2017
to £1,586.5 million at 31 December 2018.
The Group’s portfolio of investments in project companies and
listed investments was valued at £1,560.2 million at 31 December
2018 (31 December 2017 – £1,193.8 million). The valuation
methodology and details of the portfolio value are provided in
the Portfolio Valuation section.
The Group held cash balances of £139.6 million at 31 December
2018 (31 December 2017 – £147.7 million) of which £131.7 million
(31 December 2017 – £133.1 million) was held to collateralise
future investment commitments (see the Financial Resources
section below for more details). Of the total Group cash balances
of £139.6 million, £133.9 million was in recourse subsidiaries
held at FVTPL, including the cash collateral balances, that are
included within investments at FVTPL on the Group Balance
Sheet. The remaining £5.7 million of cash was in the Company
and recourse subsidiaries that are consolidated and shown as
cash and cash equivalents on the Group Balance Sheet (see the
re-presented balance sheet for further details).
The Group operates two defined benefit schemes in the UK –
JLPF and the John Laing Pension Plan (the Plan). Both schemes
are closed to new members and future accrual.
In December 2016, following a triennial actuarial review of JLPF
as at 31 March 2016, a seven-year deficit repayment plan was
agreed with the JLPF Trustee. It was agreed to repay the actuarial
deficit of £171.0 million at 31 March 2016 as set out below.
The discount rate used for the actuarial deficit is lower than the
IAS 19 discount rate (see below).
By 31 March
£ million
2017
2018
2019
2020
2021
2022
2023
24.5
26.5
29.1
24.9
25.7
26.4
24.6
The combined accounting deficit in the Group’s defined benefit
pension and post-retirement medical schemes at 31 December
2018 was £40.1 million (31 December 2017 – £40.3 million).
Under IAS 19, at 31 December 2018, JLPF had a deficit of
£34.5 million (31 December 2017 – £35.2 million) whilst the Plan
had a surplus of £1.9 million (31 December 2017 – £2.9 million).
The liability at 31 December 2018 under the post-retirement
medical scheme was £7.5 million (31 December 2017 –
£8.0 million).
The pension deficit in JLPF under IAS 19 is based on a discount
rate applied to pension liabilities of 2.85% (31 December 2017 –
2.50%) and long-term RPI of 3.20% (31 December 2017 – 3.10%).
The amount of the deficit is dependent on key assumptions,
principally: inflation rate, discount rate and life expectancy of
members. The discount rate, as prescribed by IAS 19, is based
on yields from high quality corporate bonds. The deficit (under
IAS 19) is broadly unchanged since 31 December 2017 with the
benefit of the Group’s cash contribution to JLPF of £26.5 million
in March 2018 being offset by the GMP equalisation charge of
£21.3 million.
Re-presented cash flow statement
The Group Cash Flow Statement includes the cash flows of the
Company and those 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 13 to the Group 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.
37
OverviewStrategic ReportGovernanceFinancial Statements 2018
Re-presented
cash flows
£ million
2017
Re-presented
cash flows
£ million
Total re-presented operating cash flow in the year ended
31 December 2018 was lower than in 2017 primarily due to
lower cash yield from the investment portfolio offset by lower
net operating cash outflow as described above.
John Laing / Annual Report and Accounts 2018
FINANCIAL REVIEW (CONTINUED)
Year ended 31 December
Cash yield
Operating cash flow
Net foreign exchange impact
Total operating cash flow
Cash investment in projects
Proceeds from realisations
Disposal costs
Cash received from acquisition of
Manchester Waste VL Co by the Greater
Manchester Waste Disposal Authority
(GMWDA)
Net investing cash (outflow)/inflow
Finance charges
Rights issue (net of costs)
Cash contributions to JLPF
Dividend payments
Net cash inflow/(outflow) from
financing activities
Recourse group cash inflow
Recourse group opening (net debt)/cash
balances
34.1
(9.9)
(1.1)
23.1
(342.1)
296.1
(5.2)
–
(51.2)
(13.4)
210.5
(26.6)
(44.0)
126.5
98.4
(28.3)
40.9
(12.9)
(1.3)
26.7
(209.9)
287.1
(4.4)
23.5
96.3
(8.3)
–
(24.7)
(30.1)
(63.1)
59.9
(88.2)
Recourse group closing cash/(net debt)
balances
70.1
(28.3)
Reconciliation to line items on
re-presented balance sheet
Cash collateral balances1
Cash and cash equivalents1
Total net cash balances
Cash borrowings
Cash/(net debt)
Reconciliation of cash borrowings to
Group Balance Sheet
Cash borrowings as per re-presented
balance sheet
131.7
7.9
139.6
(69.5)
70.1
133.1
14.6
147.7
(176.0)
(28.3)
(69.5)
(176.0)
Unamortised financing costs
3.8
2.8
Borrowings as per Group Balance Sheet
(65.7)
(173.2)
1 For reconciliation of these amounts to the Group Balance Sheet see the
re-presented balance sheet above.
Cash yield comprised £33.8 million (2017 – £40.2 million) from
the investment portfolio (see the Portfolio Valuation section for
further details) and £0.3 million (2017 – £0.7 million) from
non-portfolio investments.
Re-presented operating cash outflow in the year ended
31 December 2018 of £9.9 million was lower than the outflow
in 2017 principally due to lower bid costs net of recoveries,
higher cash inflow from asset management services and higher
investment fees from projects.
38
In the year, in addition to the payment of the PPF levy of
£0.1 million (2017 – £0.2 million), the Group made a cash
contribution to JLPF of £26.5 million (2017 – £24.5 million).
During the year, cash of £342.1 million (2017 – £209.9 million)
was invested in project companies. In the same period,
investments in three projects were realised for total proceeds
of £296.1 million (2017 – £289.0 million from the realisation
of eight investments of which £1.9 million was deferred
consideration, which was received in January 2019). The
proceeds received in 2017 were in addition to the cash received
on the acquisition of the Group’s shareholding in Manchester
Waste VL Co by the GMWDA of £23.5 million.
Finance charges paid were higher in 2018 due to refinancing
fees on the new facilities, as well as an increase in fees from
larger facilities.
Dividend payments of £44.0 million in the year ended
31 December 2018 comprised the final dividend for 2017 of
£35.2 million and the interim dividend for 2018 of £8.8 million
(2017 – total dividend of £30.1 million comprising the final
dividend for 2016 of £23.1 million and the interim dividend for
2017 of £7.0 million).
Financial resources
At 31 December 2018, the Group had principal committed
revolving credit banking facilities of £650 million (31 December
2017 – £525 million), £500 million expiring in July 2023 and
£150 million expiring in January 2020 (since extended to
January 2021), which are primarily used to back investment
commitments. Net available financial resources at 31 December
2018 were £413.4 million (31 December 2017 – £153.1 million).
Analysis of Group financial resources
31 December
2018
£ million
31 December
2017
£ million
Total committed facilities
Letters of credit issued under
corporate banking facilities (see below)
Letters of credit issued under surety
facilities (see below)
Other guarantees and commitments
Short-term cash borrowings
Bank overdraft (uncommitted)
Utilisation of facilities
Headroom
Cash and bank deposits1
Less unavailable cash
Net available financial resources
650.0
(139.0)
(24.9)
(10.4)
(55.0)
(14.5)
(243.8)
406.2
7.9
(0.7)
413.4
525.0
(152.3)
(50.0)
(7.5)
(176.0)
–
(385.8)
139.2
14.6
(0.7)
153.1
1 Cash and bank deposits exclude cash collateral balances. Of the total cash
and bank deposit balances of £7.9 million, £5.7 million was in the Company
and recourse subsidiaries that are consolidated and therefore shown as
cash and cash equivalents on the Group Balance Sheet, with the remaining
£2.2 million in recourse subsidiaries held at FVTPL which are included within
investments at FVTPL on the Group Balance Sheet (see the re-presented
balance sheet).
John Laing / Annual Report and Accounts 2018
Letters of credit issued under the committed corporate banking
facilities of £139.0 million (31 December 2017 – £152.3 million)
and under additional uncommitted surety facilities of £24.9 million
(31 December 2017 – £50.0 million), together with cash collateral,
represent future cash investment by the Group into underlying
projects in the Primary Investment portfolio.
Letters of credit issued
Cash collateral
Future cash investment into projects
31 December
2018
£ million
31 December
2017
£ million
163.9
131.7
295.6
202.3
133.1
335.4
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
Clarence Correctional Centre
Melbourne Metro
Granville Wind Farm
I-75 Road
Total
Letter of
credit issued
£ million
Expected
date of cash
investment
Jan 2019 – Jun 2019
Oct 2019 – Dec 2019
Dec 2019
Dec 2022 – Dec 2023
64.5
41.8
42.2
15.4
163.9
The table below shows the cash collateral balance at
31 December 2018 analysed by investment and the dates
when the cash collateral is expected to be invested into the
underlying project:
Project
I-77 Managed Lanes
I-66 Managed Lanes
Cash
collateral
amount
£ million
Expected
date of cash
investment
9.7
Jan 2019 – May 2019
122.0
May 2020 – Nov 2022
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. In the year, there was a net loss
of £2.0 million from foreign exchange movements outside
the portfolio.
Letters of credit in issue at 31 December 2018 of £163.9 million
(31 December 2017 – £202.3 million) are analysed by currency
as follows:
Letters of credit by currency
Sterling
US dollar
Australian dollar
31 December
2018
£ million
31 December
2017
£ million
–
15.4
148.5
163.9
72.7
9.5
120.1
202.3
Cash collateral at 31 December 2018 of £131.7 million
(31 December 2017 – £133.1 million) is analysed by currency
as follows:
Cash collateral by currency
US dollar
31 December
2018
£ million
31 December
2017
£ million
131.7
131.7
133.1
133.1
Going concern
The Group has committed corporate banking facilities until
July 2023 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 2018.
Total
131.7
Patrick O’D Bourke
GROUP FINANCE DIRECTOR
Cash collateral is included within ‘investments at fair value
through profit or loss’ in 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 2018,
there was a net favourable fair value movement of £9.7 million in
the portfolio valuation. Sterling strengthened against the Australian
dollar between 31 December 2017 and 31 December 2018, but
weakened against the Euro and the US and New Zealand dollars.
39
OverviewStrategic ReportGovernanceFinancial Statements The Directors’ assessment has been undertaken using a
detailed financial model, which the Group uses consistently
both for forecasting purposes and to monitor compliance with
the covenants in its corporate banking facilities. Key outputs
from this model are 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 investment
realisations and material strengthening of Sterling versus
the currencies the Group invests in.
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 2018.
John Laing / Annual Report and Accounts 2018
VIABILITY STATEMENT
In accordance with the 2016 Code, the Directors have assessed
the viability of the Group over the three year period to
31 December 2021, taking into account the Group’s current
position and the principal risks set out on pages 41 to 46.
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 Financial Review section.
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.
The Directors selected a period of three years for their
assessment because this is the longest timescale over which
the Group has visibility over the future investment opportunities
which make up its pipeline. This is consistent with the Group’s
business model and is also the key period of focus in the Group’s
budget and planning process. The Group’s future prospects are
addressed in the Chief Executive Officer’s review on pages 6 to 11.
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 typically extends beyond the construction
period for the underlying asset 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; in July 2018, the Group entered into new £650 million
corporate banking facilities, £500 million of which matures
in July 2023;
• 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 assumptions (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; macroeconomic 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.
40
John Laing / Annual Report and Accounts 2018
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.
The principal internal controls that operated throughout 2018
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’s objectives are, inter alia,
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;
• a deterrent to fraud;
• another layer of assurance that the Group is meeting its
FCA regulatory requirements; and
• 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 Head of Internal
Audit meets regularly with senior management and the Audit
& Risk Committee to discuss key findings and management
actions undertaken. The 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 Chief Risk Officer, 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, which 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.
All divestment decisions are scrutinised by the Divestment
Committee and approved 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 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.
The Group’s two strategic objectives are:
Growth in primary investment volumes (new investment
capital committed to greenfield infrastructure projects)
over the medium term.
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.
41
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
PRINCIPAL RISKS AND RISK MANAGEMENT (CONTINUED)
Risk
1. 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 investments.
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 by introducing new policies
or legislation that result in higher tax obligations on
existing PPP or renewable energy projects or otherwise
affect existing or future PPP or renewable energy projects.
Changes to legislation or public policy relating to
renewable energy could negatively impact the economic
returns on the Group’s existing or future potential
investments in renewable energy projects, which would
adversely affect the demand for and attractiveness of
such projects.
Link to
strategic
objectives
above
Mitigation
Change
in risk since
31 December
2017
Thorough due diligence is carried out in order to assess a
specific country’s risk (for example economic and political
stability, tax policy, legal framework and local practices)
before any investment is made. The Group seeks to limit its
exposure to any single governmental or public sector body.
>
No change
Where possible the Group seeks specific contractual protection
from changes in governmental 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 investment in a
project, the Group takes a view on an appropriate level of return
to cover the risk of non-discriminatory changes in law.
PPP projects are normally structured so as to provide
significant contractual protection for equity investors
(see also Counterparty risk).
During the bidding process for investment in 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.
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.
Through its track record of more than 140 investment
commitments, the Group has developed significant expertise
in compliance with public tender regulations.
The UK’s withdrawal from the European Union may take
place in a manner which affects: (i) the valuation of the
Group’s investments (ii) its ability to make future
investments and/or divestments.
The Group believes its business model is robust and able to
weather potential short-term disruption as a result of the
UK’s withdrawal from the European Union from, for example,
(i) changes in the value of Sterling, (ii) changes in financial
markets and/or other macroeconomic factors (see also
Counterparty risk and Personnel sections).
2. Macroeconomic factors
To the extent such factors are not hedged, changes
in inflation and interest rates and foreign exchange
all potentially impact the return generated from an
investment and its valuation.
Changes in factors which affect energy prices, such
as the future energy demand/supply balance and the
oil price, could negatively impact the economic returns
on the Group’s investments in renewable energy and,
as a result, the valuation of such investments.
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.
3. Liquidity in the secondary market
Weakness in the secondary markets for investments in
PPP or renewable energy projects, for example as the
result of a lack of economic growth in relevant markets,
actual or potential governmental policy, regulatory changes
in the banking sector, liquidity in financial markets,
changes in interest and exchange rates and project finance
market conditions 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.
42
>
No change
Factors which have the potential to adversely impact the
underlying cash flows of an investment, and hence its
valuation, may be hedged at a project level. In addition,
unhedged exposures and associated sensitivities are
considered during the investment appraisal process.
In particular, prior to investment, renewable energy projects
are assessed for their sensitivity to a number of variables,
including future power prices.
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 offtake arrangements.
The Group monitors closely the level of its investments in
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.
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.
>
No change
Over recent years, the secondary markets for both PPP and
renewable energy investments have grown substantially as
operational infrastructure has matured as an asset class.
The Group has developed strong relationships with many
secondary investors in each of its markets. The Group has
recently agreed its first disposals of renewable energy
investments in the US.
Risk
4. 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 debt
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 ultimately
enable public-sector counterparties (through cross default
links to other project agreements) and/or project finance
debt providers to declare default and, in the latter case, to
exercise their security.
John Laing / Annual Report and Accounts 2018
Change
in risk since
31 December
2017
>
Decreased
Link to
strategic
objectives
above
Mitigation
The Group has corporate banking facilities totalling
£500 million which mature in July 2023 as well as additional
facilities (£150 million) committed until January 2021.
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. A Divestment
Committee was set up in 2017 to provide oversight and
recommendations on all potential divestments.
In March 2018, the Group undertook the Rights Issue,
raising £210.5 million net of costs.
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. In markets
such as Australia and New Zealand, where the tenor of
project finance facilities at financial close tends to be
medium term, certain projects in which the Group has
invested are due for refinancing in due course. Auckland
South Corrections Facility was successfully refinanced in
late 2017 and another project, Optus Stadium, was
refinanced in 2018.
Prior to financial close, all proposed investments are
scrutinised by the Investment Committee. This scrutiny
includes a review of sensitivities of investment returns
and financial ratios to adverse performance as well as an
assessment of a project’s ability to be refinanced if the
tenor of its project finance 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.
5. Pensions
The amount of the surplus/deficit on 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 surplus/deficit reported in the
Group Balance Sheet, and gains/losses recorded in the
Group Statement of Comprehensive Income.
6. Future investment activity
The Group operates in competitive markets and may not
be able to compete effectively or profitably.
The Group’s investment pipeline is not a guarantee of
actual bidding activity or future investments.
The Group’s historical win rate for PPP projects may
decline and is an uncertain indicator of new investments
by the Group.
>
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. As at 31 December 2018, hedging in
place amounted to 95% of JLPF’s assets in respect of both
interest rates and inflation.
The next actuarial valuation of JLPF 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
Both the PPP and the renewable energy pipelines are
diversified by geography and number of and type of project.
43
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
PRINCIPAL RISKS AND RISK MANAGEMENT (CONTINUED)
Risk
7. Valuation
Link to
strategic
objectives
above
Mitigation
Change
in risk since
31 December
2017
The valuation of an investment in a project may not
reflect its ultimate realisable value, for instance because
of changes in operational benchmark discount rates.
The discount rates used to value investments are derived
from publicly available market data and other market
evidence and are updated regularly.
>
No change
In circumstances where the revenue derived from a project
is related to volume (i.e. customer usage or wind energy
yield), 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), operational issues, price differentials
and other 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
which 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 in the receipt of project income
and/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 subsequently operating it in a manner consistent with
contractual requirements. Consistent under-performance
by, or failure of, such third parties may result in the ability
of public sector counter parties and/or project finance
debt providers to declare a default resulting in the
impairment or loss of the Group’s investment.
A significant portion of the Group’s portfolio valuation is,
and may in the future be, in a small number of investments,
and changes to the value of these investments could
materially affect the Group’s financial position and results
of operations.
A project company or a service provider to a project company
may fail to manage contracts efficiently or effectively.
44
The Group has a good track record of realising investments
at prices consistent with the fair values at which they are held.
A substantial portion of the Group’s investments are in
projects which are 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 sensitivities
thereto in detail prior to any investment commitment.
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. In
addition, where possible, fixed-price offtake arrangements,
including power purchase agreements, are entered into to
mitigate the impact of changes in future energy prices.
The Group typically hedges cash flows arising from
investment realisations or significant distributions in
currencies other than Sterling.
During the bidding process for investment in a project, the
Group assesses the sensitivity of the project’s forecast
returns to changes in tax rates.
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 project 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 Group
seeks to limit its exposure to any single 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 the value of
its investments by working with all parties to a project to
agree revised timetables and/or other restructuring
arrangements.
The Group monitors the concentration risk within its
portfolio. Since 31 December 2014, the percentage of its
portfolio value attributable to UK investments has reduced
from 58% to 24% at 31 December 2018.
The performance of project companies and service providers
to project companies is regularly monitored by the Asset
Management team in each geographical region.
Risk
8. Counterparty risk
The Group is exposed to counterparty credit risk with
regards to (i) governmental entities, sub-contractors,
offtakers, lenders and suppliers at a project level and
(ii) consortium partners, financial institutions and
suppliers at a Group level.
Public sector counter-parties to PPP projects may seek
to renegotiate contract terms and/or terminate contracts,
as a result of changes in governmental policy or
otherwise, 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.
Worsening of general economic conditions in any of the
markets in which the Group operates could create
heightened counterparty risk.
9. 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.
Such an incident affecting any of the projects invested in
by the Group could also affect the Group’s ability to sell
its investment in that project.
Failure to maintain secure IT systems and to combat
cyber and other security risks to information and to
physical sites could adversely affect the Group.
John Laing / Annual Report and Accounts 2018
Change
in risk since
31 December
2017
>
No change
Link to
strategic
objectives
above
Mitigation
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 financial close, 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 appropriate compensation,
including to equity investors.
PPP projects are normally supported by central and/or local
public sector covenants, which significantly reduce the
Group’s risk. Risk is further reduced by the increasing
geographical spread of the Group’s investments.
The performance of service providers to project companies
is regularly monitored by the Asset Management team in
each geographical region.
Counterparties for cash 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.
At financial close, projects benefit from comprehensive
insurance arrangements, either directly or through
contractors’ insurance policies.
>
No change
Business continuity plans at project level are tested at
frequent/regular intervals. Business continuity procedures are
also regularly updated in order to maintain their relevance.
The Group is committed to ensuring the health, safety and
welfare of all its employees and all other persons who may
be affected by its direct activities, or those under its control.
John Laing believes that proper attention to the health and
safety of its employees, sub-contractors and the community
within which the Group operates is a key element of effective
business management and essential to its reputation.
The projects in which the Group invests each have their own
health and safety policies and business continuity plans.
The Group’s IT requirements are outsourced to a third party.
Following a re-tender process, a new provider was appointed
in May 2018.
Within the outsourced arrangements, cyber risk is addressed
through (i) the Group’s organisational structure which includes
segregation of responsibilities, delegated lines of accountability,
delegated authorities and (ii) specific controls, including
controls over payments and access to IT systems.
45
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
PRINCIPAL RISKS AND RISK MANAGEMENT (CONTINUED)
Risk
Link to
strategic
objectives
above
Mitigation
Change
in risk since
31 December
2017
10. Investment Advisory Agreement (IAA) with JLEN and JLIF
A loss of JLCM’s IAA with JLEN would be detrimental to the
Group’s Asset Management activities.
N/A
In August, the Board of JLIF recommended a cash offer
for its entire issued share capital from a consortium
comprising funds managed by Dalmore Capital Limited
and Equitix Investment Management Limited. The offer
completed in October 2018 and shortly afterwards the
acquiring consortium gave 12 months’ notice to terminate
the IAA between JLIF (since renamed Jura) and JLCM.
11. Future returns from investments
The Group’s historical returns and cash yields from
investments may not be indicative of future returns.
The Group’s expected hold-to-maturity IRRs 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.
12. 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 2015, the OECD published its recommendations for tackling
Base Erosion and Profit Shifting (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 was left 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 and (iii) the way
in which future project-financed infrastructure investments
are structured, in each case in such jurisdictions.
In late 2017, the UK Government enacted legislation, effective
from 1 April 2017, which introduced a Fixed Ratio Rule to cap
the amount of tax deductible net interest to 30% of a UK
company’s EBITDA.
In the US, new legislation came into effect on 1 January 2018,
including a restriction on interest deductibility for certain US
entities paying interest to foreign entities.
The Australian Treasury introduced new legislation in
September 2018 which (i) increased tax on foreign investors
in certain structures and (ii) tightened the Australian thin
capitalisation regime.
In France and the Netherlands, new legislation came into
effect to implement the EU Anti-Tax Avoidance Directive to
restrict tax deductible interest to 30% of a company’s EBITDA
effective from 1 January 2019.
13. 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.
Uncertainty arising from the UK’s decision to leave the EU
could impact the Group’s ability to recruit and retain EU
nationals in the UK.
46
Through JLCM, and supported by other parts of the Group,
the Group focuses on delivering a high quality service to
both funds.
>
Increased
We are committed to our IAA with JLEN.
While it is disappointing to lose the net fee income from
the agreement with Jura, it makes a relatively small
contribution compared to the fair value movement from
investing activities.
In bidding for new projects, the Group sets a target IRR 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 IRR and
projected annualised return.
At the appraisal stage, investments in projects are tested
for their sensitivity to changes in key assumptions.
>
No change
>
No change
Tax positions taken by the Group are based on industry
practice and/or external tax advice.
At the appraisal stage, investments in projects are tested
for their sensitivity to changes in tax rates. Project
valuations are regularly updated for changes in tax rates.
The impact of changes to UK, France, Netherlands and
US tax rules has been taken into account in the fair value
at 31 December 2018 of the Group’s investments in those
jurisdictions.
The Group monitors closely the way in which other
governments, including in Australia, are implementing the
OECD recommendations.
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.
>
No change
The Group has offices in Amsterdam and Madrid and could
open further offices in other EU jurisdictions if necessary.
John Laing / Annual Report and Accounts 2018
CORPORATE RESPONSIBILITY
The John Laing Group remains committed
for the long term to its corporate responsibility agenda.
Our community investment strategy includes supporting
our employees to make a significant positive impact on
the communities in which they live and work.
Olivier Brousse
CHIEF EXECUTIVE OFFICER
Sustainability Report
As set out in the Chairman’s Statement, John Laing’s purpose is
to create value for all our stakeholders by investing in, developing
and managing infrastructure projects, including renewable
energy, which respond to public needs, foster sustainable growth
and improve the lives of communities around the world. We are
committed to operating with integrity and in a manner that is
both ethical and transparent and to achieving our purpose and
our strategic and investment objectives by being a responsible
employer, investor and manager.
This section of the Annual Report sets out: (i) our approach as
a responsible employer (People section); (ii) how we improve
the communities in which we live and work (Community section);
(iii) our environmental impact as a business and how we
generate a positive environmental impact through our sustainable
investments (Environment section);
PEOPLE
Introduction
Our employees are among our principal stakeholders and are at
the heart of delivering our purpose. Their skills, capabilities and
expertise are vital to our success. Aiming for consistent value
creation from our investment activities is part of our employee
culture and this is demonstrated by the strong results in 2018.
John Laing aims to attract and retain, develop and reward high
quality employees and to create an engaging, diverse and
motivating working environment. 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.
Under the aegis of an internal project launched in October 2018,
we are focusing on not just how to sustain financial growth, but
also on how to improve employee engagement and diversity.
One of the project’s workstreams involves a group of employees
engaged in refreshing John Laing’s values.
At 31 December 2018, the Group employed 169 employees in
total (2017 – 158). The percentage of employees located outside
the UK increased from 39% at 31 December 2017 to 44% at
31 December 2018, as a result of continued recruitment overseas
and a lower headcount in the UK. We have an internationally
diverse workforce: while some 40% of our employees are UK
citizens, the balance comprises around 25 nationalities.
Equal opportunities
We are committed to a positive working environment which is
free from any discrimination, harassment or unfair treatment,
providing all employees with equal opportunities to develop
within the Group and we have the appropriate policies in place
to support this.
We recognise the value that differences bring, including but not
limited to gender, age, race, nationality, social background,
professional and personal experiences and preferences. We
make recruitment and promotion decisions based solely on the
ability to perform each role. No individual colleague or potential
colleague will receive less favourable treatment on the grounds
of age, gender, sexual orientation, disability, colour, race,
religion, nationality or ethnicity.
Where an employee’s circumstances change, it is the Company’s
policy to do everything reasonably possible to ensure that a
successful return to work is facilitated, either in the same job
or in a different role.
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OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
CORPORATE RESPONSIBILITY (CONTINUED)
Gender diversity
Improving the diversity of our employees is important.
Our priority is to recruit and retain a talented and diverse
workforce and to pay all our employees fairly for what
they do.
We are strongly in favour of the benefits that gender
diversity brings and we are making progress in this area
against the constraints of a small workforce and low staff
turnover. At 31 December 2018, our overall gender balance
was 26% female, 74% male. At Board level, the split was
25% female, 75% male but with the appointment of the new
Chief Financial Officer, this will increase to 37.5% female,
62.5% male. Further information on the Board’s diversity
policy can be found in the Nomination Committee Report
on pages 68 to 69.
We are continually looking to improve our gender balance
and took a number of steps during 2018. These were
aimed particularly at our activities outside the UK. In our
largely-UK central functions, the gender balance is 39%
female, 61% male.
Improving gender diversity
The steps taken included:
• Signing up to the 30% Club and its campaign goals.
The 30% Club aims to develop a diverse pool of talent for
all businesses through the efforts of their Chair and CEO
members who are committed to better gender balance
at all levels of their organisations;
•
Increased reporting in relation to diversity at Board and
Executive Committee level;
• A reminder to search firms used by the Group that
shortlists must be strongly diverse and in particular
must include female candidates;
• Diversity targets for our Asia Pacific and North
American teams;
•
“Unconscious bias” training rolled out across the Group;
• Encouragement to female employees to join female
networking groups including Women in Infrastructure
in the UK and the US and Steel Heels in Australia; and
• Establishing a diversity committee for the Asia Pacific region.
UK gender pay gap
With less than 250 employees, of whom approximately 95 are
located in the UK, the Company is not required to report on its
gender pay gap. This is the difference between the average
amount that women and men are paid across the workforce.
However, we are supportive of transparency and have decided
voluntarily to disclose our gender pay gap. At present it is higher
than we would like to see. This is primarily driven by the fact that
we have more men in senior roles than women. We also have a
higher proportion of women than men in more junior roles.
Our bonus gaps are higher than our gender pay gaps. All our
employees are entitled to participate in our Annual Bonus plan.
The bonus gap is driven by the diversity levels within the
business and the fact that senior roles have higher bonus
opportunities; more men are in senior roles than women.
In addition, the bonus gap calculation as required under the
relevant legislation does not take into account that we pro-rate
bonuses for employees who work on a part-time basis, the
majority of whom are female.
Another factor is that the bonus structure for more senior
employees (who comprise a higher proportion of men)
incorporates a higher element based on corporate rather than
personal performance. This means that in years of strong
corporate performance, the bonus gap between men and
women may be accentuated.
Hourly pay and bonus difference between women and men
John Laing employees across all entities in the UK at 31 December 2018
Mean gender hourly pay gap
On average women earn
Median gender hourly pay gap
Women earn
Mean gender bonus pay gap
On average women earn
Median gender bonus pay gap
Women earn
49.4%
less than men
46.3%
less than men
80.9%
less than men
86.6%
less than men
These figures are irrespective of employee roles or levels in the organisation, expressed as a percentage of male average pay.
Proportion of UK employees receiving a bonus
In the 12 months ended 31 December 2018
Proportion of female UK employees receiving a bonus
Proportion of male UK employees receiving a bonus
67.7%
91.7%
All our employees are entitled to participate in our bonus plan.
The employees who did not receive a bonus during 2018 were
new joiners who did not receive a bonus relating to the year
ended 31 December 2017 as they were not employees of the
Group at that time.
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John Laing / Annual Report and Accounts 2018
Pay quartiles
Closing the gender pay gap
Based on all John Laing employees in the UK at 31 December 2018
Upper quartile
Upper middle quartile
Lower middle quartile
Lower quartile
Total UK employee population
Female
8.7%
8.3%
43.5%
73.9%
33.3%
Male
91.3%
91.7%
56.5%
26.1%
66.7%
The table above shows the gender distribution across four
equally divided hourly pay quartiles, each containing
approximately 24 UK employees.
We recognise that we have more to do to improve our gender
pay gap including creating more opportunities for women to
progress. We will continue to monitor and analyse the gender
pay gap and we are committed to reducing it, building on the
progress being made and increasing our representation of
women at all levels of the organisation. However, we recognise
that given the size of our workforce and our low employee
turnover rates, this will take time and continual focus.
We are confident that the gender pay gap is not the result of an
equal pay issue. We have the appropriate checks and balances in
place to ensure that our employees’ remuneration is appropriate
for their role and their personal performance. Remuneration for
new recruits is based on market-driven benchmarking.
Key Initiatives to close the gender pay gap
In addition to our on-going steps to improve diversity (which are set out above), our additional initiatives to close the gender
pay gap are as follows:
• The development of a 3-5 year plan to improve diversity
and reduce the gender pay gap to enable us to better
understand and remove any barriers for women
reaching senior management positions;
• Progress against the plan to be monitored by the
Executive Committee and the Board;
• Review flexible working policies and their application to
consider other ways to enhance flexible working;
• Continue our support for those returning from career
breaks; and
• Ensure that a healthy work/life balance is promoted.
Our staff numbers at 31 December 2018, broken down by certain remuneration and gender criteria, were:
Total Group
Employees earning above
£70,000 per annum
Executive Directors
Board Directors
Total
Number
Male
Female
Number
% of total
Number
2018
169
118
2
8
2017
158
101
2
7
2018
125
104
2
6
2017
115
92
2
6
2018
2017
2018
74
88
100
75
73
91
100
86
44
14
–
2
2017
43
9
–
1
% of total
2018
26
12
–
25
2017
27
9
–
14
Training and development
Recruitment and selection
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 2018, we focused
on the development requirements of individuals and teams,
supported where necessary with external facilitation, to ensure
teams were operating effectively.
We manage the development of our people through a bi-annual
performance development review which applies to all employees,
including senior managers. 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 development opportunities with
their manager.
Through a fair, transparent and consistent process, we seek to
attract and select high calibre candidates who will maximise
their contribution to the business. We recruit a small number of
employees each year; the number varies from year to year and
our employee turnover rate is low.
Recognition, reward and retention
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 having a competitive
pay and benefits structure, we recognise and reward employee
performance through bonuses and long-term incentive plans.
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OverviewStrategic ReportGovernanceFinancial Statements
John Laing / Annual Report and Accounts 2018
CORPORATE RESPONSIBILITY (CONTINUED)
Supportive working environment
Grievance procedures / whistleblowing
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 a diverse environment that
supports employees 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 workplace. 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.
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 20-25 most senior
managers, together with other employees by invitation, met on
two occasions in 2018 over one to two days to address specific
business issues and future strategy.
In February 2019, we undertook an employee engagement
survey. The results are being reviewed and will be communicated
to our employees in the Spring, with an action plan to address
the key matters arising. A follow up survey is planned for later
in the year to assess progress.
Conduct and behaviour
The standards of conduct and behaviour that we require of our
employees are set out in our policies and procedures and these,
together with our values and the behaviours attributable to those
values, constitute our code of conduct.
Anti-bribery and corruption
John Laing has Group-wide policies on anti-bribery and
corruption (ABC), and gifts and hospitality. All employees are
required to complete online training modules covering potential
ABC and anti-money laundering (AML) situations. All new
employees must complete this training shortly after joining
and all employees are required to repeat the training every
two years or, in certain roles, annually. Completion of this
training is tracked and failure to complete it is reported to the
Executive Directors.
In addition, our bidding framework includes the requirement for
bidding teams to complete ABC and AML reviews on partners,
consultants and contractors as part of each new bid, particularly
in respect of parties we have not previously worked with. There
is a specific protocol in place for interaction with governmental
departments and officials. All consultants, suppliers and
partners must also be made aware of our ABC policy.
We have procedures in place to enable employees to pursue
legitimate grievances. In addition, our whistleblowing policy
enables employees to report concerns on matters affecting
their employment or the Group, without fear of recrimination.
Health and safety
John Laing believes that proper attention to the health and
safety of its employees, subcontractors and the communities
within which the Group operates is a key element of effective
business management and we see health and safety as an
important measure of business performance and essential to
our reputation. The Group is committed to ensuring the health,
safety and welfare of its employees and all other persons who
may be affected by its direct activities, or those under its control.
The projects in which the Group invests maintain their own
health and safety policies.
Human rights
We recognise both the business imperative and the moral
obligation to carry out our activities in a socially responsible and
environmentally sustainable manner, with due consideration
given to human rights. A suite of formal policies, including
policies on Equal Opportunities and Fair Treatment, Corporate
Responsibility and Human Rights, underpins this aim. Copies
of these policies can be found on our website www.laing.com.
We comply fully with applicable human rights legislation in the
countries in which we operate, for example, legislation covering
the right to collective bargaining, equal remuneration and
protection against discrimination.
The Group, including the projects in which it invests, has a large
number of suppliers across the jurisdictions in which it operates.
We believe the risk of modern slavery or human trafficking in
our supply chains and procurement processes to be low given
that our activities do not directly involve operations where modern
slavery or human trafficking are known to occur. All new
suppliers, however, are asked to confirm that their organisation
complies (and take all possible steps to ensure that all their
suppliers and subcontractors also comply) with all applicable
laws, statutes and regulations. Similar confirmations are
requested of the parties involved when we invest in or bid for
new projects.
John Laing is committed, where we have sufficient influence,
to ensuring that the projects we invest in follow our practices
and policies, including those on modern slavery and human
trafficking. We will continue to monitor our supply chain and
investment portfolio in relation to slavery and human trafficking
through regular reviews.
Modern Slavery Act
We published our statement on Modern Slavery for the financial
year ended 31 December 2017 on our website in March 2018.
We will update this statement by 31 March 2019. It sets out the
steps the Group has taken to ensure slavery and human
trafficking are not taking place in any part of our business or
supply chains.
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John Laing / Annual Report and Accounts 2018
COMMUNITY
JLCT 2018 Awards
25
43
Organisations
received donations
Grants across
the world
£1.16m
Funds awarded
in 2018
Some examples of the grants made are described below:
Community – Education – Homelessness – Young & Disadvantaged
Northern Pathways Development: Clarence Correctional Centre,
Australia
In September 2018, six organisations in Clarence Valley,
Australia were selected as beneficiaries of funding and in-kind
support from the Northern Pathways consortium building the
Clarence Correctional Centre. The consortium comprises: John
Laing, Serco Foundation and John Holland. JLCT was delighted
to support the Group and its partners with these community
projects. The recipients and their projects were:
• New School of Arts Neighbourhood House Inc (NSOA):
Employment of a youth worker for 12 months to support a
programme to achieve positive outcomes for young people
in their community by improving access to information,
facilitating supported referrals to local services and
programmes, and coordinating activities and events to
enhance community connection.
• Clarence River Domestic & Family Violence Specialist
Services: Redevelopment of a community centre playground
to meet current Australian standards.
• Gurehlgam Corporation: Engagement of a suitable
Aboriginal person to develop programmes for the Clarence
Valley Aboriginal Healing Centre.
• Police Citizens Youth Club: The programme’s goal developed
with New South Wales police is to get at-risk young people
“Fit for Work” and transition them from training to work
experience to full-time employment or apprenticeships.
• Nungera Co-op: Renovations to a community building in
Maclean.
• Grafton Ngerrie Aboriginal Land Council: Renovations to
a community centre in South Grafton.
We are committed to our corporate responsibility agenda.
Our community investment strategy is based on supporting
our employees to make a significant positive impact on the
communities within which they live and work. We encourage all
our employees to involve themselves in community activities that
benefit their local communities, whether or not related to the
Group’s activities.
Community Investment
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, helping them move into work,
education or training. Over the last year, a number of employees
have taken part in events to raise funds for the Prince’s Trust
including the Future Steps Challenge and a cycling event
organised by one of our employees.
The John Laing Charitable Trust
The John Laing Charitable Trust (JLCT) was formed in
December 1962. JLCT provides welfare support to existing and
former employees of the Group and their immediate families
who are in need of financial assistance. JLCT also makes
charitable grants to help relieve poverty, incapacity and sickness.
All John Laing Group employees or members of their immediate
family, whether in the UK or overseas, directly involved in a
charity are able to apply to JLCT to support a good cause.
Additionally, JLCT is able to match charitable donations raised
by employees up to a value of £1,500 per year. During 2018,
50 applications were received resulting in donations of £44,000.
170th Anniversary of John Laing
In 2018, John Laing celebrated its 170th anniversary. To mark
the occasion, the Trustees of JLCT pledged funds of £1.5 million
to support the Group’s charitable causes with a focus on the key
areas of community, education, homelessness and the young
and disadvantaged.
2018 grants by priority
£177k
£270k
£85k
£626k
2018 grants by region
£458k
£474k
Community
Education
Homelessness
Young & Disadvantaged
Asia Pacific
Europe
North America
£226k
> Part-time youth worker, Renee Fahey (centre), pictured with Aboriginal Youth Workers
and Clarence Youth Action volunteers at one of NSOA’s Chill and Chat sessions in
Market Square, Grafton, January 2019.
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OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
CORPORATE RESPONSIBILITY (CONTINUED)
A RESPONSIBLE INVESTOR
Auckland South Corrections Facility – Wiri, New Zealand
The Auckland South Corrections Facility (ASCF) aligns clearly with our own
values, which are to invest in projects that leave communities more engaged and
better served than we found them.
A revolutionary approach to PPP in New Zealand
This project was an important opportunity for investors like John Laing to
participate in a new way of approaching a PPP project. The original tender
required private partners to bring creativity and innovation to the project in order
to achieve long-term positive social outcomes.
ASCF
The New Zealand government had a focus on reducing re-offending, particularly
amongst Maori offenders. Maori have a disproportionate representation in the
prison sector in comparison to their representation in the general population.
Specifically, bidders for the ASCF project were asked to:
1. Reduce recidivism among the Maori prisoner population by at least 10% more
than other prisons in New Zealand;
2. Maintain prison safety; and
3. Achieve reintegration and social outcomes for Maori prisoners.
The SecureFuture consortium, which included John Laing and Serco, was chosen
to deliver the project, based on the strength and experience of the consortium
members. The consortium’s proposal also focused on meeting the required social
outcome goals and need for reduced re-offending. Working closely with the
design and construction team, and using the Serco Responsible Prisoner Model
as the basis for the operator-led design, John Laing was part of the team that
delivered the finished facility on budget and five weeks ahead of schedule.
Designed for change
The design of the prison is focused on rehabilitation, giving prisoners more
autonomy and support as they go through their sentences. Inmates begin their
sentence in a standard prison block. If their behaviour improves and they engage
with education programmes and training, they gradually move to improved
accommodation comprising residential style units and start to live in an
environment which is more aligned to outside life. Symbolically, they move from
the back of the prison site towards the front gate as they come closer to their
release date. The prison is managed by a dedicated Serco team on a 25-year
contract, and John Laing has two directors on the governance board.
Design-at-a-glance
• The ASCF buildings were deliberately positioned to give views of the Maunga,
a significant landmark for Maori people in the area;
• The buildings also include a wide range of culturally-specific design features
to help Maori prisoners connect with their heritage;
• The Visitors’ Centre has access to the outdoors and a play area for visiting
children;
• Furnishings are soft and brightly coloured, and not fixed to the ground (with
the exception of high-risk prisoner quarters);
•
Inmates have access to technology to help with socialisation and training; and
• The design introduced cooking and self-care facilities to encourage inmate
independence and confidence before release.
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John Laing / Annual Report and Accounts 2018
Education – Young & Disadvantaged
ENVIRONMENT
New York Student Sponsorship Programme, US
For more than three decades, Student Sponsor Partners (SSP)
has addressed New York City’s educational disparity for
low-income, academically vulnerable students by providing
access to high-quality education and adult guidance and
mentorship. SSP is dedicated to providing a bright future for
these deserving students. Five of John Laing’s North American
employees have made commitments to spend time each month
with high school mentees over their four-year high school
journey. Thanks to generous funding from JLCT, these five
students are receiving a quality, private high school education
through the SSP programme. All five students matriculated
into their sophomore year at their respective schools and are
weathering the transition from public middle schools to
private high schools well, thanks to the support from their
John Laing mentors.
Community
Solar panel installation, CERES Community Environment Park,
Brunswick East, Australia
JLCT awarded a grant in relation to a solar panel project at the
CERES Community Environment Park in Brunswick East. In
November 2018, 37.5kW of new panels were installed. The panels
are expected to produce a total of c45,000kWh of electricity in their
first year of operation. This amounts to approximately 19% of the
current total annual electricity requirements at the main park
and should avoid the emission of over 50kg of CO2 per annum.
Community – Young & Disadvantaged
In 2018, JLCT supported three charities linked to the Speyside
community in Scotland:
• Speyside Community Car Share Scheme – serves the rural
Speyside Glenlivet area, which includes John Laing’s
biomass plant investment, to provide a volunteer-based
transport service for those in the community who are
socially isolated by reasons of age, infirmity or disability.
• Moray Foodbank – provides food parcels to people living in
financial hardship in Moray.
• Moray School Bank – offers new school uniforms and warm
winter clothing and footwear to children living in financial
hardship in Moray.
Homelessness
Habitat for Humanity GTA (Greater Toronto Area), Canada
JLCT awarded a grant of £50,000 to support the Habitat for
Humanity, Canada project which helps working and lower income
families to build strength, stability and self-reliance through
affordable home ownership. Around 80 children will benefit from
the project through improved conditions for their development
and education. New homeowners will be trained in various home
ownership skills through a series of dedicated workshops.
John Laing Group is committed to operating with integrity and in
a manner that is both ethical and transparent. We believe we can
achieve our strategic and investment objectives while having a
positive impact on the environment.
Although the direct activities of the Group are judged to have a
low environmental impact, we believe we can deliver significant
positive social and environmental value through our
investments. We invest in a wide range of projects including
social and affordable housing, education, healthcare, green
transport and renewable energy, which have a measurable
environmental or social benefit alongside a financial return.
Increasingly, the overall market for greenfield infrastructure is
driven by several factors, but especially population growth,
urbanisation and climate change. We acknowledge that climate
change presents both a risk and opportunity to our business.
For example, the objectives of the Paris Agreement to limit global
temperature increase to 2°C above pre-industrial levels may drive
significant changes to public policies in many countries, which
could impact upon our current or future investments. However,
as countries try to increase the amount of electric energy
generated from renewable sources, this will also create a growing
market for renewable generation infrastructure projects.
The Group aspires to reduce the impact on the environment
of the infrastructure projects in which it invests, by reducing
greenhouse gas emissions and the volumes of waste going to landfill.
Over the last three years, the Group has committed £525 million
to renewable energy projects. In the future, the Group will
continue to improve disclosure of the environmental impact
across its portfolio.
Generating positive environmental impact through our investments
Hornsdale Wind Farm, South Australia
The three phases of the Hornsdale Wind Farm currently together
comprise South Australia’s largest renewable energy generator,
made up of 99 turbines with a total installed capacity of 316 MW.
Australia has committed to reduce emissions by 26-28% from
2005 levels by 2030 and the Australian Capital Territory (ACT)
has a target to source 90% of its electricity from renewable
sources by 2020.
The Hornsdale Wind Farm has an offtake arrangement to sell its
electricity to ACT and will play a significant part in moving ACT
closer to its target.
Situated North of Jamestown, Hornsdale Wind Farm supplies
approximately 1,050,000 MWh of clean, renewable electricity into
the national power grid each year.
This equates to savings of approximately 297,000 tonnes of
carbon dioxide equivalent (tCO2e) per annum, equivalent to
taking 59,000 cars off the road.
The project and its stakeholders will join with the Canberra
Institute of Technology (CIT) to establish the CIT Renewable
Energy Skills Centre of Excellence which will entrench ACT as
the centre for wind energy trade skills for Australia and the
Asia-Pacific region. The Centre of Excellence will take an
important place in the growing ACT renewable energy industry
cluster and reinforce Canberra’s position as the renewable
energy capital of Australia.
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OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
CORPORATE RESPONSIBILITY (CONTINUED)
Project specifics
Phase 1
Phase 2
Phase 3
DIRECT IMPACT
John Laing Group Interest
Equity Invested
Operational Date
Installed Capacity
30%
£12.1m
20%
£6m
20%
£10.2m
Nov 2016
June 2017
Dec 2017
102 MW
102 MW
112 MW
Through its investment in this project, John Laing is playing an
important enabling role in the development of the renewable
energy sector in Australia, supporting the achievement of both
national and international climate change targets. In 2018 John
Laing was accepted as a member of Australia’s Clean Energy
Council, a network of over 600 leading businesses operating in
support of renewable energy.
Speyside Biomass Combined Heat and Power Plant, Scotland
John Laing, initially along with the Green Investment Bank in
the UK, has invested in a new green energy facility in Speyside,
Scotland developed by Estover Energy Limited. The project is
capable of powering more than 20,000 homes and provides heat
for one of the world’s most iconic whisky distilleries.
Project specifics
John Laing Group Interest
Equity Invested
Operational Date
Lifetime
Max electrical capacity (gross)
Carbon avoided (per annum)
43.35%
£13.3m
2017
Up to 40 years
14 MWe
42,000 tCO2e
The new biomass Combined Heat and Power (CHP) plant near
Craigellachie, Moray, is capable of generating 87.4 GWh per
annum of renewable electricity. It can also generate 76.8 GWh
per annum of renewable heat. Together, the carbon saving
equates to 42,000 tCO2e per annum, the equivalent of taking
over 8,400 cars off the road.
The project also created 123 jobs (100 in peak construction and
23 permanent) and supports one of Scotland’s most important
export industries. The new CHP facility contributes to reducing
the cost of energy at the adjacent Macallan distillery by providing
around 90% of the steam needed in the distillation process. By
using biomass to generate heat instead of natural gas, the
distillery should reduce its greenhouse gas emissions by over
17,500 tCO2e per annum, equivalent to taking almost 3,500 cars
off the road.
The plant is fuelled with sustainable forestry by-product sourced
from the local area, one of the UK’s most productive forestry
areas. A consortium of local growers and forest industry
suppliers supplies the plant. This has several local benefits,
including providing an additional market for low-grade wood,
and helping local forestry growers by supporting the production
of higher-grade wood. This in turn makes local forestry and
woodland management more economic, as well as supporting
jobs in the supply chain.
Local scale biomass plants like Speyside are good sources of
low carbon energy, with benefits extending well beyond the local
sphere. They can help tackle climate change by reducing CO2
emissions, and by using locally sourced and sustainable wood
fuel they reduce our reliance on imported fossil fuels and create
a more secure energy supply.
54
John Laing has fewer than 170 employees worldwide and
therefore has a relatively low environmental impact.
Nevertheless, we are committed to minimising that impact and
to improving our environmental performance wherever possible.
For example, in 2018 we switched to a 100% renewable
electricity supply at our London Head Office, our largest
electricity-consuming site.
From our network of 10 offices across the world, we meet the
requirements of applicable local environmental legislation;
minimise waste and maximise recycling; measure our carbon
footprint annually; and publish the results in our annual reports.
In the future we aim to improve our disclosure through responding
to public Environmental, Social and Governance benchmarks.
We are committed to operating responsibly and to showing how
we are performing.
GREENHOUSE GAS EMISSIONS
As a listed company, we have a regulatory obligation to report
greenhouse gas emissions (GHG) pursuant to Section 7 of The
Companies Act 2006 (Strategic Report and Directors’ Report)
Regulations 2013.
Methodology
We quantify and report our organisational GHG according to the
Greenhouse Gas Protocol and have utilised the UK Government
2018 Conversion Factors for Company Reporting and
International Energy Agency 2018 Factors to calculate CO2e
emissions from corresponding activity data. Supplier-specific
emission factors were sourced in grams of carbon dioxide per
kilowatt-hour of electricity (CO2/kWh) where available.
This report has been prepared in accordance with the recent
amendments to the GHG Protocol’s Scope 2 Guidance and
therefore includes both location-based and market-based
Scope 2 emissions figures. When quantifying emissions using
the market-based approach, we have used a supplier specific
emission factor where possible. If this was not possible a
residual mix emissions factor was then used, and as a last
option the location-based grid emissions factor was used.
Performance
In 2018, we emitted a total of 32.7 tCO2e Scope 1 direct
emissions from fuel combustion and operation of our facilities.
This is a 3% decrease since 2017 due to a decrease in natural
gas and vehicle fuel usage.
During the reporting year, the Group undertook a number of
energy efficiency actions, with a particular focus on the London
office, which is the largest direct energy consumer. Actions
implemented in 2018 included a reduction in printing, replacing
old coffee and hot water machines with more efficient alternatives
and moving to web-based telecommunications to remove the
need for desk handsets.
Through electricity purchased for our own use (Scope 2 indirect),
we emitted a total of 111 tCO2e when taking the location-based
approach and 80 tCO2e when taking the market-based
approach. This is a 4% decrease in location-based emissions
since 2017. Using a market-based approach this is a 23%
decrease, as our London office now procures electricity from
100% renewable sources.
We have also chosen to voluntarily report Scope 3 emissions
arising from our business travel and water consumption where
information is available.
John Laing / Annual Report and Accounts 2018
The table below shows our emissions by scope for 2018 and 2017. Emissions from the consumption of electricity outside the UK are
reported in tonnes of carbon dioxide (tCO2) rather than tCO2e.
Year-on-year Change in Greenhouse Gas Emissions (GHG)
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)
* 2017 Scope 1 and 2 figures have been restated due to availability of improved data.
The table below shows our total emissions and intensity figure for the year ended 31 December 2018.
2018
2017
32.7 tCO2e
110.9 tCO2e
80.2 tCO2
1,233.8 tCO2e
33.8 tCO2e*
115.9 tCO2e*
103.5 tCO2*
618.0 tCO2e
Total Scope 1 and 2**
tCO2 per full-time equivalent employee
* 2017 figures have been restated due to availability of improved data.
** Market-based figures include Scope 2 in tCO2.
There was a decrease in Scope 1 emissions due to a decrease in
natural gas consumption and leased vehicle fuel usage for the
Amsterdam office. Scope 2 emissions decreased year-on-year
for several reasons, including a reduction in emission factors in
the countries in which the Group operates. In 2018, there was an
increase in long-haul and international air travel as a result of
the Group’s growing international operations, which resulted in
an increase of Scope 3 emissions. A larger proportion of actual
business travel data was also available compared to 2017,
meaning less of the data was estimated. The accuracy of Scope 3
reporting is therefore likely to have improved as a result.
Reporting boundaries and limitations
Location-based approach
Market-based approach
2018
2017*
2018
2017*
143.6 tCO2e
0.85 tCO2e
149.7 tCO2e
0.95 tCO2e
112.9 tCO2e
0.67 tCO2e
137.3 tCO2e
0.87 tCO2e
Total emissions 2017 and 2018
(tCO2e)
1,233.8
618.0
We consolidate our organisational boundary according to the
operational control approach and have adopted a materiality
threshold of 10% for GHG reporting purposes. The GHG sources
that constituted our operational boundary for the 2018 reporting
period were:
32.7
33.8
Scope 1
emissions (tCO2e)
110.9
115.9
Scope 2
location-based
emissions (tCO2e)
Scope 3
emissions (tCO2e)
2018
2017
• Scope 1: Natural gas combustion within boilers and fuel
combustion within leased vehicles
• 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
Assumptions and estimations
In some cases, missing information has been estimated either by
extrapolating available data from the reporting period or by using
information from 2017 as a proxy. Actual information was not
available for the New York, Auckland, Toronto, Bogota or Los
Angeles offices and therefore an average annual consumption figure
per square metre of floor area was used to estimate electricity
consumption at these sites. These sites typically have low employee
headcounts and energy supply is managed by the building landlord.
Vehicle mileage information for business travel was not available
for all locations, therefore 2017 information has been used as a
proxy where appropriate. Business travel data was not available for
the Netherlands, Canada and the Asia Pacific region; John Laing
will seek to broaden data coverage to include these locations in
future. Information on refrigerant usage was not available,
therefore refrigerant emissions are excluded.
Scope 2 emissions in 2018 by methodology
(tCO2e and tCO2)
110.9
80.2
Scope 2
location-based
emissions (tCO2e)
Scope 2
market-based
emissions (tCO2e)
55
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
DIRECTORS AND COMPANY SECRETARY
* Executive Directors
** Non-executive Directors
Will Samuel / N
Olivier Brousse / N
Patrick O’D Bourke
Andrea Abt / A&R R N
Dr Jeremy Beeton / A&R R N
Toby Hiscock / A&R R N
David Rough / A&R R N
Anne Wade / R N
Clare Underwood
Group Company Secretary
Board tenure
Board diversity
1.
1. 0-3 years: 25%
2. 3-5 years: 75%
2.
2.
1.
1. Male: 75%
2. Female: 25%
Committee membership
N / Nomination Committee
A&R / Audit & Risk Committee
R / Remuneration Committee
/ Committee Chair
56
John Laing / Annual Report and Accounts 2018
Will Samuel BSc, BA, FCA**
Non-executive Chairman
Will joined John Laing as a Non-executive Director in
December 2017 and became Chairman in May 2018.
Olivier Brousse EP, ENPC*
Chief Executive Officer
Olivier joined John Laing in March 2014 as Chief
Executive Officer.
Patrick O’D Bourke MA, ACA*
Group Finance Director
Patrick will retire and step down as a Director
following the AGM on 9 May 2019.
Skills and Experience
• Extensive commercial, capital markets,
investments and regulatory expertise
• Broad business and governance experience
from executive and non-executive positions
previously held
Will is an experienced Chairman having previously
been Chairman of TSB Bank plc, which he took
through IPO after its de-merger from Lloyds Bank
plc. He was also Chairman of Howdens Joinery
Group, Chairman of Ecclesiastical Insurance Group
plc, Chairman of H P Bulmer plc, Deputy Chairman
of Inchcape plc, Senior Advisor to Lazard & Co Ltd
and Senior Advisor to the Prudential Regulation
Authority (formerly the Financial Services Authority),
a director of Schroders plc, Co-Chief Executive
Officer at Schroder Salomon Smith Barney (a division
of Citigroup Inc), a Non-executive Director of the
Edinburgh Investment Trust plc and a Trustee and
Honorary Treasurer of International Alert.
Will is a Fellow of the Institute of Chartered
Accountants in England and Wales and has a
First-Class Honours Degree in Chemistry from
Durham University and a Degree in Mathematics
from the Open University.
Current External Appointments
Chairman of Tilney Group Limited
Andrea Abt MBA**
Independent Non-executive Director
Andrea joined John Laing in May 2018 as a
Non-executive Director.
Skills and Experience
• Extensive background in a variety of roles,
including sales, finance, procurement and
logistics with specialised knowledge of the
European market
• Significant experience of a broader range of
industries through non-executive roles
Andrea joined Siemens in 1997 and held various
leadership roles, including Head of Supply Chain and
Chief Procurement Officer for Infrastructure & Cities
from 2011 to 2014. Since leaving Siemens, Andrea
has concentrated on non-executive Director roles.
She was previously a Non-executive Director of
Brammer plc.
Andrea has an MBA from Rotman School of
Management (University of Toronto).
Current External Appointments
Non-executive Director of SIG plc and Petrofac Ltd
and a Member of the Supervisory Board of
Gerresheimer AG.
Skills and Experience
• Extensive senior managerial and operational
experience across a number of businesses
• Significant international infrastructure experience
spanning transport, rail, water, waste and energy
From 2008 to 2014, Olivier served as Chief Executive
Officer and then Executive Chairman of Saur SAS in
France. Prior to this he was Deputy Chief Executive
of Veolia Transport Group, responsible for the French
and US businesses, Chief Executive Officer of Veolia
Transportation Inc, based in Washington and Chief
Executive Officer of Connex Trains, based in London.
He was also Chief of Staff to the Chairman and CEO
of Compagnie Générale des Eaux and Commercial
Director of Unic Systems.
Olivier holds engineering degrees from École
Polytechnique and École Nationale des Ponts et
Chaussées. In 2016, he was awarded the Légion
d’Honneur by the French President François
Hollande and in 2008 the Ordre National du Mérite
by the French Transport Minister.
Current External Appointments
Non-executive Director of 1001 Fontaines, a not for
profit organisation.
Dr Jeremy Beeton CB, BSc, CEng, FICE**
Independent Non-executive Director
Jeremy joined John Laing in December 2014 as a
Non-executive Director.
Skills and Experience
• Extensive international experience in project
and programme management over complex
multi-site, multiple project operations portfolios
for and within government, public companies and
private companies
• Significant non-executive experience across a
range of sectors
Jeremy was an Advisory Board member of
PricewaterhouseCoopers until October 2018 and an
independent Non-executive Director of SSE plc until
July 2018. He was previously Director General of the
London 2012 Olympic and Paralympic Games from
2007 until 2012. Prior to this, he was a Principal
Vice President with Bechtel, responsible for their
worldwide civil operations. He 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. He is also a Fellow of the
Institution of Civil Engineers.
Current External Appointments
Chairman of WYG plc and Merseylink Limited, an
independent Non-executive Director of OPG Power
Ventures Plc and on the governing Court of
Strathclyde University.
David Rough BSc Hons**
Senior Independent Director, Chair of
Nomination Committee
David joined John Laing in December 2014 as a
Non-executive Director.
Anne Wade BA, MSc**
Independent Non-executive Director,
Chair of Remuneration Committee
Anne joined John Laing in December 2014 as a
Non-executive Director.
Skills and Experience
• Extensive knowledge of the financial services
Skills and Experience
• Extensive experience in investment and asset
sector, predominantly in the investment
management business
management, particularly in infrastructure related
investments, social finance and impact investment
• Significant experience of a broader range of
• Significant non-executive experience across a
industries through non-executive roles
range of sectors
David joined Legal and General in 1988 and became
head of securities in 1989. In 1991, he was appointed
to the group board as Group Director (Investments)
responsible for the group’s investment operations.
He retired from the business in 2002. He has also
served as chairman of the Association of British
Insurers’ Investment Committee and been a
non-executive and senior independent director on a
number of boards, including Land Securities, London
Metal Exchange, Friends Provident and Xstrata.
Current External Appointments
Chair of the Board and Nomination Committee of
Brown Shipley & Co Ltd and Non-executive Director
of Hansteen Holdings plc.
From 1995 to 2012, Anne was Senior Vice President
and Director of Capital International, responsible
for infrastructure-related investments. 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.
Current External Appointments
Director and member of the Audit Committee of
Summit Materials Inc in the US, Director of the
Heron Foundation in New York and of Big Society
Capital Ltd in London. She is also a Partner of
Leader’s Quest.
Patrick joined John Laing in 2011 as Group Finance
Director.
Skills and Experience
• Extensive listed company experience and financial
experience at board level
• Significant international experience in infrastructure,
particularly in the electricity and energy sectors
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. Previously,
he was Group Treasurer for Powergen plc where he
had formerly been responsible for mergers and
acquisitions. He also spent nine years in investment
banking with Barclays de Zoete Wedd and Hill Samuel.
Patrick graduated from Cambridge University and
qualified as a chartered accountant with Peat
Marwick (now KPMG).
Current External Appointments
Non-executive Director of Affinity Water Limited.
Toby Hiscock MA (Oxon), FCA**
Independent Non-executive Director,
Chair of Audit & Risk Committee
Toby joined John Laing in June 2009 as a
Non-executive Director.
Skills and Experience
• Extensive experience as a finance professional
and extensive listed company and accounting
experience
• Significant experience of a broader range of
industries through non-executive roles
Toby was the Chief Financial Officer and an Executive
Director of Henderson Group plc from 2003 until
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.
Toby is a Chartered Accountant and a graduate of
Oxford University.
Current External Appointments
Non-executive Director of a number of private
entities and a consultant to a number of public and
private institutions.
Clare Underwood, BSc, ACA
Group Company Secretary
Clare joined John Laing in September 2018 as
Group Company Secretary. Previously, she was
Head of London and Group Company Secretary for
Cable & Wireless Communications Plc, having been
appointed as Company Secretary post the demerger
of Cable & Wireless plc in 2010. Prior to that she
was the Company Secretary of the Cable & Wireless
Communications Operating Board and Project
Director for the Cable & Wireless demerger. She
was also the Head of Tax for Energis. Clare is a
Chartered Accountant having qualified at
PricewaterhouseCoopers.
57
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
CORPORATE GOVERNANCE
Good corporate governance
is key to how John Laing
conducts its business and
to the success of the Group.
WILL SAMUEL
CHAIRMAN
IN THIS SECTION
Introduction
The 2016 Code provides guidance on
five key areas: Leadership. Effectiveness,
Accountability, Remuneration and
Relations with Shareholders. This report
together with the committee reports,
provides insights into how, through its
actions, the Board and its Committees
have fulfilled their governance
responsibilities throughout 2018.
58
Good corporate governance is key to how John Laing conducts
its business and to the success of the Group. This year the Board
continued to focus on providing effective leadership and oversight
of the Company as it sought to achieve its strategic priorities and
create value for our stakeholders. We have in place a strong and
effective governance framework to ensure that high standards of
governance, values and behaviours are applied across the Group.
During the year, the Board reviewed the Company’s purpose to
ensure that it appropriately reflects the Company’s strategy and
that it is supported by our business model. A review of our values
is on-going. We have sought to engage all our employees in this
review as our values define the behaviour expected of all of them
in their dealings with our stakeholders.
The Board has also assessed the application of the 2018 UK
Corporate Governance Code (the 2018 Code) which became
effective on 1 January 2019. Consideration has been given to the
method of workforce engagement as required by the 2018 Code
and we are developing our workforce engagement programme
accordingly. We will report on this in the 2019 Annual Report
and Accounts.
The Board evaluation process was conducted internally in 2018 and
the findings and actions from this process were discussed with the
Board. Further detail is included on page 60 of this report.
Compliance with the 2016 UK Corporate Governance Code
The Board confirms that during the year ended 31 December
2018, the Company fully complied with the provisions of the 2016
UK Corporate Governance Code (the 2016 Code). A copy of the
2016 Code is available on the Financial Reporting Council’s
website at www.frc.org.uk. This report, together with the other
statutory disclosures and reports from the Audit & Risk,
Nomination and Remuneration Committees, provides details of
how the Company has applied the principles of good governance
set out in the 2016 Code during the period under review. The
business model and strategy for delivering the objectives of the
Company, the viability and going concern statements and principal
risks and risk management statements each form part of the
Strategic Report which can be found on pages 6 to 55, and the
Statement of Directors’ responsibilities can be found on page 92.
John Laing / Annual Report and Accounts 2018
LEADERSHIP AND EFFECTIVENESS
Induction
Board Membership, Balance and Independence
Biographies of the current Directors, including details of their
Committee memberships, are shown on page 57. There were no
changes during the year to the Chairman’s external commitments.
The Board comprises the Chairman, two Executive Directors and
five Non-executive Directors. The Chairman is committed to
ensuring the Board comprises a majority of independent
Non-executive Directors who objectively challenge management,
balanced against the need to ensure continuity on the Board.
Having reviewed the position of each Director individually, the
Board considers all the Non-executive Directors to be
independent in both character and judgement. In addition, the
Board considers the Chairman to be independent. Collectively,
the Non-executive Directors contribute to an effective Board with
a strong mix of skills and business experience, including recent
financial, strategic, investment and infrastructure experience
gained in a variety of geographic areas. As each occupies or has
occupied senior positions, each contributes significant weight to
Board decisions. The Board believes it has an appropriate
balance of skills and experience.
On 7 December 2017, it was announced that Phil Nolan would
be stepping down from the Board following the 2018 AGM and
that his replacement would be Will Samuel who was initially
appointed as Chairman designate. Will Samuel succeeded Phil
Nolan as Chairman on 10 May 2018. Phil Nolan was not involved
in the selection or appointment of Will Samuel.
Andrea Abt was appointed as a Non-executive Director on
10 May 2018. Further details on the appointment process can be
found in the Nomination Committee Report on pages 68 to 69.
On 23 January 2019, it was announced that Luciana Germinario
would join the Company as Chief Financial Officer designate
with effect from 25 April 2019. This follows the decision of
Patrick O’D Bourke to retire after the AGM in May 2019.
All Directors will stand for re-election at the 2019 AGM, except
for Patrick O’D Bourke who is retiring, and Andrea Abt and
Luciana Germinario who will stand for election.
The Non-executive Directors are initially appointed for a three-year
term with an expectation that they will continue for a further
three-year term. The terms and conditions of appointment of the
Non-executive Directors, which set out the time commitment
expected of them, and the service contracts for the Executive
Directors and the letter of appointment for the Chairman, are
available for inspection by shareholders at our registered office
during normal business hours and at our AGM.
Conflicts
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 Group Company Secretary, at any
time, of any potential or future direct or indirect conflicts that
may arise, or that may possibly conflict with the interests of the
Company. Any such notifications are reviewed at the next Board
meeting and, if considered appropriate, authorised. Directors do
not participate in any discussion or vote regarding their own
conflicts. If authorised, any conflicts are entered in the register
of Directors’ conflicts.
Upon appointment to the Board, all Directors undertake a
comprehensive induction process to familiarise themselves with
the Group’s activities, policies and key issues. The programme is
tailored based on experience and background and requirements
of the role.
Since joining the Board in December 2017, Will Samuel has
undertaken a thorough induction programme. He has met with
the senior managers of the Group, key external advisers
including the Group’s brokers, legal adviser and External Auditor.
In addition, following his appointment as Chair of the Board in
May 2018, Will met with a number of shareholders to discuss key
issues pertinent to the Group. Will has visited the US and
Australia to meet with the regional teams and other external
stakeholders, including partners and lenders. He also undertook
a number of site visits including a visit to the Sydney Light Rail
project in Australia and the Auckland South Corrections Facility
in New Zealand.
Upon joining the Board in May 2018, Andrea Abt undertook a
tailored induction programme and met with the senior managers
of the Group and key external advisers including the Group’s
legal adviser and External Auditor. Andrea also visited the
Netherlands office and met with a number of the regional team.
She also made a site visit to the A16 project.
A comprehensive induction programme has been developed for
Luciana Germinario to enable a smooth handover from Patrick
O’D Bourke. This has commenced with a number of introductory
meetings with senior management and key external advisers
prior to her formally joining the Company in April 2019.
Training
The Chairman is responsible for the ongoing development of all
Directors and agrees any individual training and development
needs with each Director. To strengthen the Directors’
knowledge and understanding of the Company, Board meetings
regularly include updates and briefings on specific aspects of
the Company’s activities. During the year, the Board and its
Committees received a number of briefings in relation to the
2018 Code and its implications for the Company. The External
Auditor provided updates on accounting and auditing
developments relevant to the Group and Aon plc (the
Remuneration Adviser) provided the Remuneration Committee
with training in respect of the remuneration implications of the
2018 Code. All Directors have access to membership of an
external academy, a training and guidance resource for boards
and directors. Additionally, Directors may take independent
professional advice on any matter at the Company’s expense in
the furtherance of their duties.
59
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
CORPORATE GOVERNANCE (CONTINUED)
Board Evaluation
The 2016 Code recommends that an evaluation of the
effectiveness of the Board and its Committees is conducted
annually and that this process is facilitated externally at least
every third year. This year the evaluation process was carried out
internally for the second year. The last external review was
undertaken in 2016 by Colin Mayer, who continues to have no
connection to the Board.
The evaluation in 2018 was internally facilitated by the Group
Company Secretary. Board members were required to complete
a structured questionnaire devised by the Group Company
Secretary and agreed with the Chairman. The evaluation was
based on a number of key areas, including:
• The Company’s strategic agenda;
• Board composition and processes;
• Board leadership and effectiveness;
• Accountability;
• Relations with stakeholders; and
• The effectiveness and performance of the Board Committees.
The Group Company Secretary, the members of the Executive
Committee, the Head of Internal Audit, the External Auditor and
Remuneration Adviser were also invited to complete the relevant
elements of the questionnaire. All participants were offered the
opportunity to discuss any matters with the Chairman, the
Senior Independent Director or the Group Company Secretary.
The individual responses to the questionnaire were reviewed and
analysed by the Group Company Secretary and a confidential,
non-attributable report was compiled with recommended
actions for discussion by the Board. Overall, it was considered
that the governance of the Board was effective and appropriate.
The Board discussed the findings of the evaluation and agreed
a number of actions including:
• Dedicated sessions on key topics including the climate for
greenfield investment for each region to be added to the
strategic agenda;
• Further focus on succession planning to be covered as part
of the Nomination Committee’s increased remit; and
• Specific training to be provided to the Board in respect of
industry and technological developments.
An evaluation of each Board Committee was also discussed.
Actions were identified as appropriate. It was agreed that all the
Board Committees had continued to operate effectively and that
progress against the action plans would be monitored by each of
the Committees.
The 2019 Board evaluation will be externally facilitated.
Chairman’s Performance
As part of the evaluation, David Rough as Senior Independent
Director led a review of the Chairman’s performance. All Board
members including the Executive Directors were asked to
complete a questionnaire regarding the Chairman’s performance.
The Group Company Secretary prepared a non-attributable
summary of the feedback. This was discussed at a private
meeting of the Non-executive Directors. It was concluded that
the Chairman had established himself successfully in the role
with an effective leadership style. David Rough discussed the
feedback with the Chairman.
60
DIVISION OF RESPONSIBILITIES
Will Samuel
Chairman
• Overall operation and governance of the Board;
• Providing leadership of the Board to ensure that the
Board satisfies its duties and responsibilities;
• Setting the agenda for the Board;
• Ensuring that the Board receives clear, timely and
accurate information;
• Facilitating the contribution of the Directors; and
• Ensuring that the Company maintains effective
communication with shareholders and other
stakeholders (shared responsibility with the Senior
Independent Director).
Olivier Brousse
Chief Executive Officer
• Developing the strategy for recommendation to the
Board; and
• Leadership of the business and managing it within
the authorities delegated by the Board.
David Rough
Senior Independent Director
• Meeting shareholders on request and acting as the
designated point of contact for shareholders to raise
any concerns where contact through the normal
channels of the Chairman and the Executive
Directors is inappropriate;
• Bringing to the attention of the Board any matters
raised by major shareholders; and
• Ensuring the Company maintains effective
communication with shareholders and other
stakeholders (responsibility shared with
the Chairman).
Clare Underwood
Group Company Secretary
• Ensuring that good quality corporate governance
is embedded and followed within the Company,
along with the implementation of efficient
company administration;
• Acting as a confidential sounding board to the
Chairman and other Directors; and
• Ensuring compliance with developments in
legislation, regulation and governance.
John Laing / Annual Report and Accounts 2018
Role of the Board
• Board membership and other appointments
With advice from the Nomination Committee, changes to the
structure, size and composition of the Board, appointment
of the Chairs and members of the Board Committees,
determining the independence of Non-executive Directors,
ensuring adequate succession planning, appointment of the
Senior Independent Director and the appointment or removal
of the Group Company Secretary.
• Remuneration
Oversee the Remuneration Committee which is responsible
for determining the remuneration policy for Executive
Directors, and setting the remuneration of the Chair of the
Board, the Executive Directors, the Group Company
Secretary and other senior management, and the
introduction of new share incentive plans or major changes
to existing plans to be put to shareholders for approval.
• Delegation of authority
The division of responsibilities between the Chairman and
the Chief Executive Officer and receiving reports from Board
Committees on their activities.
• Contracts/expenditure
Approval of all significant contracts and expenditure, certain
investments and all disposals of shares in which the Group
holds an interest.
Other specific responsibilities are delegated to the Audit &
Risk, Nomination and Remuneration Committees. Each
Committee reviews its Terms of Reference annually to
ensure that they remain appropriate and effective.
Full details of the Matters Reserved for the Board and the
Terms of Reference of its Committees can be found on our
website at www.laing.com.
The Board is responsible for the Group’s corporate governance
system and is committed to maintaining high governance
standards. In order to progress the objectives of the Group, the
Board meets on a regular basis and is responsible for organising
and directing the Company and the Group in a manner that
promotes the success of the Company and is consistent with
good corporate governance practice. To enable the Board to
function effectively, full and timely access to all relevant
information is given to the Board.
The key policies and practices of the Company and the Group
are set out in this report as well as in the reports of the Audit &
Risk Committee on pages 64 to 67, the Nomination Committee
on pages 68 to 69 and the Remuneration Committee on pages
70 to 87.
Formal minutes recording the decisions of all Board and
Committee meetings are prepared and circulated to each
Director, as appropriate. If a Director objects to a particular
proposal, this is recorded in the minutes of the relevant meeting.
During the period under review there were no such objections.
The Board has implemented a system of delegated authorities.
This enables the effective day-to-day operation of the business
and ensures that significant matters are brought to the attention
of senior management and the Board as appropriate. It is
through this system that the Board is able to provide oversight
and direction to the Executive Directors, the Executive
Committee and the wider business.
There is a formal schedule of matters reserved for the Board
which includes:
• Strategy and management
Approval of long-term objectives and strategy, extension of
the Group’s activities into new business or geographic areas,
any decision to cease to operate any material part of the
Group’s business, and review of the Group’s performance
and annual budget.
• Corporate governance
Annual formal reviews of its own effectiveness, a review of
Group corporate governance arrangements, ensuring an
effective engagement strategy with, and encouraging
participation from, shareholders, the workforce and other
key stakeholders.
• Financial reporting
Approval of announcements of the half year and full
year results, Annual Report, the dividend policy and
proposed dividends.
• Audit, risk and internal controls
Establish procedures to manage risk, oversee the internal
control framework, and establish formal and transparent
procedures to ensure the independence and effectiveness
of the Group’s internal and external audit functions.
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OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
CORPORATE GOVERNANCE (CONTINUED)
Board Meetings
The Board held six scheduled meetings during the year, and individual attendance is set out below. Sufficient time is provided at each
meeting as necessary for the Chairman to meet privately with the Senior Independent Director and the Non-executive Directors to
discuss any matters as necessary.
In addition to the scheduled meetings, four further unscheduled Board meetings were convened. These additional meetings were all
quorate, and all Directors received the relevant papers and provided the required approval.
In addition, the Non-executive Directors also attended a number of other Company meetings to increase their understanding of the
principal risks in the business and the strength and depth of the management teams. Members of the Executive Committee attend
and report at each scheduled meeting and other members of the Senior Management Team and advisers attend Board meetings by
invitation as appropriate throughout the year. At each Board meeting, the Chief Executive Officer delivers a high level update on the
business, the Group Finance Director provides an update on financial performance and other related matters and the Board
considers specific reports, reviews business and financial performance, as well as strategy, key initiatives, risks and governance.
The Board also held two strategy days during 2018.
The Chairman met with the Non-executive Directors without the Executive Directors present and, as part of the internal board
effectiveness review, the Senior Independent Director met with the other Non-executive Directors to discuss the Chairman’s performance.
Will Samuel1
Phil Nolan2
Olivier Brousse
Patrick O’D Bourke
Andrea Abt3
Jeremy Beeton4
Toby Hiscock
David Rough
Anne Wade
1. Appointed Chairman 10 May 2018.
2. Resigned on 10 May 2018.
Independence
On appointment
On appointment
No
No
Independent
Independent
Independent
Senior Independent Director
Independent
Board
(scheduled)4
Audit & Risk
Committee
Remuneration
Committee5
Nomination
Committee
6/6
2/2
6/6
6/6
4/4
6/6
6/6
6/6
6/6
–
–
–
–
2/3
5/5
5/5
5/5
–
–
–
–
–
3/3
4/4
4/4
4/4
4/4
6/6
2/2
6/6
–
3/4
5/6
6/6
6/6
6/6
3. Appointed 10 May 2018; Andrea Abt was unable to attend one Audit & Risk Committee meeting due to a previous commitment in place prior to joining the
Board and was also unable to attend one Nomination Committee meeting due to a previous commitment.
4. Jeremy Beeton was unable to attend one Nomination Committee meeting due to a previous commitment.
5. In addition, there were four unscheduled Board meetings related to investments and Board appointments, and three Sub-Committee meetings covering the
approval of the Rights Issue and financial results.
6. In addition, the Remuneration Committee held one unscheduled meeting during the year. This was quorate.
Board Committees
The Board’s principal Committees are the Audit & Risk Committee, the Nomination Committee and the Remuneration Committee
(the Committees). The Committees have been constituted to consider and make recommendations to the Board regarding matters
including 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, the
appointment of Directors, succession planning and Directors’ remuneration.
On pages 64 to 87, the Chairs of each Committee report on how the Committee which they chair discharged its responsibilities in
the year ended 31 December 2018 and the material matters that were considered. Following each meeting of a Committee, the
Chair of that Committee reports to the Board. Membership is determined by the Board. Whilst not entitled to attend, other Directors,
professional advisers and members of the Executive Committee and Senior Management Team attend when invited to do so. The
External Auditor and Head of Internal Audit attend Audit & Risk Committee meetings by invitation. No persons are present at
Nomination Committee meetings or Remuneration Committee meetings during discussions pertinent to them. The Group Company
Secretary acts as secretary to each Committee.
Each Committee has its Terms of Reference approved and regularly reviewed by the Board. The Terms of Reference for the
Committees are available at www.laing.com.
62
John Laing / Annual Report and Accounts 2018
Management Committees
Executive Committee
The Executive Committee comprises the Executive Directors, the
Chief Risk Officer, the Regional Managing Directors, the Group
HR Director and the Group MD Strategy & Partnerships. 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
other proposals before they are presented to the Board and
monitors progress against the annual 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 potential
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 Chief Risk Officer, the
Group Head of Legal (or the Senior Legal Adviser as alternate),
and up to five other persons as the Chief Executive Officer shall
nominate from time to time. The Committee is chaired by the
Chief Executive Officer and usually meets fortnightly.
Divestment Committee
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.
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 November 2018, the Chief Executive Officer,
together with other members of the Senior Management Team,
hosted the Company’s third investor day since its IPO; the
presentations covered the strategy for growth, our pipeline and
an update on our investment commitments. We also provided an
update on the North American market; the active management
of investments in the Group’s international portfolio and the
impact of macroeconomic factors on the Group balance sheet.
Stakeholder Engagement
The Group is committed to maintaining good communications
with all its stakeholders. To that end, there is regular dialogue
with shareholders, lenders, partners, public sector bodies, and
as discussed in the People section on page 50, with employees.
The Divestment Committee provides oversight and
recommendations on all proposed disposals. The Committee
generally meets once per month, with other meetings scheduled
as necessary. The Committee comprises the Executive Directors,
the Chief Risk Officer and other senior managers. The
Committee is chaired by the Group Finance Director.
Will Samuel
CHAIRMAN
4 MARCH 2019
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. Members of the Committee
are appointed by the Board and currently comprise the Chief
Risk Officer, Group Finance Director, Group Head of Legal, and a
senior manager from each of the three regional teams. The
Committee is currently chaired by the Chief Risk Officer and
meets six times a year.
63
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
AUDIT & RISK COMMITTEE REPORT
The Audit & Risk Committee
maintained its focus on the
integrity of the Group’s financial
reporting, the effectiveness
of its internal control and
risk management systems,
as well as the fair value of
its investment portfolio and
retirement benefit obligations.
Toby Hiscock
CHAIR OF THE AUDIT & RISK COMMITTEE
MEMBERS AND ATTENDANCE
Introduction
Director
Toby Hiscock (Chair)
Andrea Abt1
Jeremy Beeton
David Rough
Audit & Risk
Committee
5/5
2/3
5/5
5/5
1. Appointed 10 May 2018. Refer to page 62.
I am pleased to present the Audit & Risk Committee (the
Committee) report for the year ended 31 December 2018. Our
scope of work remained unchanged throughout the year and
included our customary scrutiny of financial systems and results
and operational risk management.
Meetings
The Committee met on five occasions during the year ended
31 December 2018. The attendance of each Committee member
is shown on page 62 in the Corporate Governance Report.
The Group Finance Director and his team, the Chief Risk Officer,
and other management representatives attend Committee
meetings together with the Head of Internal Audit and the
External Auditor. There is also a standing invitation to all
Non-executive Directors and the Company Chair has attended
all meetings since his appointment during 2018. In addition, both
the Head of Internal Audit and the External Auditor met privately
with the Committee in the year, without management present.
Representatives of the Group’s independent valuer attend
meetings when the Committee considers the portfolio valuation.
The Committee Chair is deemed to have up-to-date relevant
financial experience and competence in accounting matters.
The Committee as a whole has extensive experience in the
sector in which the Company operates, investing in international
infrastructure. Further details of the qualifications and
experience of Committee members are given on page 57 of this
Annual Report.
The Committee Chair attends the Company’s AGM and is
prepared to answer any questions from shareholders on matters
falling within the Committee’s responsibilities.
64
John Laing / Annual Report and Accounts 2018
Role of the Committee
The Committee’s key responsibilities have not changed since
last year’s report. They are, in summary, to:
1. Ensure the integrity of the Group and Company accounting
policies, financial statements, preliminary announcements,
trading updates and other statements on financial
performance and prospects, prior to their publication;
2. Review the content of the annual and interim report and
accounts and advise the Board on whether, as a whole,
they are fair, balanced and understandable, and provide
the information necessary for shareholders to assess the
Group’s and 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 and assess the work and matters arising from 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 of 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 audit-related
and 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 work delivered, including scrutiny and approval
of any audit-related and non-audit services;
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 investments;
9. Review the results of regular stress testing of the Group’s
major financial exposures;
10. Advise the Board on any proposed strategic transactions,
such as acquisitions and disposals of recourse business
entities; and
11. Advise the Remuneration Committee on any risk weightings
applied to the performance objectives of Executive Directors,
wider management and employees.
The 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 Chair of
the Committee.
The Terms of Reference set out the principal duties of the
Committee in full, including its authority to carry out these
duties. These can be found at www.laing.com.
Significant Matters Considered by the Committee in the 2018
Group and Company Financial Statements
1.
Investment portfolio valuation - The valuation of the
Group’s investment portfolio is at the core of its financial
reporting and the Committee has a particular duty to ensure
it is comprehensively reported in a fair, balanced and
understandable way.
A full valuation of the Group’s investments is prepared every
six months, at 30 June and 31 December each year, with a
review at 31 March and 30 September each year, 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. 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:
i) Forecast cash flows accruing to each investment;
ii) Macroeconomic factors affecting forecast cash flows,
including estimates of long-term inflation, interest, currency
and taxation rates, energy yield and future power prices; and
iii) Discount factors applied to each investment to reflect
market and operational risks.
The valuation of investments is sensitive to changes in these
assumptions and, in order to aid shareholders, the key
sensitivities are illustrated in the Portfolio Valuation section
on pages 29 of this Annual Report and in note 18 to the
Group financial statements.
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. There was a particular
focus on the valuation of the Group’s investment in IEP
(Phase 2), the largest investment in the portfolio, following
the disposal of the shareholding in IEP (Phase 1) in May
2018. We also scrutinised certain investments facing ongoing
commissioning issues (eg Sydney Light Rail) or operational
challenges (eg New Royal Adelaide Hospital). Furthermore,
the Committee reviewed the discount rate ranges between
primary and secondary assets by inspection of market
evidence and cross-examination of subject-matter experts,
including the Group’s independent valuer, to ensure trends
were properly reflected in the Group’s portfolio valuation. It
examined the downward movement in power price forecasts
produced by independent third parties and challenged the
valuation of the Group’s renewable energy assets for this
variable together with energy yield assessments. It also
observed the weakening of certain key currencies relative
to Sterling towards the end of the reporting period.
We are satisfied that the Group’s investment portfolio as
a whole is reflected in the 2018 accounts at its prevailing
fair value.
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OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
AUDIT & RISK COMMITTEE REPORT (CONTINUED)
2. Retirement benefit obligations – The net deficit in the
Group’s two defined benefit and post-retirement medical
schemes is reflected in the Group Balance Sheet as at
31 December 2018 in accordance with IAS 19. The net deficit
includes an estimate of the increase in liabilities following
the Lloyds Bank Guaranteed Minimum Pension (GMP)
equalisation court ruling in October 2018 and is sensitive to
movements in future price inflation, discount rates, life
expectancy and investment markets and can, therefore, be
volatile. To assist shareholders, the key sensitivities have
been included in note 20 of the Group financial statements.
The IAS 19 deficit calculation is prepared by the Company
with input from the Group’s actuarial adviser. Following a
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 net
deficit shown as at 31 December 2018 is properly disclosed
and fairly reflects the Group’s retirement benefit obligations
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 – These are disclosed
on pages 41 to 46 of this Annual Report. The Committee
received various presentations and reports from
management on them during the year including bidding
activities, portfolio management, treasury policy and major
financial exposures, related provisions and taxation risks.
We looked at: markets, business growth, organisational
risks, the aggregated exposures to contractors that the
Group partners with, and topics raised by subject matter
experts, for example on taxation developments. During the
period an update of the Group’s taxation strategy was
recommended by the Committee to the Board for approval
and published on the Company’s website in accordance with
the Finance Act 2016.
The Group risk register was regularly updated by
management and reviewed by the Committee during the year.
Whilst we cannot give absolute assurance that the Group’s
internal control system is operating effectively, we are
satisfied that overall the control and compliance culture of
the Group is strong and its risk base is well diversified, which
helps to provide reasonable assurance that these financial
statements are free from material error and/or misstatement.
4. Financial Reporting Council (FRC) review of the 2016
Annual Report and Accounts – Following the FRC’s limited
review of the Group’s 2016 Annual Report and Accounts, noted
on page 56 of the 2017 Annual Report, the FRC wrote to the
Company in June 2018 to advise its review had been closed.
Internal Audit
The Internal Audit function provides independent assurance
to the Board, through the Committee, that internal control
processes, including those relating to risk management, are
relevant, effective and have operated across the business
throughout the year.
The Head of Internal Audit continues to report directly to the
Committee and to have access to the Company and Committee
Chairs at any time.
66
During the year the Committee again scrutinised the efficacy of
the Internal Audit function including its:
i) Terms of reference, budget and resourcing – covering both
internal and co-sourced arrangements;
ii) Risk-based programme of work; and
iii) Reports and the adequacy of responses from management
to them.
As in previous years, Internal Audit achieved its coverage plan
for 2018 and the majority of audits completed were rated as
good or satisfactory.
Key focus areas during 2018 were as follows:
• 17 project company audits, including the Sommette and
St. Martin wind farms in France, the Rocksprings, Sterling
and Buckthorn wind farms in the US, and the Clarence
Correctional Centre in Australia;
• Eight Group audits, including JLCM FCA Compliance, project
bidding, business continuity and IT Infrastructure & Service
Delivery; and
• Three “theme” audits on the subjects of Valuation, Contractor
Performance and Data Security & Record Keeping.
In 2017, Internal Audit headcount was increased from two to
three full-time heads, to match the Group’s expansion into
international markets and growth in assets under management.
This level of resource has been maintained throughout 2018
which the Committee felt was appropriate for the scale and
spread of the Group’s operations.
External Audit
The Committee is satisfied with the effectiveness of the External
Auditor’s audit and independence in respect of 2018, after
scrutiny of:
1. Deloitte’s planned approach to the interim and annual report
and accounts;
2. Deloitte’s execution of the above approach, such as inter alia
its physical inspection and valuation of the Group’s
investment portfolio, together with any adjustments or
qualifications to the accounts (of which there were none);
3. Deloitte’s arrangements to ensure there were no conflicts
of interest arising from its work;
4. Deloitte’s safeguards over its audit independence
and objectivity;
5. The extent and quality of any audit-related and non-audit
services provided by Deloitte during the year; and
6. The day-to-day management of the audit relationship by the
Group Finance Director and his team.
In particular, the External Auditor stepped up its review during
the year of the Group’s physical assets located overseas which
the Committee considered appropriate given the international
expansion of the Group in recent years.
The Committee received a presentation from the External
Auditor on reform of the FRC and the UK audit market, including
the findings of the recent Kingman review, the Competitions and
Markets Authority study into statutory audit services, and the
aims of the upcoming Brydon review. We will follow these
developments closely.
John Laing / Annual Report and Accounts 2018
The principal area of work of the reporting accountant was a
working capital review for the benefit of the Rights Issue’s
sponsors, Barclays and HSBC. This was to provide comfort to
them on the working capital statement made by the Directors in
the Rights Issue prospectus. The other main areas of work were:
• A review of a proforma net asset statement;
• A review of any material changes since 31 December 2017;
• Confirmation of financial numbers extracted from the
audited accounts; and
• Comments on drafting of the Right Issue prospectus and
responding to the UK Listing Authority’s review thereof.
The total fees for non-audit work performed by Deloitte during
2018 amounted to £346,075 (2017 - £61,000). Although material
in the context of the Group’s average statutory audit fee over the
last three years, these fees are not in breach of the cap* on
non-audit services recently set out in EU Audit Legislation as
such legislation does not come into effect until the Group’s
financial year end in 2020. The Committee expects non-audit fees
to fall below the cap* in 2019 and beyond (*no more than 70% of
the Group’s average statutory audit fee over the last three years).
A recommendation to reappoint Deloitte as External Auditor
is supported unanimously by the Board and will be put to
shareholders for their approval at the Company’s forthcoming AGM.
Other Matters
As part of the Board’s 2018 review of its effectiveness, the
performance of the Committee was assessed by the Directors.
The comments were positive although we will look to enhance
structured training and development of Committee members,
for example through further presentations on topics by subject
experts, during the course of 2019.
Other matters considered by the Committee during 2018
included:
i) The lookout period and forecast assumptions for the Group’s
viability statement;
ii) The adoption of the going concern basis in these financial
statements;
iii) The Group’s compliance with market abuse regulation,
including ABC, AML and whistleblowing arrangements;
iv) The Group’s policies and procedures for preventing and
detecting fraud; and
v) A review of the Committee’s Terms of Reference and the
Charter of External Auditor Independence in readiness for
the 2018 Code.
After detailed consideration and enquiry, including testing of
evidence provided by management, each of these matters was
deemed satisfactory by the Committee.
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 external audit is
subject to an open market tender no more than every ten years
and was last tendered in 2016 when Deloitte was reappointed.
The Company has published on its website a Charter of External
Auditor Independence which summarises the arrangements that
ensure the External Auditor remains independent throughout its
term. In particular the External Auditor is required to rotate its
engagement partner at least every five years (Claire Faulkner
was appointed as engagement partner in 2016). In addition, no
work by the External Auditor is permitted in a range of areas
including: tax services; secondments to management;
bookkeeping services; systems design and implementation
work; valuation and actuarial services; human resources and
Internal Audit support; and any other activities that could create
an actual or perceived conflict of interest. The Committee’s
specific approval is required for non-audit services performed
by the External Auditor which would result in a cumulative fee
of more than £20,000 per annum.
The Committee reviewed and approved on behalf of the Board
the External Auditor’s terms of engagement and remuneration.
Fees for audit services to the Company and recourse subsidiaries
during the year amounted to £277,134 (2017 - £224,257). Fees
for audit services to non-recourse subsidiaries during the year
amounted to £61,186 (2017 - £59,403). The increase in fees for
audit services to the Company and recourse subsidiaries was
due to additional work on the valuation of the Group’s
investments overseas.
Any potential non-audit work by the External Auditor is
considered case by case by the Committee in accordance with
the Committee’s Terms of Reference and the Company’s Charter
of External Auditor Independence, and is generally awarded on a
competitive basis.
Audit-related assurance services performed by Deloitte in
2018 comprised, as in the prior year, reviews in accordance
with accounting and regulatory standards of the Group interim
financial statements and the annual review of the Group’s FCA
regulated subsidiary with fees amounting to £55,075 (2017 -
£61,000). Fees were also paid in 2018 for other assurance
services of £15,000 (2017 - £nil).
In addition, as previously reported, the Committee approved
the appointment of Deloitte as reporting accountant for the
Company’s Rights Issue in March 2018 (a non-assurance related
service). The rationale for Deloitte’s appointment was as follows:
It was represented by an independent partner;
Its work was limited to a small number of reporting
workstreams with no management role;
It was familiar with the Group’s cash forecasting
methodology, having carried out a working capital review
for the Company’s IPO in 2015;
•
•
•
•
•
It could draw on the knowledge of the external audit team;
and
Toby Hiscock
CHAIR OF THE AUDIT & RISK COMMITTEE
4 MARCH 2019
Its fee proposal was considered competitive relative to
market benchmarks.
67
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOMINATION COMMITTEE REPORT
This year the Committee has
focused on succession planning
and ensuring readiness for
the new UK Corporate
Governance Code.
David Rough
CHAIR OF NOMINATION COMMITTEE
MEMBERS AND ATTENDANCE
Introduction
Director
David Rough (Chair)4
Will Samuel1
Phil Nolan2
Olivier Brousse
Andrea Abt3
Jeremy Beeton
Toby Hiscock
Anne Wade
Nomination
Committee
6/6
6/6
2/2
6/6
3/4
5/6
6/6
6/6
1. Appointed Chairman on 10 May 2018.
2. Resigned on 10 May 2018.
3. Appointed 10 May 2018. Refer to page 62.
4. Appointed Chair on 18 October 2018.
In readiness for the increased remit of the Nomination
Committee under the 2018 Code, Will Samuel stepped down
as Chair of the Nomination Committee and David Rough was
appointed as Chair in October 2018. The Committee remains
focused on ensuring that the Board comprises individuals with
the necessary skills, experience and diversity to ensure that the
Board is effective in discharging its responsibilities.
Role of the Committee
The key duties of the Committee are to:
• Review the size, structure and composition of the Board; and
•
Identify and make recommendations to the Board on
appointments to the Board and senior management,
including orderly succession for such roles.
The Terms of Reference set out the principal duties of the
Committee, including its authority to carry out these duties.
These can be found at www.laing.com.
Meetings
The Nomination Committee met on six occasions during the
period from 1 January 2018 to 31 December 2018. The
attendance of each Committee member is shown on page 62
of the Corporate Governance Report.
68
John Laing / Annual Report and Accounts 2018
Main activities during the year:
Appointment of Andrea Abt
A formal process was undertaken by the Committee to find an
additional Non-executive Director to strengthen the experience
and skills on the Board and its Committees. The Committee
drew up a detailed job specification and appointed Korn Ferry
to assist with the search. This process was led by David Rough.
Korn Ferry does not have any other connection with the Company.
Following a thorough and rigorous process, Andrea Abt was
appointed as a Non-executive Director to the Board with effect
from 10 May 2018. Andrea brings a wealth of experience from
a variety of leadership roles, including Head of Supply Chain
and Chief Procurement Officer for Infrastructure and Cities
for Siemens AE. Andrea’s appointment is part of our on-going
commitment to build and maintain an effective board which
is high-quality in terms of its expertise, diversity and
international background.
Appointment of Luciana Germinario
In order to ensure an orderly succession plan in anticipation of
Patrick O’D Bourke’s retirement, a formal process was undertaken
by the Committee to find a suitable candidate for the position of
Chief Financial Officer. The Committee drew up a detailed job
specification and appointed Russell Reynolds to undertake the
search. Russell Reynolds does not have any other connection with
the Company. A long list of candidates was initially identified and
reviewed by Toby Hiscock and Olivier Brousse and this was reduced
to a short list of candidates which was presented to the
Committee. The short-listed candidates undertook a panel
interview with a number of Committee members and the
Chairman as well as individual interviews with the Chief Executive
Officer and the Chair of the Audit & Risk Committee.
It was announced on 23 January 2019 that Patrick O’D Bourke
would retire and step down from the Board following the AGM on
9 May 2019 and that Luciana Germinario would be appointed
Chief Financial Officer Designate on 25 April 2019 and
subsequently succeed Patrick. Luciana was the Chief Financial
Officer for Eight Roads, the principal investment division of
Fidelity International Limited which oversees proprietary capital
investments into real estate, venture capital and growth
businesses. Prior to this, Luciana held a number of finance roles
within General Electric.
Succession Planning
The Committee regularly reviewed succession plans for the Board
as a whole and for the Executive Committee. The Board continues
to be satisfied that plans are in place for orderly succession to the
Board to ensure that the right balance and skills are appropriately
represented. In addition, the Committee discussed the succession
plans for the Executive Committee and other Senior Management
over the short, medium and long-term.
Diversity
The Board recognises the importance of Board diversity and has
developed a Board diversity policy to facilitate this. The overall
composition of the Board is fundamental to its effectiveness and
all members of the Board are expected to demonstrate the
skills, experience and knowledge required to contribute to this
effectiveness. We believe that the right mix of gender, age,
ethnicity and cultural diversity can enhance our perspective
and approach.
During the year, the Company signed up to the 30% Club in
support of the latter’s goal to have 30% female representation
on FTSE 350 Boards by 2020. As at 31 December 2018, the
Company’s female Board representation was 25%. When
Luciana Germinario joins the Board, this will increase to 37.5%.
The Board remains committed to its target for female
representation and it remains mindful of the target set out in the
Hampton-Alexander Review for 33% female representation by
2020. The Committee will continue to make recommendations for
new appointments to the Board based on merit, with candidates
measured against objective criteria and with regard to the skills
and experience they would bring to the Board.
The Board has also put in place the following measures to
improve diversity:
• Where feasible the Committee uses search firms who are
signatories to the Voluntary Code of Conduct for Executive
Search Firms which seeks to address gender diversity on
boards and best practice for the related search process; and
• Long lists of potential candidates for Executive and
Non-executive Directors must include female candidates.
Further information on Board diversity can be found on page 56
and gender diversity in the Group as a whole on page 48.
Review of Performance
The Committee’s performance was reviewed as part of the
internal Board effectiveness review carried out during the year.
The Committee is regarded as effectively performing its duties,
as being effectively chaired and as having clarity as to its role vis
a vis the Board as a whole and other committees. Given the
broadened remit of the Committee, the number of scheduled
meetings has been increased for 2019.
Review of Terms of Reference
The Committee undertook a review of its Terms of Reference
in readiness for the 2018 Code and these can be found on the
Company’s website at www.laing.com. The new Terms of
Reference reflect the increased focus of the Nomination
Committee on succession planning, diversity, training and
shareholder engagement through the Committee Chair in
respect of significant matters related to areas of the
Committee’s responsibilities.
David Rough
CHAIR OF THE NOMINATION COMMITTEE
4 MARCH 2019
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DIRECTORS’ REMUNERATION REPORT
I am pleased to report
that this has been another
successful year with NAV
per share growth for 2018
of 15.0%.
The senior management team have
focused on developing relationships
with international partners and this has
resulted in a growth in the total pipeline
of investment opportunities. We have
penetrated deeper into our established
markets of North America and Asia
Pacific, and are looking at projects in new
geographies, such as selected countries
in Latin America. 44% of the Group’s
employees are now located outside
the UK, consistent with our increasing
internationalisation.
Our Remuneration Policy supports this
strategy, through rewarding sustainable
long-term value creation and providing
strong alignment with interests of
shareholders and other stakeholders.
MEMBERS AND ATTENDANCE
Director
Anne Wade (Chair)
Andrea Abt1
Jeremy Beeton
Toby Hiscock
David Rough
1. Appointed 10 May 2018.
Remuneration
Committee
4/4
3/3
4/4
4/4
4/4
70
Anne Wade
CHAIR OF THE REMUNERATION COMMITTEE
DEAR SHAREHOLDER,
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the year ended 31 December 2018.
This report is split into two sections: The Annual Report on
Remuneration and the Directors’ Remuneration Policy (the
“Policy”). Our Policy was last approved by shareholders at our 2016
AGM. As part of our regular three-year cycle we will be asking
shareholders to approve an updated Policy at the 2019 AGM.
2018 has once again been a busy year for John Laing, as we
continue to scale up the business and strengthen the pipeline
of investment opportunities for future growth across our three
regions. New investment commitments of £302 million were
significantly ahead of the guidance given at the start of the year
and total realisations increased to £296 million (compared to
£289 million for 2017), providing additional funding for new
investments and enabling us to declare a special dividend for
2018 of 4.1p per share. The investment portfolio as a whole
is performing well and we are pleased to report a NAV as at
31 December 2018 of £1,586.5 million. This includes the benefit
of value enhancements in 2018 of £165 million.
The Executive Directors were eligible for an annual bonus of up to
100% of salary for 2018. The majority of the bonus (up to 80%)
was based on a scorecard of corporate financial targets to provide
a rounded assessment of financial performance. Details of the
scorecard targets set and performance against them is disclosed
on page 74. Based on performance against the targets and the
overall strong performance of the business over the year, a bonus
of 65.6% of salary (82% of the maximum) was awarded for the
corporate element of the bonus. The remainder of the bonus
(up to 20% of salary) was based on specific individual targets
for each director. Details of the Committee’s assessment against
the personal objectives are set out on page 75. The Executive
Directors performed strongly against their personal objectives
resulting in overall bonuses for 2018 of 81.6% of salary for the
Chief Executive Officer and 80.6% of salary for the Group Finance
Director. Part of the bonus is deferred into shares.
The 2016 awards granted under the John Laing Group plc
Long Term Incentive Plan (“LTIP”) are due to vest in April 2019.
John Laing / Annual Report and Accounts 2018
The awards were based half on compound annual growth in
NAV per share (including dividends) and half on relative total
shareholder return (TSR), measured over three financial years
to 31 December 2018. NAV per share grew by 17.3% per annum
over this period, resulting in 91.3% of shares for this part of
the award becoming eligible to vest. John Laing’s TSR over the
period was 89.9% resulting in a top quartile ranking and all
the shares for this part of the award becoming eligible to vest.
Shares vesting to the Executive Directors are subject to a two
year post-vesting retention period.
Our updated Directors’ Remuneration Policy and its application
for 2019
Our current Policy was developed in 2014 in anticipation of the
Company’s IPO. During the course of 2018, we have reviewed
the Policy to ensure that it continues to support the business
strategy, meets the expectations of shareholders and takes into
account the principles set out in the 2018 Code.
Overall, the Committee believes that the Policy works well,
supporting and promoting sustainable value creation and
providing a fair and appropriate link between performance and
reward. However, we believe that some changes are required to
ensure that the Policy remains fit for purpose for the next
three-year period. The principal changes are:
• To align the pension arrangements for new Executive
Directors (appointed after 9 May 2019) with the
arrangements in place for the majority of employees in
the country in which the Executive Director is based;
• To increase the annual bonus opportunity for Executive
Directors from 100% to 150% of salary;
• To double the share ownership requirement for Executive
Directors from 100% to 200% of salary and to introduce a
policy on post-cessation shareholding requirements in line
with the 2018 Code;
• To strengthen the clawback and malus provisions in the
annual bonus and LTIP and to introduce an overriding power
of discretion with respect to the LTIP to enable the
Committee to scale back the level of vesting in exceptional
circumstances; and
• To amend the good leaver terms for Deferred Share Bonus
Plan (“DSBP”) awards, so that future awards will ordinarily
vest on the normal vesting date rather than vesting on the
date of cessation of employment.
The annual bonus opportunity is currently capped at 100% of
salary. We have been aware for some time that this was
becoming increasingly uncompetitive for a company of our
expanded complexity and was causing pressure as we seek to
attract and retain high quality, experienced infrastructure
specialists. The same maximum opportunity applies to both the
Executive Directors and other Group employees. Under the
revised Policy, the maximum opportunity has been increased to
150% of base salary. This higher limit will enable us to maintain
market competitiveness globally and to continue to drive and
reward performance across the management team. Subject to
approval of the new Policy, the annual bonus opportunity for the
Chief Executive Officer will increase to 150% of salary. The bonus
opportunity for the Chief Financial Officer for 2019 will remain
unchanged at 100% of salary.
No changes are proposed for the LTIP, other than the minor rule
changes set out above. Award levels under the LTIP in 2019 will
be consistent with those applying in previous years (i.e. 175% of
salary for the Chief Executive Officer and 150% of salary for the
Chief Financial Officer). The LTIP 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 2019
awards, which are consistent with those applying to the 2018
awards, are provided on page 76. The NAV per share targets for
the 2019 awards will require 10% to 16% compound annual
growth rate over three years for 25% to 100% vesting of this part
of the award. These targets are the same as for 2018.
As part of the Policy review process, we consulted extensively
with the Company’s major shareholders and also reached out
to the main proxy advisory bodies. I held meetings with eight
shareholders and we received comments from a further four.
We sought views on the current reward arrangements and also
discussed the proposed Policy changes. Overall, the
shareholders that we spoke to were supportive of the proposals
and understood the rationale for the changes proposed.
Board changes
As announced in January 2019, Patrick O’D Bourke, our Group
Finance Director, has decided to retire and will step down from
the Board following the 2019 AGM. Details of the remuneration
arrangements in connection with his retirement, which are in
accordance with the agreed Policy, are set out on page 80. In
essence, Patrick will continue to receive salary, benefits and
pension until he ceases employment with the Company and,
as his retirement has been agreed with the Board, the
Remuneration Committee has determined that he will receive
good leaver status under the Company’s incentive plans.
Luciana Germinario will be appointed to the Board on 25 April
2019 as Chief Financial Officer designate and will assume the
role of Chief Financial Officer following Patrick’s retirement on
9 May 2019. The terms of her appointment are in accordance
with the Policy approved by shareholders in 2016. Her base
salary will be £325,000 and she will be entitled to a maximum
annual bonus and maximum LTIP opportunity of 100% and 150%
of salary per annum respectively. Her bonus for 2019 will be
pro-rated to reflect actual service during the year. Luciana will
be entitled to participate in the same pension arrangements as
other UK based employees with a matching contribution of up
to 12% of salary (aligned with the current contribution rate for
other senior, below Board, employees). To secure her
appointment in accordance with the Policy approved in 2016, it
was necessary to compensate Luciana for certain cash-based
incentive awards that she will forfeit on leaving her previous
employer, Eight Roads. The buy-out award, which has been
designed to mirror the time horizon and expected value of the
remuneration forfeited, will be primarily delivered in shares to
provide alignment with the Company and its shareholders.
Further details on her package are set out on page 80.
Summary
The aim of this report is to communicate details of Executive
Director remuneration 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 resolutions to approve
the Directors’ Remuneration Policy and 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
CHAIR OF THE REMUNERATION COMMITTEE
4 MARCH 2019
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DIRECTORS’ REMUNERATION REPORT (CONTINUED)
2019 Remuneration at a glance
HOW THE REMUNERATION POLICY SUPPORTS OUR BUSINESS STRATEGY
Our remuneration policy is designed to support the Group’s strategy as summarised below:
Strategy
To create value for shareholders
through originating, investing in and managing
infrastructure assets internationally
Focus on
performance-
related pay, with the
emphasis on long-term
performance
Performance
targets which support
sustainable long-term
value creation
Use of share-based
incentives and share
ownership guidelines
for executives
In addition to setting the remuneration for the Executive Directors, the Remuneration Committee also has oversight of remuneration
for all members of the Senior Management Team (approximately 25 individuals), ensuring a cohesive approach to reward is operated
throughout the Group.
SUMMARY OF THE CURRENT REMUNERATION ARRANGEMENTS FOR EXECUTIVE DIRECTORS
Element
Description
Opportunity for 2019
Base pay
Salaries are set taking into account the experience of the Director,
his/her role and responsibilities.
Olivier Brousse, Chief Executive Officer: £483,600
Patrick O’D Bourke, Group Finance Director (GFD)
(until 9 May 2019): £346,300
Luciana Germinario, Chief Financial Officer (CFO): £325,000
d
e
x
i
F
Benefits
Private medical and dental insurance, life insurance, permanent
health insurance and, for Patrick O'D Bourke, a car allowance.
Market competitive.
Pension
Cash allowance in lieu of pension.
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
or where higher 60% of maximum bonus potential) 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 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 15% of salary for CEO; 12% for new CFO; Appointments
post 9 May 2019 to be aligned with majority of workforce.
Subject to approval of the new Policy, up to 150% of salary for
the CEO and 100% of salary for the GFD/CFO.
Current award levels are 175% of salary per annum for the
CEO and 150% of salary per annum for the CFO (within a
policy maximum of 200% of salary per annum).
* The performance measures for the 2019 Bonus and 2019 LTIP awards are set out in the Annual Report on Remuneration on page 80.
REMUNERATION RECEIVED BY THE EXECUTIVE DIRECTORS FOR 2018
£’000
Olivier Brousse
Patrick O'D Bourke
Salary
Benefits
Pension
Bonus1
465
346
2
12
60
45
379
279
Long-Term
Incentives2
1,163
772
Total
2,069
1,454
1 Bonuses were based on an assessment of corporate and individual performance objectives (see pages 74 and 75 for further details).
2 This relates to the estimated value of the 2016 LTIP which will vest in April 2019, see pages 75 and 76.
72
John Laing / Annual Report and Accounts 2018
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 Listing Rule 9.8.6R. The Annual Report on
Remuneration will be put to an advisory shareholder vote at the forthcoming AGM.
Remuneration Committee members
Anne Wade (Chair)
Andrea Abt
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 56 and 57 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 Company has adopted the FCA’s Remuneration Code which is applied to those employees 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 at the next routinely scheduled Board meeting.
The Committee’s terms of reference, which have been recently reviewed and updated to reflect the 2018 Code, can be viewed on our
website at www.laing.com.
The Committee has four regular scheduled meetings each year and meets additionally as circumstances require. The Committee met
five times during the year. Details of the number of meetings held during the year are shown in the Corporate Governance Report on
page 62.
Advisers
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 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.
Aon plc (Aon) (previously New Bridge Street) was appointed in early 2015 to act as an independent adviser to the Committee. Aon is a
member of the Remuneration Consultants Group and is a signatory to its Code of Conduct. During 2018, insurance broking services
were also provided to the Group by other subsidiaries of Aon which the Committee considers in no way prejudices Aon’s position as
the Committee’s independent adviser. Fees charged by Aon for advice provided to the Committee for 2018 amounted to £72,789
(excluding VAT). The Committee is satisfied that the advice it receives from Aon is objective and independent.
73
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
ANNUAL REPORT ON REMUNERATION (CONTINUED)
Directors’ single total figure of remuneration for 2018 (audited)
The table below provides a breakdown of the various elements of Directors’ pay for the year ended 31 December 2018 and for the
prior year. This comprises the total remuneration earned in respect of the period from 1 January 2018 to 31 December 2018, and the
prior period from 1 January 2017 to 31 December 2017.
£’000
Olivier Brousse
Patrick O'D Bourke
Dr Phil Nolan6
Will Samuel7
David Rough
Andrea Abt8
Jeremy Beeton
Toby Hiscock
Anne Wade
Salary / Fees
2018
2017
Benefits¹
Pension²
Bonus3
LTIP4,5
Other
Total
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
465
346
66
144
59
32
48
63
62
434
336
180
3
55
–
45
60
55
2
12
–
–
–
–
–
–
–
2
12
–
–
–
–
–
–
–
60
45
–
–
–
–
–
–
–
56
43
–
–
–
–
–
–
–
379
279
342
251
1,163
772
868
576
n/a
n/a
n/a
n/a
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,069
1,454
66
144
59
32
48
63
62
1,702
1,218
180
3
55
–
45
60
55
1. This relates to private health insurance. The figure for Patrick O’D Bourke also includes a car allowance of £10,200.
2. Cash allowance in lieu of pension is paid net of employer’s national insurance.
3. In accordance with the Deferred Share Bonus Plan (DSBP), any amount over 60% of salary 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.
4. The 2017 figures relate to the 2015 LTIP award which vested in April 2018. The values have been updated to reflect the final vesting percentage and the actual
share price on vesting. See page 76 for further details.
5. The 2018 figures are an estimate of the 2016 LTIP award which is due to vest in April 2019. 50% of the award is based on NAV per share performance and 50%
is based on relative TSR performance over the three year period to 31 December 2018. The value of the shares is based on the average share price for the last
three months of 2018 and includes the value of the dividend equivalents which are payable upon vesting. See pages 75 and 76 for further details.
6. Resigned from the Board on 10 May 2018.
7. Appointed to the Board on 7 December 2017.
8. Appointed to the Board on 10 May 2018.
Details of variable pay earned in the year (audited)
Annual Bonus
The bonus payable for 2018 (excluding JLCM employees) was assessed by the Committee taking into account performance against
the following scorecard of metrics (which were adjusted as appropriate to take into account the Rights Issue):
£ million
NAV (including dividends)
Value enhancements
Distributions (excluding from
non-portfolio assets)
Disposals
New investments
Profit before tax
Threshold
1,463
37
51
261
309
125
Target
1,495
39
54
275
325
157
Stretch
1,526
43
59
303
358
188
Actual
1,631
165
34
296
302
297
Narrative
Above stretch
Above stretch
Below threshold
Between target and
stretch
Below threshold
Above stretch
Based on the achievement of the above scorecard of metrics, the Committee determined that the overall bonus payable for corporate
performance was 82% of the maximum, equivalent to 65.6% of salary for the Executive Directors.
For three of the metrics, including the most important target from a shareholder perspective, NAV, the stretch target was exceeded.
In addition, management delivered realisation proceeds, which provide a direct link to dividends, ahead of both target and market
guidance and very close to the stretch target. The Committee also took into account that investment commitments were ahead of
market guidance given at the time of the Rights Issue.
In addition to the overall Company targets, the Executive Directors were given specific individual objectives which accounted for
20% of their maximum bonus entitlement. The individual objectives for 2018 and a summary of the Committee’s assessment of
the Executive Directors’ performance against these objectives are set out below:
74
John Laing / Annual Report and Accounts 2018
ANNUAL REPORT ON REMUNERATION (CONTINUED)
Chief Executive Officer, Olivier Brousse
In addition to oversight of all Group objectives, the Chief Executive Officer was individually tasked with:
• Developing and executing on the strategy to enhance the financial flexibility of John Laing. A successful Rights Issue was
delivered in March 2018 providing additional capital for investment.
• Continuing a strategic review to achieve sustainable NAV growth. As referred to in the Chief Executive Officer’s Review, an
additional internal project was launched in October 2018 to prepare the business for the next phase in its growth.
• Oversight of the new regional management structure. The new structure was successfully embedded during the year including
the introduction of new regional targets.
The Committee is pleased with the progress achieved, including the Group’s increased financial flexibility which contributed to the
strong performance in 2018 as well as the additional value creation which was enhanced by the new regional management structure,
and accordingly awarded the Chief Executive Officer 80% of the maximum potential for performance against his individual objectives.
Group Finance Director, Patrick O’D Bourke
In addition to oversight of all Group Objectives, the Group Finance Director was individually tasked with:
• Delivering the funding strategy to create future financial flexibility. The Rights Issue was successfully delivered during the year as
well as a refinancing of the corporate borrowing facilities which was achieved in July 2018.
• Recruiting a new Group Company Secretary and Group Head of Legal and ensuring both were successfully integrated into the
business. In both cases, this was delivered during the year.
• Post the Rights Issue, seeking to widen the Company’s shareholder base. New shareholders have joined the register since the
Rights Issue.
The Committee is pleased with the progress achieved, including the Group’s increased ability to take advantage of its pipeline as a
result of the Rights Issue and the increased corporate borrowing facilities, and accordingly awarded the Group Finance Director 75%
of the maximum potential for performance against his individual objectives.
Overall, bonuses for 2018 for the Executive Directors were as follows:
% salary
Olivier Brousse
Patrick O’D Bourke
Corporate (maximum 80% of salary)
Individual (maximum 20% of salary)
Total (maximum 100% of salary)
Total (£’000)
To be paid in:
Cash (up to 60%)
Deferred shares
65.6%
16%
81.6%
379
279
100
65.6%
15%
80.6%
279
208
71
Bonuses up to 60% of salary (or where higher 60% of maximum bonus potential) are paid in cash with any bonus above this level
awarded in the form of deferred shares, normally vesting in equal tranches over one, two and three years and subject to continued
employment. Dividend equivalents are payable on the deferred shares on vesting. Any deferred shares due will be awarded as soon
as practicable following the results announcement in March.
Vesting of the 2016 Long-Term Incentive Plan award (audited)
The awards granted on 15 April 2016 under the John Laing Group plc Long-Term Incentive Plan (LTIP) are due to vest in April 2019.
The awards are subject to the following performance targets:
Measure
Weighting
Performance
period
Threshold target
(25% vesting)
Stretch target
(100% vesting)1
Actual
performance
Vesting %
(max. 50% for
each element)
Compound annual growth in NAV
per Share
TSR relative to the constituents of the
FTSE 250 Index
50%
50%
01/01/16 to
31/12/18
01/01/16 to
31/12/18
12% p.a.
Median
ranking
18% p.a.
17.3% p.a.2
45.63%
Upper quartile
ranking or above
Upper quartile
(89.9% TSR)
50%
1. For performance between threshold and stretch, awards vest on a straight line basis.
2. NAV is based on the figures reported in the Company’s annual financial statements adjusted to include the value of any dividends paid to or approved by
shareholders during the three year performance period. The opening NAV per share figure for the 2016 awards was also adjusted to reflect the dilutive nature
of the Rights Issue. NAV per share, as at 31 December 2018, the final year of the performance period, adjusted to include the value of dividends, was 345.5p
(per share).
75
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
ANNUAL REPORT ON REMUNERATION (CONTINUED)
Vesting of the 2016 Long-Term Incentive Plan award (audited) (continued)
Based on the above, the number of shares vesting under the 2016 LTIP is set out in the table below:
Type of award
Number of shares granted1
Anticipated number
of shares vesting
Estimated value
of shares vesting2
Olivier Brousse
Patrick O'D Bourke
LTIP (nil cost option)
LTIP (nil cost option)
330,330
219,270
369,357
245,177
£1,163,105
£772,063
1. As a result of the Rights Issue, the Company made an adjustment to the number of shares under award to ensure that award holders were not disadvantaged
compared to other shareholders. This resulted in an increase to the number of shares under award by 1.09 times.
2. Value based on the average share price over the period 1 October 2018 to 31 December 2018 (314.9p), including the value of dividend equivalents to be rolled-
up and paid out based on the number of shares vesting.
The awards were structured as nil cost options and, on vesting, will ordinarily be capable of exercise up to the day before the tenth
anniversary of grant. The awards are subject to a post-vesting holding period and the Executive Directors must retain the net number
of shares vesting under the LTIP (after tax) for two years post vesting.
Vesting of the 2015 Long-Term Incentive Plan award (audited)
Vesting of the 2015 LTIP awards was disclosed in the 2017 Remuneration Report. The performance period for the relative TSR element
of the award (50% of the total award) ended on 15 April 2018 and the vesting percentage shown in last year’s report was based on an
estimated figure of 81.43%. The final level of vesting under the TSR element of the award was 88.12%, resulting in an overall vesting level
for the 2015 award of 78.4% (compared to the 75.1% estimated in last year’s report). The values shown in the single figure table (page 74)
and total remuneration history for the Chief Executive Officer (page 79) have been updated to reflect the final vesting percentage.
Details of share awards granted in the year (audited)
Long-term Incentives
The following LTIP awards were granted to the Executive Directors during the financial year:
Type of award
Award size
Face value¹
Number of shares Grant date
Performance period
Performance targets
Olivier Brousse
LTIP (nil cost option)
175% salary
£813,740
288,970
Patrick O'D Bourke LTIP (nil cost option)
150% salary
£519,439
184,460
18 April 2018
1 January 2018 to
31 December 2020
50% based on relative
TSR and 50% based
on NAV per share.
1. Calculated using the closing middle market share price on the day preceding the date of grant which was 281.6p.
The performance conditions attached to the awards are:
−
−
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 compound annual growth in the Group’s NAV per share. NAV per share growth will be based on the NAV per
share reported in the Group’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 base NAV per share figure for the 2018 award is 281p per share.
25% of the shares in this tranche will vest for 10% per annum compound growth, with full vesting for 16% per annum compound
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 to settle related tax liabilities) within two years of vesting.
Deferred Share Bonus Plan
The following awards were granted to the Executive Directors under the DSBP during the financial year. These related to the deferred
element of the 2017 bonus.
Type of award
Award size
Number of shares
Face value1
Grant date
Olivier Brousse
DSBP (nil cost option) Bonus earned over
28,984
Patrick O'D Bourke
DSBP (nil cost option)
17,656
60% of salary
£81,619
£49,719
18 April 2018
1. Calculated using the closing middle market share price on the day preceding the date of grant which was 281.6p.
76
John Laing / Annual Report and Accounts 2018
ANNUAL REPORT ON REMUNERATION (CONTINUED)
The awards will ordinarily 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. Dividend equivalents are payable on the deferred shares on vesting.
Directors’ shareholdings (audited)
The following table sets out a summary of the Directors’ interests in shares (including any interests held by connected persons).
Olivier Brousse
Patrick O'D Bourke
Dr Phil Nolan1
David Rough
Will Samuel
Jeremy Beeton
Toby Hiscock
Anne Wade
Andrea Abt2
No. of shares
owned on
31 December 2017
No. of shares
owned on
31 December 2018
Other interests in shares as at
31 December 2018
Outstanding
LTIP awards
Outstanding
DSBP awards
Total interest in
shares as at
31 December 2018
168,929
141,385
110,256
35,256
–
16,256
20,500
20,256
N/A
225,138
304,202
147,008
47,007
50,000
21,674
27,278
27,007
–
935,043
614,042
N/A
N/A
N/A
N/A
N/A
N/A
N/A
39,322
25,774
N/A
N/A
N/A
N/A
N/A
N/A
N/A
1,199,503
944,018
147,008
47,007
50,000
21,674
27,278
27,007
–
1. Resigned from the Board on 10 May 2018. Interests in shares are shown as at 10 May 2018.
2. Appointed to the Board on 10 May 2018.
Between 31 December 2018 and the date of this report there have been no changes in the Directors’ shareholdings.
The guideline shareholding for Executive Directors for 2018 was 100% of salary. At 31 December 2018, Olivier Brousse and Patrick
O’D Bourke held shares worth 167% and 289% of salary respectively. Under the new Policy, the guideline shareholding for Executive
Directors has been increased to 200% of salary. Shares counting towards achievement of this guideline include beneficially owned
shares and unvested shares (net of tax) held under the DSBP.
Of the total interests in shares held at 31 December 2018, the following shares are subject to a post-cessation holding requirement:
Olivier Brousse
Patrick O'D Bourke
Vested LTIP awards1
Outstanding LTIP awards2
163,628
108,615
935,043
614,042
1. Shares vesting from the 2015 LTIP award (which are subject to a two year post-vesting holding requirement). These shares are included in the number of
shares owned on 31 December 2018 in the table above.
2. Unvested LTIP awards will ordinarily lapse on cessation of employment. However, in certain circumstances (see page 86), participants are allowed to retain a
right to the shares. In such circumstances, the shares will ordinarily vest on the normal vesting date and a two year post-vesting holding period still applies
irrespective of employment status.
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 expenditure on pay
The table below shows the Group’s expenditure on pay compared with distributions to shareholders.
£ million
Remuneration paid to or receivable by all employees
Distributions to shareholders by way of dividends
Distributions to shareholders by way of share buy-backs
2018
36.6
44.0
Nil
2017
33.6
30.1
Nil
77
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
ANNUAL REPORT ON REMUNERATION (CONTINUED)
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 2017 and 31 December
2018 for the Chief Executive Officer compared to the average for other UK-based employees. This comparator group was used
because the Committee believes it gives the best understanding of underlying increases, while avoiding distortions from currency
fluctuation and different economic conditions in other countries.
CEO
Average for other UK employees
Salary
7.1%1
2.6%
Benefits
15.0%2
3.5%
Bonus
10.9%
5.3%
1 The CEO’s salary increase for 2018 is explained on page 59 of the 2017 Annual Report.
2 This is due to an increase of c.£200 in the medical insurance premium which was consistent with the increase for all UK employees.
The Committee considers internal and external relativities when making pay decisions.
With less than 250 UK employees, we are not required to disclose Chief Executive Officer to employee pay ratios. However, in order to
increase the transparency of our reporting in this area, we are including the tables below ahead of the new reporting requirements.
The ratios compare the total remuneration of the Chief Executive Officer, as set out in this report, against the total remuneration of
the median UK and Group employees as well as UK and Group employees in the lower and upper quartiles. This disclosure will build
up over time to cover a rolling 10-year period.
A significant proportion of the Chief Executive Officer’s pay is delivered in LTIP awards which are in part linked to the Company’s
share price movements over the longer term. Therefore, the ratios will depend significantly on the outcomes of the LTIP and may
fluctuate from one year to the next.
The tables also include ratios covering salary to enable a further comparison. The process to ensure that employees are paid fairly is
set out on pages 47 to 50 of this report.
Group:
Pay Ratios
Remuneration Values
Financial Year
Methodology
P75 (Upper
Quartile)
P50
(Median)
P25
(Lower
Quartile)
2018
A (see notes)
8:1
14:1
22:1
Salary only
3:1
6:1
7:1
Chief
Executive
Officer
P75
(Upper
Quartile)
P50
(Median)
P25
(Lower
Quartile)
£2,069
£257
£145
£93
£465
£138
£78
£64
Calculation
Total
remuneration
£000s
Salary only
£000s
UK:
Pay Ratios
Remuneration Values
Financial Year
Methodology
P75 (Upper
Quartile)
P50
(Median)
P25
(Lower
Quartile)
2018
A (see notes)
9:1
17:1
28:1
Salary only
4:1
5:1
9:1
Chief
Executive
Officer
P75
(Upper
Quartile)
P50
(Median)
P25
(Lower
Quartile)
£2,069
£234
£122
£74
£465
£129
£86
£52
Calculation
Total
remuneration
£000s
Salary only
£000s
Notes:
1. The employees at the 25th, 50th and 75th percentiles (lower, median and upper quartile) were determined as at 31 December 2018 based on full-time
equivalent remuneration for all Group/UK employees other than for variable pay where the actual amount to be paid has been used.
2. “Option A” methodology, as set out in the Companies (Miscellaneous Reporting) Regulations 2018, was selected as this is considered the most statistically
accurate under the reporting regulations.
3. Employees on reduced pay are excluded from the calculation.
4. Joiners have been excluded as their annualised package may not be comparable to the Chief Executive Officer due to limited participation in the variable
pay schemes.
5. The data for the three individuals identified has been considered and fairly reflects pay at the relevant quartiles amongst the Group and UK employee
population respectively. Each of the employees was a full-time employee during the year and none received an exceptional award which would otherwise inflate
their pay figures.
78
John Laing / Annual Report and Accounts 2018
ANNUAL REPORT ON REMUNERATION (CONTINUED)
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 2018. 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.
)
d
e
s
a
b
e
r
(
)
£
(
e
u
l
a
V
£250
£200
£150
£100
£50
£0
17/02/2015
31/12/2015
31/12/2016
31/12/2017
31/12/2018
Source: FactSet
John Laing Group plc
FTSE 250 Index
The graph shows the value (as at 31 December 2018) of £100 invested in John Laing Group plc on the date of admission to the Official
List (17 February 2015) compared to £100 invested in the FTSE 250. The other points plotted are the values at intervening financial
year-ends.
The total remuneration figures for the Chief Executive Officer for 2015 to 2018 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.
Total remuneration (£'000)
Annual bonus (% of maximum)
LTIP (% of maximum)
1. Updated (see page 76)
2015
1,535
70%
Nil
2016
759
63%
Nil
2017
1,702
79%
78%1
2018
2,069
82%
96%
The 2017 figure includes the 2015 LTIP award which vested in April 2018. The 2017 figure has been updated to reflect the final
vesting percentage.
Voting outcome on Remuneration
The table below shows the most recent voting outcomes on the remuneration related resolutions:
Resolution to approve the Annual Report on Remuneration
10 May 2018
Resolution to approve the Directors’ Remuneration Policy
12 May 2016
398,377,839
(99.92%*)
258,873,852
(95.86%*)
321,063
(0.08%*)
11,182,710
(4.14%*)
12,960,956
5,337
AGM
Votes For
Votes Against
Votes Withheld
* Percentage of votes cast.
Application of the Remuneration Policy for 2019
A summary of how the remuneration policy will be applied during the forthcoming year is set out below:
Salaries for
Executive Directors
Olivier Brousse – £483,600
Patrick O’D Bourke – £346,300 (retiring from the Board on 9 May 2019)
Luciana Germinario – £325,000 (to be appointed to the Board on 25 April 2019)
Benefits
Pension
No change
No change for incumbent Directors. The pension opportunity for new hires, including Luciana Germinario, has been reduced to
12% of salary in line with the maximum contribution rate offered to senior employees.
79
OverviewStrategic ReportGovernanceFinancial Statements
John Laing / Annual Report and Accounts 2018
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
ANNUAL REPORT ON REMUNERATION (CONTINUED)
Application of the Remuneration Policy for 2019 (continued)
2019 Bonus
Consistent with the approach taken since the IPO, the 2019 bonuses will be based on 80% corporate and 20% individual objectives.
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 2019 are deemed to be commercially
sensitive and will be disclosed in next year's Annual Report on Remuneration.
Subject to approval of the Remuneration Policy, the maximum bonus opportunity for Olivier Brousse will be 150% of salary. Patrick
O’D Bourke and Luciana Germinario will have a maximum opportunity of 100% of salary, pro-rated to reflect the period served.
2019 LTIP
LTIP awards granted to Olivier Brousse and Luciana Germinario will be over shares worth 175% and 150% of salary respectively.
Patrick O’D Bourke will not participate in the 2019 LTIP award cycle.
Chairman and
non-executive
director fees
The 2019 LTIP awards will be measured over three years and subject to the following conditions (with an equal weighting on
each measure):
Performance condition
Threshold (25% vesting)
Maximum (100% vesting)
Compound annual growth in NAV per share
10% p.a.
16% p.a.
TSR relative to the constituents of the FTSE 250 Index
Median performance
Upper quartile performance
There will be straight-line vesting between these points.
The fees for the Chairman and Non-executive Directors were reviewed during the year. The revised fees are as follows:
Chairman
Non-executive directors:
Base fee
Additional fees for:
Chairing the Audit & Risk Committee
Chairing the Remuneration Committee
Senior Independent Director & Chairing the Nomination Committee
£195,0001
£50,0002
£15,000
£15,0003
£15,0004
1. Increased from £180,000 to £200,000 in May 2018. On 18 October 2018, Will Samuel stepped down as Chair of the Nomination
Committee. As a result of the change in role, the annual Chairman’s fee was reduced to £195,000 effective the same date.
2. Increased from £45,000 as from 1 May 2018.
3. Increased from £10,000 as from 1 May 2018.
4. An additional fee of £5,000 was added to the newly combined role of Senior Independent Director and Chairman of the Nomination
Committee as from 18 October 2018.
Retirement of
Patrick O’D Bourke
Patrick will continue to receive salary, benefits and pension contributions up until the date of cessation of employment. As his
retirement has the agreement of the Board, under the terms of the Policy and respective incentive plans he will:
−
−
−
Be eligible to receive, subject to performance, a pro-rata bonus for 2019. This will be paid on the normal payment date and
as he will no longer be an employee of the Company at this point, will be paid solely in cash;
Retain his outstanding DSBP awards, which will vest in full on cessation (as was the Policy for awards granted prior to
May 2019); and
Retain his outstanding LTIP awards, which will continue to vest on the normal vesting date and be subject to a post-vesting
holding requirement and will be pro-rated for time served.
Appointment of
Luciana Germinario
Luciana will be appointed to the Board on 25 April 2019 and assume the role of Chief Financial Officer following the AGM on
9 May 2019. The terms of her service contract have been set in accordance with the Policy approved by shareholders in 2016.
On appointment, she will receive a salary of £325,000, with an annual bonus and LTIP opportunity for 2019 of 100% and 150%
of salary respectively. Her bonus for 2019 will be pro-rated to reflect actual service during the year and she will receive an award
under the LTIP in the grant window following her date of joining.
Luciana will also receive a buyout award in compensation for cash-based long-term incentive awards that she will forfeit on leaving
Eight Roads, her previous employer. The buy-out award, which has been designed to mirror the time horizon and expected value of
the remuneration forfeit, will be primarily delivered in shares. The grant value of the buy-out award is approximately £240,000.
A pension provision of 12% of basic salary will be provided. The provisions for the pension are in line with the structure in place
for the UK workforce and the rate is aligned with other senior employees below Board level. She will also receive private medical
and dental insurance, permanent health insurance and life assurance.
By order of the Board
Anne Wade
CHAIR OF THE REMUNERATION COMMITTEE
4 MARCH 2019
80
John Laing / Annual Report and Accounts 2018
DIRECTORS’ REMUNERATION POLICY
This report sets out the updated Remuneration Policy for the Directors. The principal changes are described on page 71 of the
Directors’ Remuneration Report. The updated policy will be subject to a binding vote by shareholders at our AGM on 9 May 2019.
The updated policy promotes the delivery of sustainable long-term performance through the long-term nature of the incentive plans
(bonus deferral and LTIP), the variety of performance measures used (aligning with the business strategy and supporting a rounded
assessment of performance), and the balanced approach to target setting and performance assessment.
Remuneration Policy Table
The table below sets out the Remuneration Policy for the Executive Directors.
Salary
Purpose and
link to strategy
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.
Operation
Normally reviewed annually by the Committee 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.
Link to performance
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.
Maximum opportunity
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 2019 see the Annual Report on Remuneration on page 79.
Benefits
Purpose and
link to strategy
Operation
To operate a competitive benefits structure for Executive Directors that aids in their recruitment and retention.
Provision of benefits such as private medical and dental insurance, life insurance, permanent health insurance and
company sick pay.
Executive Directors are also eligible to participate in any all-employee share plans operated by the Company on the same
basis as other eligible employees.
Additional benefits may be provided from time to time if the Committee decides the payment of such benefits is
appropriate or, where required, to facilitate the relocation of an Executive Director.
Executive Directors are entitled to reimbursement of reasonable expenses incurred by them in the performance of their
duties (including any tax payable thereon).
Link to performance
Not applicable.
Maximum opportunity
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.
Pension
Purpose and
link to strategy
Operation
To offer market competitive levels of pension and to recognise long-term commitment to the Group.
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.
Link to performance
Not applicable
Maximum opportunity
Chief Executive Officer up to 15% of salary; As announced on 23 January 2019, Chief Financial Officer up to 12%; Future
appointments to be aligned with the majority of the workforce.
81
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
DIRECTORS’ REMUNERATION POLICY (CONTINUED)
Annual Bonus
Purpose and
link to strategy
Operation
To recognise and reward the delivery of short-term strategic and financial objectives which contribute towards long-term
sustainable growth.
The Executive Directors participate in the same overall bonus structure as other Group employees (except for those
employees within JLCM).
To the extent any bonus exceeds 60% of salary or where higher 60% of maximum bonus potential, 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. Dividend equivalents
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 apply.
Link to performance
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 each financial year, with threshold, target and stretch levels
of performance set for each measure. There is no fixed weighting between metrics.
Details of the metrics used to determine the 2018 bonus are set out in the Annual Report on Remuneration on page 74
and the metrics to be used for the 2019 bonus are set out in the Annual Report on Remuneration on page 80.
The Committee uses the scorecard as a guide to help it consider the overall performance of the business and the
appropriate size of the bonus. The Committee will, in its absolute discretion, take into account all relevant circumstances
when determining the size of the bonus, recognising that, given the long-term nature of the business, metrics relating
to projects invested in may move from one year to another outside management’s control. The Committee also has the
discretion to reduce the size of the 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 20% of the maximum.
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.
Maximum opportunity
Up to 150% of salary (60% of maximum for target performance). For 2019, the maximum bonus will be limited to 100% of
salary for the Chief Financial Officer.
No more than 25% of maximum will be payable for threshold performance.
Long Term Incentive Plan (LTIP)
Purpose and
link to strategy
Operation
To incentivise and reward the creation of long-term shareholder value.
At the discretion of the Committee, Executive Directors will normally 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 any shares vesting under an LTIP award (net of tax) for a further two years
post-vesting.
Dividend equivalents that accrue on award shares during the vesting period may be paid at the time of vesting.
Clawback and malus provisions apply.
Link to performance
Awards are subject to the achievement of performance targets linked to the long-term success of the Company.
These targets are currently based 50% on growth in NAV per share and 50% on total shareholder return (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.
Maximum opportunity
Up to 200% of salary.
It is intended that awards for 2019 will be limited to 175% and 150% of salary for the Chief Executive Officer and Chief
Financial Officer respectively.
82
John Laing / Annual Report and Accounts 2018
DIRECTORS’ REMUNERATION POLICY (CONTINUED)
Shareholding guidelines
The Executive Directors are required to build and maintain a shareholding in the Company equivalent to 200% of 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.
The Committee notes the advice set out in the 2018 Code for executives to be required to retain a shareholding in the Company for a
period post cessation of employment. The Committee has reviewed its policy in this regard and the revised policy is set out below:
Share type
Retention requirement
Unvested shares under the DSBP and LTIP
Unvested share awards will ordinarily lapse
on cessation of employment. However, in
certain prescribed circumstances (see page 86),
participants will be allowed to retain a right to
the shares. In such circumstances, the shares
will ordinarily continue to vest on the normal
vesting date1 and for the LTIP awards, an
additional holding period will apply.
Continued interest in shares post cessation
of employment
Up to three years1 in respect of DSBP.
Up to five years in respect of LTIP shares
(remainder of performance period plus a
two year post-vesting holding requirement).
Vested LTIP shares subject to a holding period
The holding period continues to apply
irrespective of employment status.
Up to two years
Other beneficially owned shares
None
–
1. See page 86, a different policy applies in respect of DSBP awards granted prior to 9 May 2019.
Having reviewed the Executive Directors’ existing shareholdings, the Committee is satisfied that the above policy provides sufficient
exposure for the executives to the long-term share price movement of the Company. Detail on the Executive Directors’ current
interests in shares and the proportion to which a post-employment retention requirement applies are set out on page 77.
Annual bonus performance metrics
The size of the overall bonus is assessed by the Committee taking into account performance against a scorecard of corporate metrics
which reflect the growth of the business. The choice of metrics may change for future award cycles, but was the following for 2018:
Metric
NAV1
Distributions
Disposals
Link to strategy
This measures growth in the value of the Group's net asset value.
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.
1. In 2018 the metrics were adjusted, as appropriate, to take into account the Rights Issue.
The majority of the bonus (currently 80% at an Executive Director level) is based on the above assessment of corporate performance.
The remainder of the bonus (currently 20% at an Executive Director level) is assessed on individual performance.
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 the following:
Metric
TSR
Link to strategy
This measures the total return to shareholders provided through share price appreciation and dividends. TSR is
measured relative to performance against a comparator group consisting of 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.
83
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
DIRECTORS’ REMUNERATION POLICY (CONTINUED)
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.
For awards granted in respect of performance periods beginning on or after 1 January 2019, the Committee retains the ability to
scale-back the extent to which any LTIP award vests, or to impose any additional conditions on vesting, where it considers it is
appropriate to do so (for example, where the vesting outcome does not reflect wider Company or individual performance).
The Committee also retains the ability to adjust the metrics, weighting and targets 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,
where 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. In addition, for awards
granted in respect of performance periods beginning on or after 1 January 2019, the Company may also apply malus or clawback to
an award where the Company suffers a material downturn in its operational or financial performance which is at least partly
attributable to management failure and to which the relevant participant has made a material contribution; where the Company has
suffered an instance of corporate failure resulting in the appointment of a liquidator or administrator; and/or where there is a failure
of risk management and/or regulatory non-compliance resulting in material damage to the Company’s business or reputation.
The Company may also clawback cash bonus awards or previously vested DSBP and LTIP awards in the circumstances 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, is
considered as part of the Company’s annual remuneration review. The Committee consults with major shareholders in advance of
making any significant changes to remuneration arrangements.
Link to the remuneration policy for all employees
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. Other senior employees
also participate in the same LTIP as the Executive Directors.
There are some differences in the structure of the remuneration policy for the Executive Directors compared to other 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).
The Committee did not formally consult with employees in respect of the design of the Directors’ remuneration policy. However, a
review of the workforce engagement programme is underway, including how the Company will engage with employees in respect of
executive pay.
84
John Laing / Annual Report and Accounts 2018
DIRECTORS’ REMUNERATION POLICY (CONTINUED)
Remuneration reward scenarios
The total remuneration for the Executive Directors that could result from the remuneration policy in 2019 is shown below:
Minimum
100%
£548
Target
Maximum
Maximum + 50%
share price growth
39%
26%
21%
Minimum
100%
£366
31%
30%
£1,406
34%
29%
40%
£2,120
50%
£2,543
Target
Maximum
Maximum + 50%
share price growth
46%
31%
26%
24%
30%
£805
28%
23%
41%
£1,179
51%
£1,422
e
s
s
u
o
r
B
r
e
i
v
i
l
O
i
o
i
r
a
n
m
r
e
G
a
n
a
i
c
u
L
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
2,500
2,750
£’000
Fixed Pay
Annual Bonus
Long-term Incentive Plan (LTIP)
Notes:
1. Fixed pay consists of salary, benefits and pension. Salary is the amount to be paid in 2019 and benefits are based on the estimated value for 2019. Pension is
shown as 12.9% of salary for the Chief Executive Officer and 12% for the Chief Financial Officer. For the Chief Financial Officer, full year equivalent values have
been shown.
2. The maximum bonus opportunity for 2019 is 150% of salary for the Chief Executive Officer and 100% of salary for the Chief Financial Officer, with 60% of
the maximum earned at target performance. The amount of any bonus in excess of 60% of salary is deferred in shares, which vest subject to continued
employment over one, two and three years.
3. The maximum LTIP award for 2019 is 175% of salary for the Chief Executive Officer and 150% of salary for the Chief Financial Officer. An award of 50% of the
maximum is assumed for target performance. LTIP awards are subject to a three year performance period and the number of shares that vest (net of tax) must
be held for a further two years post vesting.
4. The minimum, target and maximum scenarios exclude the impact of possible share price appreciation. A further scenario has been included to illustrate the
impact of a 50% increase in the share price on the value of LTIP awards in the maximum scenario. The basis of the calculation of the share price appreciation is
that the share price used in the calculation for the further scenario is assumed to increase by 50% across the performance period. No assumptions have been
made as to the value of dividend equivalents on share awards in any scenario.
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 an above inflation increase or increases,
subject to his or her continued development in the role.
• Pension arrangements for new appointments to the Board will be aligned with the rate applying to the majority of the employees
in the country in which the Executive Director is to be based.
• 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 for a specified period. The Committee
may also approve the payment of one-off relocation-related expenses and legal fees.
• Maximum variable pay is limited under the policy to 350% of salary. However, the Committee may offer additional 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
Olivier Brousse entered into a service agreement with the Company on 16 January 2015. Luciana Germinario entered into a service
agreement with the Company on 22 January 2019. There is no fixed term and the contracts continue until terminated by either party
giving 12 months’ notice.
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John Laing / Annual Report and Accounts 2018
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
DIRECTORS’ REMUNERATION POLICY (CONTINUED)
Policy on payment for departure from office
The Company is 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 service agreement to reduce the instalments where the Executive
Director commences alternative employment during the notice period.
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). Outplacement services and reimbursement of legal costs may also be provided. Where appropriate, medical coverage
may continue for a period post cessation.
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.
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:
Voluntary resignation or termination for cause
Annual Bonus
No entitlement.
DSBP
LTIP
Unvested awards will lapse
Unvested awards will lapse
Death, ill health, disability, redundancy or retirement agreed with the Board or for any other reason determined by the Committee
Annual Bonus
Bonus may be payable subject to performance. Awards normally pro-rated based on the period worked during the
financial year. If the executive has left employment by the payment date, the bonus will be paid wholly in cash.
DSBP
LTIP
Unvested awards granted prior to 9 May 2019 will vest on the date of cessation with no pro-rata reduction. Awards
granted after 9 May 2019 will continue to vest on the normal vesting date, unless the Committee determines that early
vesting should apply.
Awards will vest on the normal vesting date, subject to performance and a time pro-rata reduction.
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.
The post-vesting holding requirement and post-employment shareholding policy continue to apply.
Departure on agreed terms
Treatment will normally fall between the two treatments described above, subject to the discretion of the Committee and the terms
of any termination agreement.
Any outstanding awards under an all employee share plan or separate buy-out arrangements entered into on the recruitment of an
Executive Director will be treated in accordance with the terms of the relevant plan/award.
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 awards will vest on the same basis
as described above or that such awards should be adjusted in such manner as the Committee may determine.
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John Laing / Annual Report and Accounts 2018
DIRECTORS’ REMUNERATION POLICY (CONTINUED)
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 services1.
1. Olivier Brousse is a Non-executive Director of 1001 Fontaines. He does not receive any fees for this appointment. Patrick O’D Bourke is a Non-executive Director
of Affinity Water Limited and received fees of £48,175 in 2018 (£47,587 in 2017).
Remuneration for the Chairman and Non-executive Directors
Fee policy
The Chairman is paid an all-inclusive fee for all Board responsibilities.
Expenses
Letters of
appointment
and policy on
termination
The other Non-executive Directors receive a basic Board fee, with supplementary fees payable for additional Board
responsibilities (e.g. for Chair of a Board Committee, the role of Senior Independent Director or other Board appointed role).
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 80. Fee levels are reviewed on a periodic basis, and may be increased taking into
account factors such as the scope and time commitment of the role and market levels in companies of comparable size and
complexity and other broadly comparable companies. Additional fees may be paid as appropriate.
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
Will Samuel
Andrea Abt
Jeremy Beeton
Toby Hiscock
David Rough
Anne Wade
Date of letter of appointment
Unexpired term at 31 December 2018
7 December 2017
10 May 2018
18 December 20141, 2
16 January 20151,2
17 December 20141, 2
17 December 20141, 2
1 year and 11 months
2 years and 4.3 months
2 years and 1.5 months
2 years and 1.5 months
2 years and 1.5 months
2 years and 1.5 months
1. The agreements were conditional on and did not become effective until the Company’s admission to the Official List on
17 February 2015.
2. Amendments to the letters of appointment were signed in January 2018, extending the terms by a further three years to
16 February 2021.
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.
87
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
DIRECTORS’ REPORT
The Directors present their report and the audited financial statements of John Laing Group plc (the Company) together with its
subsidiary undertakings (the Group) for the year ended 31 December 2018. The Directors’ Report and the Strategic Report, which
includes the trends and factors likely to affect the future development, performance and position of the business and a description
of the principal risks and uncertainties of the Group (which can be found on pages 6 to 55 and is incorporated by reference),
collectively comprise the management report as required under the Disclosure and Transparency Rules (the DTR) (DTR4.1.5R).
Additional Disclosures
In accordance with the UK Financial Conduct Authority’s Listing Rules, the information to be included in the 2018 Annual Report and
Accounts, where applicable, under Listing Rule 9.8.4, is set out in this Directors’ report.
The information required by Listing Rule 9.8.4R is disclosed on the following pages:
Disclosure
Long-term incentive schemes
Unaudited Financial Information
Contracts of significance
Shareholder waiver of dividends
Shareholder waiver of future dividends
Page
70-87
156-158
91
88
88
Disclosures relating to capitalised interest, waiver of emoluments or of future emoluments by a Director, non-pro-rata allotments
for cash (issuer or major subsidiaries), parent participation in placing by a listed company, provision of services by a controlling
shareholder or agreements with controlling shareholders do not apply to the Company.
Principal 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 2018 can be found in note 13 to the Company financial statements on page 148
of this Annual Report.
The principal activity of the Company is to act as the holding company of the Group.
The Directors are not aware, at the date of this report, of any major changes in the Group’s activities in the coming year.
Results and Dividends
The Group’s results for the year ended 31 December 2018 are set out in the Group Income Statement on page 100. The Group profit
before tax for the year ended 31 December 2018 was £296.6 million (2017 – £126.0 million).
The Company-only profit after tax for the year was £293.9 million (see page 138) (2017 – £139.4 million).
The Board proposes, subject to the approval of shareholders at the AGM to be held on 9 May 2019, that a base dividend of 3.6 pence
per ordinary share, plus a special dividend of 4.1 pence per ordinary share, totalling a final dividend of 7.7 pence per ordinary share
be paid on 17 May 2019 to shareholders whose names are on the register of members at the close of business on 23 April 2019.
Further information on the final dividend can be found on page 102. This payment, together with the interim dividend of 1.8 pence per
ordinary share paid on 26 October 2018, makes a total for the year of 9.5 pence per share.
Sanne Fiduciary Services Limited, trustee of the John Laing Group Employee Benefit Trust, has waived its entitlement to dividends.
Performance Monitoring
The delivery of the Group’s strategic objectives is monitored by the Board through Key Performance Indicators (“KPIs”), set out in the
Summary Financial Information section, and regular periodic review of various aspects of the Group’s operations. The Group
considers that the KPIs listed on page 2 are appropriate measures to assess the delivery of the Group’s strategy.
88
John Laing / Annual Report and Accounts 2018
Board of Directors
The following were Directors of the Company during the year ended 31 December 2018 and at the date of this Report:
Will Samuel
Phil Nolan (resigned 10 May 2018)
Olivier Brousse
Patrick O’D Bourke (retiring and stepping down from the Board on 9 May 2019)
Andrea Abt (appointed 10 May 2018)
Jeremy Beeton
Toby Hiscock
David Rough
Anne Wade
In accordance with the Company’s Articles of Association and the 2016 UK Corporate Governance Code guidelines, all those persons
holding office as a Director of the Company on 31 December 2018 will retire and offer themselves for re-election at the 2019 Annual
General Meeting, except for Patrick O’D Bourke who will be retiring, for Andrea Abt, who was appointed on 10 May 2018, and for
Luciana Germinario who will be appointed on 25 April 2019.
Luciana will be appointed to the Board as Chief Financial Officer Designate on 25 April 2019 and will succeed Patrick O’D Bourke
upon his retirement on 9 May 2019. Luciana has extensive financial experience at senior managerial level and significant experience
in the investment and digital industrial sectors. She was previously Chief Financial Officer for Eight Roads, the principal investment
division of Fidelity International Limited, with responsibility for the finance function, the real estate investment business and technology.
Prior to this, she held a number of finance roles within General Electric and its worldwide subsidiaries covering industries such as
healthcare, energy, media, plastic and financial services. Luciana holds an Honours (Capital Markets) degree from Bocconi University
and an Executive MBA from the International Institute for Management Development. Andrea and Luciana will both stand for election
for the first time at the 2019 AGM.
The Company does not have agreements with any Director or employee that would provide compensation for loss of office or
employment resulting from a takeover, except that provisions of the Company’s Long Term Incentive Plan and Deferred Share Bonus
Plan may cause unvested awards granted to Directors and employees to vest on a takeover.
Appointment and Removal of a Director
Subject to applicable law, a Director may be appointed by an ordinary resolution of shareholders in a general meeting following
nomination by the Board or a member entitled to vote at such meeting or following retirement by rotation if the Director chooses to
seek re-election at a general meeting. In addition, the Directors may appoint a Director to fill a vacancy or as an additional Director,
provided that the individual retires at the next AGM; if he or she is to continue, he or she offers himself or herself for election. A
Director may be removed by the Company in certain circumstances set out in the Company’s Articles of Association or by an ordinary
resolution of the Company.
Powers of the Directors
Subject to the Articles, the Companies Act 2006 (the Act) and any directions given by the Company by special resolution and any
relevant statues and regulations, the business of the Company will be managed by the Board who may exercise all the powers of the
Company. Specific powers relating to the allotment and issuance of ordinary shares and the ability of the Company to purchase its own
securities are also included within the Articles, and such authorities are submitted for approval by shareholders at the AGM each year.
The Company has not utilised its authority to make market purchases of shares granted at the 2018 AGM but, in line with market
practice, will be seeking to renew such authority at this year’s AGM.
Directors’ Interests
The Directors’ interests in, and options over, ordinary shares in the Company are shown in the Directors’ Remuneration Report. Since
the year end, there have been no changes to such interests.
In line with the requirements of the Act, Directors have a statutory duty to avoid situations in which they have, or may have, interests
that conflict with those of the Company unless that conflict is first authorised by the Board.
The Company has in place procedures for managing conflicts of interest as noted in the Corporate Governance report on page 59.
The Company’s Articles of Association contain provisions to allow the Directors to authorise potential conflicts of interest, so that if
approved, Directors will not be in breach of their duty under company law.
Directors’ Indemnities
The Company has purchased and maintains appropriate insurance cover in respect of Directors’ and Officers’ liabilities. The Directors
and Group Company Secretary of the Company and the directors of the Company’s subsidiaries have the benefit of a third party
indemnity provision, as defined by section 236 of the Act, pursuant to the Company’s Articles of Association.
89
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
DIRECTORS’ REPORT (CONTINUED)
Share Capital and Shareholder Voting Rights
Details of the Company’s issued share capital and the rights attached to the shares, together with details of movements in the issued
share capital during the year, are shown in note 22 to the Group financial statements on pages 134 and 135 of this Annual Report. All
ordinary shares, including those acquired through Company share schemes, rank equally with no special rights. There are no known
arrangements that may restrict the transfer of shares or voting rights.
All shareholders are entitled to attend and speak at general meetings of the Company, appoint proxies, receive any dividends, exercise
voting rights and transfer shares without restriction. On a show of hands at a general meeting every member present in person shall
have one vote, and on a poll, every member present in person or by proxy shall have one vote for every ordinary share held.
Significant Shareholders
Notifications of the following major voting interests in the Company’s ordinary share capital (notifiable in accordance with Rule 5 of
the FCA’s DTR or section 793 of the Act) had been received by the Company up to 31 December 2018 and 4 March 2019, being the last
practicable date. The information provided below was correct at the date of the notification. These holdings may have changed since
the Company was last notified. However notification of any change is not required until the next notifiable threshold is crossed.
Notifications received by
Standard Life Aberdeen plc
BlackRock, Inc.
Baillie Gifford & Co
Kames Capital Plc
Norges Bank
31 December 2018
% of issued
share capital
72,615,779
31,366,785
24,734,900
14,747,579
14,728,606
14.80
6.41
5.04
3.00
3.00
4 March 2019
73,864,748
31,366,785
24,734,900
14,747,579
14,728,606
% of issued
share capital
15.05
6.41
5.04
3.00
3.00
The Company did not receive any notifications during the period between 31 December 2018 and 4 March 2019 except from Standard
Life Aberdeen plc.
The processes by which the Company seeks to understand the views of its major shareholders are described on page 63.
Articles of Association
In accordance with the Act, the Articles of Association may only be amended by a special resolution of the Company’s shareholders in
a general meeting.
Transactions with Related Parties
During the period, the Company did not enter into any material transactions with any related parties.
Political Donations
The Group made no political donations during 2018 (2017: £nil). It remains the Company’s policy not to make political donations.
However, the application of the relevant provisions of the Act is potentially very broad in nature and, as it did last year, the Board will be
seeking shareholder authority to make political donations up to a defined limit to ensure that the Group does not inadvertently breach
these provisions as a result of the breadth of its business activities, although the Board has no intention of using this authority.
Greenhouse Gas Emissions
Greenhouse gas emissions are detailed in the Strategic Report on pages 54 to 55.
Branches
The Company and its subsidiaries have established branches in certain of the countries in which the Group operates.
Auditor
The Company’s auditor is Deloitte LLP (the External Auditor). A resolution proposing the reappointment of Deloitte LLP is included in
the Notice of Meeting and will be put to shareholders at the 2019 AGM.
Statement of Disclosure of Information to the External Auditor
In accordance with Section 418(2) of the Act, each Director in office at the date the Directors’ Report is approved confirms that:
• as far as the Director is aware, there is no relevant audit information of which the Company’s External 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 External Auditor is aware of that information.
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 6 to 55. The Strategic Report includes the Financial Review on pages 32 to 39, the viability statement on page 40 and
the principal risks facing the Group on pages 41 to 46.
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John Laing / Annual Report and Accounts 2018
Research and Development
Neither the Company nor any of its subsidiaries undertake any research or development activities.
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 18 to the Group financial statements.
Post Balance Sheet Events
Post balance sheet events are detailed in note 28 to the Group financial statements.
Material Contracts
The Group’s £650 million committed corporate banking facilities dated 25 July 2018, currently comprise £500 million committed until
25 July 2023 and £150 million until 25 January 2021 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 outstanding utilisations would need to be made by the
incoming owners. The Group’s £475 million committed corporate banking facilities dated 19 January 2015, as amended and restated
on 21 June 2016 and 6 October 2017, which were cancelled on 25 July 2018, had also included a change of control clause. Separately,
the Group’s £50 million liquidity facilities, originally due to mature in March 2018, but extended to February 2019 and then cancelled
on 25 July 2018, had contained 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 employees and resultant queries are handled by the relevant business heads or Executive Committee members 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
employees. 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 pages 47 to 50 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 4 March 2019.
Governance Arrangements
Information regarding the Company’s governance arrangements is set out in the Corporate Governance Report on pages 58 to 63.
These pages are incorporated by reference into the Directors’ Report.
On behalf of the Board
Clare Underwood
GROUP COMPANY SECRETARY
4 MARCH 2019
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OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulations.
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 4 March 2019 and is signed on its behalf by:
Olivier Brousse
CHIEF EXECUTIVE OFFICER
4 MARCH 2019
Patrick O’D Bourke
GROUP FINANCE DIRECTOR
4 MARCH 2019
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.
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John Laing / Annual Report and Accounts 2018
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF JOHN LAING GROUP PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
OPINION
In our opinion:
•
•
•
•
the financial statements of John Laing Group plc (the ‘parent company’) and its subsidiaries (the ‘Group’) give a true and fair view
of the state of the Group’s and of the parent company’s affairs as at 31 December 2018 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.
We have audited the financial statements which 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 28 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.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements
section of our report.
We are independent of the Group and the parent company in accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed
public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm
that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
SUMMARY OF OUR AUDIT APPROACH
Key audit matters
The key audit matters that we identified in the current year were:
• Valuation of investments
• Valuation of defined benefit pension scheme liabilities.
The above key audit matters are consistent with the prior year.
Materiality
Scoping
The materiality that we used for the Group financial statements was £21 million (December 2017: £21 million)
which was determined on the basis of shareholders’ equity and was retained at the same level as the prior
year. The materiality that we used for the parent company financial statements was £19 million (December
2017: £19 million). This is 1.3% of shareholders’ equity for the Group and 1.2% of shareholders’ equity for the
parent company (December 2017: 1.9% and 1.7% respectively).
Our audit scope primarily focused on the fair value of those Public Private Partnership (PPP) and Renewable
Energy investments which are significant to the Group. This year our audit included local valuation specialists
to undertake audit work on the valuation of a sample of Asia Pacific assets. This reflects that the valuation of
these assets is now undertaken locally. The Group does not perform the valuation of the North American
assets locally and therefore our approach to the audit of these investments remained unchanged.
Significant changes
in our approach
There has been no significant change in our audit approach in the current year other than the use of valuation
specialists in Asia Pacific as noted above.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF JOHN LAING GROUP PLC (CONTINUED)
CONCLUSIONS RELATING TO GOING CONCERN, PRINCIPAL RISKS AND VIABILITY STATEMENT
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
Going concern
We have reviewed the directors’ statement in note 3(b) 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 and company’s ability to continue to do so over a period
of at least twelve months from the date of approval of the financial statements.
We considered as part of our risk assessment the nature of the company, its business
model and related risks including where relevant the impact of Brexit, the
requirements of the applicable financial reporting framework and the system of
internal control. We evaluated the directors’ assessment of the company’s ability to
continue as a going concern, including challenging the underlying data and key
assumptions used to make the assessment, and evaluated the directors’ plans for
future actions in relation to their going concern assessment.
We are required to state whether we have anything material to add or draw attention
to in relation to that statement required by Listing Rule 9.8.6R(3) and report if the
statement is materially inconsistent with our knowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were
consistent with the knowledge we obtained in the course of the audit, including the
knowledge obtained in the evaluation of the directors’ assessment of the Group’s and
the company’s ability to continue as a going concern, we are required to state whether
we have anything material to add or draw attention to in relation to:
•
•
•
the disclosures on pages 41 to 46 that describe the principal risks and explain how
they are being managed or mitigated;
the directors’ confirmation on page 41 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; or
the directors’ explanation on page 40 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.
We are also required to report whether the directors’ statement relating to
the prospects of the Group required by Listing Rule 9.8.6R(3) is materially inconsistent
with our knowledge obtained in the audit.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements in the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement team.
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. There has been no change in the key audit matters in the current year
from what we reported last year.
94
VALUATION OF INVESTMENTS
Key audit matter description
How the scope of our
audit responded to
the key audit matter
John Laing / Annual Report and Accounts 2018
The Group holds a range of investments in PPP and Renewable Energy assets. The total value
of these assets at 31 December 2018 was £1,560 million (31 December 2017 – £1,194 million)
as disclosed in note 13 to the Group financial statements. These investments are held across
a range of different sectors comprising transport, environmental (including renewable energy)
and social infrastructure, and a range of geographies including Europe, North America and
Asia Pacific.
The valuation of investments is a significant judgement underpinned by a number of key
assumptions and estimates. The key estimate is the discount rates adopted. Given the level
of judgement involved, we also considered whether there was potential for fraud through the
possible manipulation of these rates. Other key sources of estimation uncertainty include
forecast project cash-flows, in particular future power prices which impact the value of the
Group’s investments in Renewable Energy projects.
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. An independent valuation is obtained from a third party in respect of the fair
market value of the portfolio as a whole at the balance sheet date.
More information on the valuation and valuation methodology (including the discount rates
adopted, the relevant sensitivity of the valuation of investments to a change in those rates and
the relevant sensitivity of the valuation to a change in future power prices) can be found in the
Audit & Risk Committee report on page 65 and note 4 to the Group financial statements.
• We assessed the design and implementation of the controls in place to value the Group’s
investments.
• We obtained evidence to substantiate the discount rate(s) adopted including benchmarking
management’s discount rates against market data, including the Group’s disposals in the
current and previous period. We also benchmarked the discount rates on key assets to each
other to ensure that we understood why projects have different rates and why there had been
a change in the rates since the prior year.
• Deloitte valuation specialists in Australia assisted in auditing the value of a sample of
Asia Pacific assets which entailed the procedures as described below.
• We met with the Group’s independent valuer to understand the process undertaken by them
in arriving at their opinion that the portfolio as a whole represents fair market value. This
included assessing how the discount rates adopted by the Group benchmarked against those
of the independent valuer. We also assessed the competence and independence of the
external valuer.
• We assessed the key changes in cash flows since the prior year within a sample of project
models which included checking that the latest forward power price curves had been
correctly incorporated. For new investments we also reviewed the project model audit report.
• We also visited the US and Australian operations of the Group which included a site visit
to a sample of assets. We also discussed asset performance with members of the Asset
Management team and considered the impact of operational challenges on the value of
key projects.
• We checked that the disclosures in the financial statements were appropriate particularly
in respect of the judgements taken and the sensitivities disclosed.
Key observations
• While our work identified both upside and downside risks on the value of individual assets,
we consider the judgements adopted in valuing the Group’s investments as a whole to be
appropriate and within an acceptable range taking into account the range of discount rates
observed within the market and the work of the independent valuer.
• The level of transactional evidence on the value of investments has increased over the past four
years as the Group has divested assets. The price obtained on divestments over this period
supports the valuations ascribed by the company excluding the valuation uplift on the sale in
2018 of the Group’s investment in IEP (Phase 1).
• We consider the disclosures in respect of the valuation of investments to be appropriate and
in accordance with IFRSs as adopted by the EU.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF JOHN LAING GROUP PLC (CONTINUED)
VALUATION OF DEFINED BENEFIT PENSION SCHEMES
Key audit matter
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 £33 million at 31 December 2018 (deficit of £32 million at
31 December 2017).
The valuation of the deficit is subject to a number of assumptions including the adoption of the
appropriate (i) discount rate (ii) inflation rate and (iii) mortality assumptions. We considered whether
there was potential for fraud through the possible manipulation of these assumptions.
There is also a judgement concerning the Group’s ability to recover a surplus under the rules of the
John Laing Pension Fund and consequently the consideration of minimum funding requirements under
IFRIC 14 ‘The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction.’
The Group has recorded a charge and an additional pension liability of £21 million for the costs of
Guaranteed Minimum Payment (GMP) equalisation.
See note 20 of the Group financial statements for further information and the Audit & Risk Committee
report on page 66 and the Group’s disclosures around critical accounting judgements and key sources of
estimation uncertainty in note 4.
• 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 tested the Group’s key assumptions,
including the discount rate, mortality assumptions and inflation rate against our expected
benchmarks and those adopted by other companies in the market.
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, external legal advice obtained by management and the
actuarial schedule of contributions.
• Our pension specialists assessed the impact of the GMP equalisation charge.
• We checked that the disclosure requirements of IAS 19R Employee Benefits had been fulfilled.
How the scope of our
audit responded to
the key audit matter
Key observations
• We consider the judgements adopted by the Group in valuing the pension scheme liabilities (the
discount, inflation and mortality assumptions) to be appropriate and consistent with our own
internal benchmarks.
• We 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.
• The methodology adopted by the company for calculating the impact of the GMP equalisation
is appropriate.
• We also consider the disclosures around the valuation of the defined benefit pension schemes to be
appropriate and in accordance with IFRSs as adopted by the EU.
OUR APPLICATION OF MATERIALITY
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of
our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
GROUP FINANCIAL STATEMENTS
PARENT COMPANY FINANCIAL STATEMENTS
Materiality
£21 million (December 2017 – £21 million)
£19 million (December 2017 – £19 million)
Basis for determining
materiality
1.3% of Group shareholders’ equity
(December 2017 – 1.9%)
1.2% of Parent Company shareholders’ equity
(December 2017 – 1.7%)
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.
Shareholders’ equity was selected as net asset value
is a key performance indicator for the Parent
Company. 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 £750,000 (2017:
£500,000), 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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John Laing / Annual Report and Accounts 2018
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and
assessing the risks of material misstatement at the Group level. Our audit scope primarily focused on the fair value of those PPP
and Renewable Energy investments which are significant to the Group.
We made enquiries of the project 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. All audit work on these subsidiaries was performed by the
Group audit team.
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. The Group audit team visited the
Group’s North American and Asia Pacific operations in the year which was combined with a site visit to a sample of the Group’s
investments. Over the past three years the Group audit team has visited 10 of the Group’s investments which covered 25% of the
investment portfolio by value at 31 December 2018.
OTHER INFORMATION
The directors are responsible for the other information. The other information comprises the
information included in the annual report, other than the financial statements and our auditor’s
report thereon.
We have nothing to
report in respect of
these matters.
Our opinion on the financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required
to determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
Fair, balanced and understandable – the statement given by the directors that they consider the
annual report and financial statements taken as a whole is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Group’s position and
performance, business model and strategy, is materially inconsistent with our knowledge obtained
in the audit; or
Audit & Risk Committee reporting – the section describing the work of the Audit & Risk Committee
does not appropriately address matters communicated by us to the Audit & Risk Committee; or
Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the
directors’ statement required under the Listing Rules relating to the company’s compliance with
the UK Corporate Governance Code containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant
provision of the UK Corporate Governance Code.
RESPONSIBILITIES OF DIRECTORS
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, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic
alternative but to do so.
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John Laing / Annual Report and Accounts 2018
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF JOHN LAING GROUP PLC (CONTINUED)
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES, INCLUDING FRAUD
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design
and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to
provide a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws
and regulations, our procedures included the following:
• enquiring of management, internal audit and the Audit & Risk Committee, including obtaining and reviewing supporting
documentation, concerning the Group’s policies and procedures relating to:
•
identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of
non-compliance;
• detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and
•
the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations.
• discussing among the engagement team and involving relevant internal specialists, including tax and pensions specialists,
regarding how and where fraud might occur in the financial statements and any potential indicators of fraud. As part of this
discussion, we identified potential for fraud in the following areas: the discount rate assumption in the valuation of the investment
portfolio and the assumptions including the adoption of the appropriate discount rate, inflation rate and mortality assumptions in
determining the defined benefit pension scheme liabilities; and
• obtaining an understanding of the legal and regulatory framework that the Group operates in, focusing on those laws and
regulations that had a direct effect on the financial statements or that had a fundamental effect on the operations of the Group.
The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules, pensions legislation
and tax legislation.
Audit response to risks identified
As a result of performing the above, we identified the valuation of investments and the valuation of the defined benefit pension
scheme liabilities as key audit matters. The key audit matters section of our report explains the matters in more detail and also
describes the specific procedures we performed in response to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:
•
reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws
and regulations discussed above;
• enquiring of management, the Audit & Risk Committee and in-house legal counsel concerning actual and potential litigation
and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
•
•
reading minutes of meetings of those charged with governance, reviewing internal audit reports; and
in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and
significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
98
John Laing / Annual Report and Accounts 2018
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
•
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 Group and the parent company and their environment obtained in the course
of the audit, we have not identified any material misstatements in the Strategic Report or 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
• 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.
We have nothing to report
in respect of these matters.
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
in respect of these matters.
OTHER MATTERS
Auditor tenure
We were initially appointed as auditor by the Board of John Laing Group in 2008 to audit the financial statements for the year ended
31 December 2008. Following an audit tender led by the Audit & Risk Committee in 2016, on the recommendation of the Board,
we were reappointed as auditor at the Annual General Meeting on 10 May 2018 to audit the financial statements for the year ended
31 December 2018 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and
reappointments of the firm is 11 years, covering the years ended 31 December 2008 to 31 December 2018.
Consistency of the audit report with the additional report to the Audit & Risk Committee
Our audit opinion is consistent with the additional report to the Audit & Risk Committee we are required to provide in accordance
with ISAs (UK).
USE OF OUR REPORT
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.
Claire Faulkner FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
4 March 2019
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GROUP INCOME STATEMENT
for the year ended 31 December 2018
Net gain on investments at fair value through profit or loss
Other income
Operating income
Administrative expenses (excluding GMP equalisation charge)
GMP equalisation charge
Total administrative expenses
Profit from operations
Finance costs
Profit before tax
Tax (charge)/credit
Profit for the year attributable to the Shareholders of the Company
Earnings per share (pence)1
Basic
Diluted
Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
Notes
13
8
5
20
9
11
5
12
6
6
366.5
30.9
397.4
(65.6)
(21.3)
(86.9)
310.5
(13.9)
296.6
(0.3)
296.3
63.1
62.4
166.3
30.4
196.7
(58.9)
–
(58.9)
137.8
(11.8)
126.0
1.5
127.5
31.9
31.5
1. Earnings per share for the year ended 31 December 2017 have been restated from those previously reported; see note 6 for details.
100
GROUP STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2018
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
John Laing / Annual Report and Accounts 2018
Notes
20
Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
296.3
127.5
–
(2.9)
(2.9)
0.1
6.4
6.5
293.4
134.0
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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OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
GROUP STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2018
Notes
Share
capital
£ million
Share
premium
£ million
Other
reserves
£ million
Retained
earnings
£ million
Balance at 1 January 2018
Profit for the year
Other comprehensive loss for the year
Total comprehensive income for the year
Share-based incentives
Vesting of share-based incentives
Net proceeds from issue of shares
Dividends paid1
Balance at 31 December 2018
for the year ended 31 December 2017
Balance at 1 January 2017
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Share-based incentives
Dividends paid1
7
7, 22
22, 23
Notes
7
36.7
218.0
–
–
–
–
0.2
12.2
–
49.1
–
–
–
–
–
198.3
–
416.3
5.9
–
–
–
2.7
(2.5)
–
–
6.1
Total
equity
£ million
1,123.9
296.3
(2.9)
293.4
2.7
–
210.5
(44.0)
863.3
296.3
(2.9)
293.4
–
2.3
–
(44.0)
1,115.0
1,586.5
Share
capital
£ million
36.7
Share
premium
£ million
218.0
–
–
–
–
–
–
–
–
–
–
Other
reserves
£ million
Retained
earnings
£ million
2.7
–
–
–
3.2
–
5.9
759.4
127.5
6.5
134.0
–
(30.1)
863.3
Total
equity
£ million
1,016.8
127.5
6.5
134.0
3.2
(30.1)
1,123.9
Year ended
31 December
2018
pence
Year ended
31 December
2017
pence
7.17b
1.80
7.70
6.30
1.75a
7.17b
Balance at 31 December 2017
36.7
218.0
1. Dividends paid:
Dividends on ordinary shares
Per ordinary share:
– final paid
– interim proposed and paid
– final proposed
a The interim dividend for 2017 of 1.91p per share paid in October 2017 became 1.75p per share after adjustment for the Rights Issue.
b The final dividend for 2017 was originally reported in the 2017 Annual Report and Accounts as 8.70p per share. This was adjusted for the Rights Issue
to 7.17p per share and paid in May 2018.
The total estimated amount to be paid in May 2019 in respect of the proposed final dividend for 2018 is £37.8 million based on the
number of shares in issue as at 31 December 2018. The final dividend paid for 2018 will depend on the number of share-based
incentives vesting before the final dividend is paid.
102
GROUP BALANCE SHEET
as at 31 December 2018
Non-current assets
Plant and equipment
Investments at fair value through profit or loss
Deferred tax asset
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Current tax liabilities
Borrowings
Trade and other payables
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 2018
31 December
2018
£ million
31 December
2017
£ million
Notes
13
19
14
16
15
20
21
22
23
0.1
1,700.5
–
1,700.6
7.9
5.7
13.6
0.1
1,346.4
0.5
1,347.0
7.6
2.5
10.1
1,714.2
1,357.1
(0.4)
(65.7)
(20.0)
(86.1)
(72.5)
(40.1)
(1.5)
(41.6)
(1.4)
(173.2)
(17.3)
(191.9)
(181.8)
(40.3)
(1.0)
(41.3)
(127.7)
(233.2)
1,586.5
1,123.9
49.1
416.3
6.1
1,115.0
1,586.5
36.7
218.0
5.9
863.3
1,123.9
The financial statements of John Laing Group plc, registered number 05975300, were approved by the Board of Directors and
authorised for issue on 4 March 2019. They were signed on its behalf by:
Olivier Brousse
CHIEF EXECUTIVE OFFICER
4 March 2019
Patrick O’D Bourke
GROUP FINANCE DIRECTOR
4 March 2019
103
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
GROUP CASH FLOW STATEMENT
for the year ended 31 December 2018
Net cash outflow from operating activities
Investing activities
Net cash transferred from investments at fair value through profit or loss
Purchase of plant and equipment
Net cash from investing activities
Financing activities
Proceeds from issue of shares
Dividends paid
Finance costs paid
Proceeds from borrowings
Repayment of borrowings
Net cash from/(used in) 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 the year
Notes
24
13
Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
(53.9)
(47.3)
12.4
–
12.4
210.5
(44.0)
(15.3)
14.5
(121.0)
44.7
3.2
2.5
5.7
77.4
(0.1)
77.3
–
(30.1)
(10.0)
11.0
–
(29.1)
0.9
1.6
2.5
104
John Laing / Annual Report and Accounts 2018
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2018
1 GENERAL INFORMATION
The 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.
2 ADOPTION OF NEW AND REVISED STANDARDS
New and amended IFRS that are effective for the current year
In 2018, the Group adopted two new IFRS, together with a number of amendments to IFRS and Interpretations, issued by the
International Accounting Standards Board (IASB) that are effective for an annual period that begins on or after 1 January 2018
(and have been endorsed for use within the EU).
•
•
•
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Considerations
• Amendments to IAS 40 Transfers of Investment Property
• Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions
• Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
• Amendments to IAS 28 Investments in Associates and Joint Ventures – Clarification that measuring investees at fair value
through profit or loss is an investment-by-investment choice
• Amendments arising from Annual Improvements to IFRS 2014 – 2016 Cycle
Other than IFRS 9 and IFRS 15, the other amendments and interpretations do not have an impact on the consolidated financial
statements of the Group.
The nature and effect of the changes as a result of the adoption of IFRS 9 and IFRS 15 are described below.
Impact of initial application of IFRS 9 Financial Instruments
The Group has applied IFRS 9 Financial Instruments in the current year in accordance with the transition provisions set out in
the standard. The transition provisions of IFRS 9 allow an entity not to restate comparative figures.
IFRS 9 primarily introduced new requirements for:
1) Classification and measurement of financial assets and financial liabilities,
2)
Impairment of financial assets, and
3) Hedge accounting.
Details of these new requirements as well as their impact on the Group’s consolidated financial statements are described below.
(a) Classification and measurement of financial assets
All recognised financial assets that fall within the scope of IFRS 9 are required to be measured at fair value on initial
recognition and subsequently at amortised cost or fair value on the basis of the entity’s business model for managing such
financial assets and their contractual cash flow characteristics.
The Group’s principal financial asset is its investment in its directly-owned subsidiary, John Laing Holdco Limited, which is
measured at fair value through profit or loss (FVTPL). The adoption of IFRS 9 has not impacted the classification and
measurement of this investment.
Other financial assets (other than cash and cash equivalents) include trade receivables which were previously classified as
loans and receivables under IAS 39 and held at amortised cost. These continue to be measured at amortised cost under
IFRS 9 as they are held within a business model to collect contractual cash flows which consist solely of payments of
principal and any interest on the principal amount outstanding.
(b) Classification and measurement of financial liabilities
A significant change introduced by IFRS 9 in the classification and measurement of financial liabilities relates to the
accounting for changes in the fair value of a financial liability designated as held at FVTPL attributable to changes in the
credit risk of the issuer.
The Group has no financial liabilities designated as at FVTPL and therefore the application of IFRS 9 has had no impact on
the classification and measurement of the Group’s financial liabilities.
105
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE GROUP FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
2 ADOPTION OF NEW AND REVISED STANDARDS (CONTINUED)
(c)
Impairment of financial assets
IFRS 9 requires an expected credit loss model as opposed to the incurred credit loss model under IAS 39. The expected
credit loss model requires the Group to account for expected credit losses and changes in those expected credit losses at
each reporting date to reflect changes in credit risk since initial recognition of the financial assets. In other words, it is no
longer necessary for a credit event to have occurred before credit losses are recognised.
The Group does not have material financial assets other than its investment in John Laing Holdco Limited which is already
held at FVTPL. Trade and other receivables at 31 December 2018 were only £7.9 million, or 0.5% of the Group’s net assets,
and therefore any credit risk in relation to the impairment of trade and other receivables is considered to be immaterial.
Cash and cash equivalents in the Company and consolidated recourse subsidiaries at 31 December 2018 were only
£5.7 million. A further £133.9 million of cash balances at 31 December 2018 was held in recourse subsidiaries held at
FVTPL and therefore included in investment at FVTPL in the Group Balance Sheet. All bank balances are assessed to have
low credit risk as they are held with reputable international banking institutions.
(d) Hedge accounting
The Group uses derivative financial instruments to hedge certain risk exposures but these instruments are held in recourse
subsidiaries that are held at FVTPL rather than consolidated. Regardless of this, hedge accounting is not applied to any of
the derivatives.
(e) Impact of initial application of IFRS 9
The initial application of IFRS 9 has not resulted in any reclassification or change in the measurement of financial assets or
financial liabilities.
Impact of initial application of IFRS 15 Revenue from Contracts with Customers
IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and other related interpretations and applies, with limited
exceptions, to all revenue arising from contracts with customers. IFRS 15 establishes a five-step model to account for revenue
arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration to
which an entity expects to be entitled in exchange for transferring goods or services to a customer.
IFRS 15 requires entities to exercise judgement when applying each step of the five-step model. The standard also specifies the
accounting treatment for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In
addition, the standard requires extensive disclosures.
The Group’s accounting policies for its revenue streams are disclosed in note 3c) below. The Group’s principal revenue stream
is net gain on investments held at fair value through profit or loss (FVTPL), which is accounted for under IFRS 9 Financial
Instruments rather than IFRS 15. Consequently the adoption of IFRS 15 has not impacted the accounting for this revenue stream.
The Group’s other material revenue streams comprise fees from asset management services (including fees for the
management of Jura Infrastructure Limited (Jura – formerly JLIF) and JLEN and fees for the management of projects in which
the Group and other parties invest). The Group also earns revenue from the recovery of bid costs, typically once the project for
which the Group has bid reaches financial close. These revenue streams have been assessed for a potential change in the
recognition of revenue based on the five-step model under IFRS 15.
Fees for asset management services (including fees for the management of Jura and JLEN) include a single performance
obligation, to deliver asset management services. The transaction price for these services is fixed annually in advance. Fees for
the management of Jura and JLEN are based on a percentage of the value of each fund’s portfolio and consequently these fees
constitute variable consideration. The Group is able to ascertain with appropriate accuracy these fees such that it is highly
probable that there will not be a material reversal in the amount of revenue recognised. The fees for other asset management
services are fixed annually in advance.
The Group recognises fees from asset management services over time as the services are delivered to the customer. This is in
line with the previous revenue recognition policy. As regards recoveries of bid costs, these are recognised as revenue under IFRS
15 when there is a contract with the customer (the project company), typically when the project reaches financial close. This is
the same as under the previous standard.
The adoption of IFRS 15 has therefore had no impact on the financial position and/or financial performance of the Group for the
year ended 31 December 2018 except that additional disclosures to comply with the standard have been made within these
financial statements.
106
John Laing / Annual Report and Accounts 2018
2 ADOPTION OF NEW AND REVISED STANDARDS (CONTINUED)
New and amended IFRS standards in issue but not yet effective
At the date of authorisation of these financial statements, the Group has not applied the following new and revised standards
that have been issued but are not yet effective and in some cases had not yet been adopted by the EU:
•
•
IFRS 16 Leases
IFRS 17 Insurance Contracts
• Amendments to IFRS 9 Prepayment Features with Negative Compensation
• Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures
• Annual Improvements to IFRS 2015 – 2017 Cycle: Amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements,
IAS 12 Income Taxes and IAS 23 Borrowing Costs
• Amendments to IAS 19 Employee Benefits: Plan Amendment, Curtailment and Settlement
•
IFRS 10 Consolidated Financial Statements and IAS 28 (amendments): Sale or Contribution of Assets between an Investor
and its Associate or Joint Venture
•
IFRIC 23 Uncertainty over Income Tax Treatments
The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial
statements of the Group in future periods, except as noted below:
IFRS 16 Leases
Whilst IFRS 16 Leases is effective from periods beginning on or after 1 January 2019, the Group has performed an early
assessment of the impact of the changes in lease accounting as a result of adopting this new standard.
IFRS 16 will require the Group, as a lessee, to recognise all leases, apart from where exemptions may apply, as right-of-use
assets and lease liabilities in its Group Balance Sheet. This is in contrast to the previous accounting treatment of operating
leases under IAS 17, where the cost of the operating leases was expensed in the Group Income Statement.
The Group is adopting the cumulative catch-up method for accounting for leases with effect from the date of transition,
1 January 2019. This will involve measuring the right-of-use asset at an amount equal to the lease liability at the transition
date. Under this method, comparative amounts for the year ended 31 December 2018 will not be restated. The Group will take
advantage of the exemptions available under the new standards not to bring onto the balance sheet leases with a lease term
of less than 12 months from the transition date and leases where the underlying asset is of low value.
An early assessment of all leases that the Group had at 31 December 2018 has shown that the net impact of recognising an asset and
liability on the Group Balance Sheet is likely to be £nil as at 31 December 2019. It is estimated that an asset of £4.5 million and a
liability of £4.5 million will be recognised as at 1 January 2019 (transition date). The impact on the Group Income Statement from
recognising an interest expense on the lease liability and depreciation of the right-of-use asset for the year ending 31 December 2019
in contrast to the operating lease charge, which would have applied under IAS 17, is estimated at a net £0.1 million credit.
3 SIGNIFICANT ACCOUNTING POLICIES
a) Basis of preparation
The Group financial statements have been prepared in accordance with IFRS as adopted by the EU and are presented in
pounds sterling.
The Group financial statements have been prepared on the historical cost basis except for the revaluation of the investment
portfolio and other financial instruments that are measured at fair value at the end of each reporting period. The Company
has concluded that it meets the definition of an investment entity as set out in IFRS 10 Consolidated Financial Statements,
paragraph 27 on the following basis:
(i)
as an entity listed on the London Stock Exchange, the Company is owned by a number of investors;
(ii)
the Company holds a substantial portfolio of investments in project companies through its investment in John Laing
Holdco Limited and intermediate holding companies. The underlying projects have a finite life and the Company has an
exit strategy for its investments which is either to hold them to maturity or, if appropriate, to divest them. Investments
in project companies take the form of equity and/or subordinated debt;
(iii) the Group’s business model is to originate, invest in, and actively manage infrastructure assets. It invests in PPP and
renewable energy projects and aims to deliver predictable returns and consistent growth from its investment portfolio. The
underlying project companies have businesses and activities that the Group is not directly involved in. The Group’s returns
from the provision of management services are small in comparison to the Group’s overall investment-based returns; and
(iv)
the Group measures its investments in PPP and renewable energy projects on a fair value basis. Information on the fair
value of investments forms part of monthly management reports reviewed by the Group’s Executive Committee, who
are considered to be the Group’s key management personnel, and by its Board of Directors.
107
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE GROUP FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Although the Group has a net defined benefit pension liability, IFRS 10 does not exclude companies with non-investment
related liabilities from qualifying as investment entities.
Investment entities are required to account for all investments in controlled entities, as well as investments in associates
and joint ventures, at 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 and/or subordinated debt 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”.
Unconsolidated project company subsidiaries are part of the non-recourse business. Based on arrangements in place with
those subsidiaries, the Group has concluded that there are no:
a)
b)
significant restrictions (resulting from borrowing arrangements, regulatory requirements or contractual
arrangements) on the ability of an unconsolidated subsidiary to transfer funds to the Group in the form of cash
dividends or to repay loans or advances made to the unconsolidated subsidiary by the Group; and
current commitments or intentions to provide financial or other support to an unconsolidated subsidiary, including
commitments or intentions to assist the subsidiary in obtaining financial support, beyond the Group’s original
investment commitment.
Transactions and balances receivable or payable between recourse subsidiary entities held at fair value and those that are
consolidated are eliminated in the Group financial statements. Transactions and balances receivable or payable between
non-recourse project companies held at fair value and recourse entities that are consolidated are not eliminated in the
Group financial statements.
For details of the subsidiaries that are consolidated, see note 13 to the Company financial statements.
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.
b) 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 £500 million corporate banking facilities committed until July 2023, together with additional
£150 million facilities committed until January 2021. 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 banking 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 foreign exchange, credit, price, liquidity, interest rate and capital
risks are set out in note 18.
c) Revenue
The key accounting policies for the Group’s material revenue streams are as follows:
(i)
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).
(ii) Net gain on investments at FVTPL
Net gain on investments at FVTPL excludes dividend income referred to above. Please refer to accounting policy e)(i)
for further detail.
(iii) Revenue from contracts with customers
Fees from asset management services
Fees from asset management services comprise fees for the management of Jura and JLEN as well as certain
projects in which the Group and other parties invest. These fees are earned under contracts that have a single
performance obligation which is to deliver asset management services to the customer. Revenue is recognised in
accordance with the contract to the extent the performance obligation is met which is considered to be over time
as the asset management services are provided.
108
John Laing / Annual Report and Accounts 2018
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recovery of bid costs
The recovery of costs incurred in respect of bidding for new primary investments is recognised when a contract to
recover costs is entered into with either the entity procuring the project or the project company, typically at financial
close. This is the point at which the performance obligation has been met.
Revenue from contracts with customers excludes VAT and the value of intra-group transactions between recourse
subsidiaries held at FVTPL and those that are consolidated.
d) 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.
e) Financial instruments
Financial assets and financial liabilities are recognised in the Group Balance Sheet when the Group becomes a party to the
contractual provisions of the instrument.
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
recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are
recognised immediately in profit or loss.
(i)
Financial assets
All recognised financial assets are measured subsequently in their entirety at either amortised cost or fair value,
depending on the classification of the financial assets.
Classification of financial assets
Financial assets that meet the following conditions are measured subsequently at amortised cost:
•
•
the financial asset is held within a business model whose objective is to hold financial assets in order to collect
contractual cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
Financial assets that meet the following conditions are measured subsequently at fair value through other
comprehensive income (FVTOCI):
•
•
the financial asset is held within a business model whose objective is achieved by both collecting contractual cash
flows and selling the financial assets; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
By default, all other financial assets are measured subsequently at FVTPL.
The financial assets that the Group holds are classified as follows:
•
Investments at FVTPL are measured subsequently at FVTPL.
Investments at FVTPL comprise the Group’s investment in John Laing Holdco Limited (through which the Group
indirectly holds its investments in projects) 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 e)(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.
• Trade and other receivables and cash and cash equivalents are measured subsequently at amortised cost using the
effective interest method.
109
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE GROUP FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating
interest income over the relevant period.
The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition
minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference
between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a
financial asset is the amortised cost of a financial asset before adjusting for any loss allowance.
Interest income is recognised in profit or loss and is netted off within finance costs on corporate banking facilities in
the “finance costs” line item (see note 11).
• 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, where there is a
right to offset against corresponding cash balances.
Deposits held with original maturities of greater than three months are shown as other financial assets.
(ii)
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on trade and other receivables. The amount of
expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the
respective financial instrument.
The Group’s trade and other receivables at 31 December 2018 were only £7.9 million, or 0.5% of the Group’s net assets,
and therefore any credit risk in relation to the impairment of trade and other receivables is considered to be immaterial.
(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.
On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount
and the sum of the consideration received and receivable is recognised in profit or loss.
(iv) Financial liabilities and equity
Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance
of the contractual arrangements and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of
its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.
Repurchase of the Company’s own equity instruments is recognised and deducted directly in equity. No gain or loss is
recognised in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
Financial liabilities
All financial liabilities are measured subsequently at amortised cost using the effective interest method or at FVTPL.
The Group’s financial liabilities, which comprise interest-bearing loans and borrowings and trade and other payables,
are all measured at amortised cost using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating
interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future
cash payments (including all fees and points paid or received that form an integral part of the effective interest rate,
transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where
appropriate) a shorter period, to the amortised cost of a financial liability.
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 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.
110
John Laing / Annual Report and Accounts 2018
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or
have expired. The difference between the carrying amount of the financial liability derecognised and the consideration
paid and payable is recognised in profit or loss.
(v) Derivative financial instruments
The Group treats forward foreign exchange contracts and currency swap deals it enters into as derivative financial
instruments at FVTPL. All the Group’s derivative financial instruments are held by subsidiaries which are recorded at
FVTPL and consequently the fair value of derivatives is incorporated into investments held at FVTPL. The Group does
not apply hedge accounting to its derivative financial instruments.
f) 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.
g) 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 on a straight-line basis over the remaining facility term.
Finance costs also include the net interest cost on retirement benefit obligations and the unwinding of discounting
of provisions.
h) Taxation
The tax charge or credit represents the sum of tax currently payable and deferred tax.
Current 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
items that are never taxable or deductible, which includes the fair value movement on the investment in John Laing Holdco
Limited. 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
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.
i)
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 that is consolidated 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.
111
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE GROUP FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
j) 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 GMP equalisation charge for 2018 has been presented separately in
the Group Income Statement as it was deemed to be a material amount in the context of total administrative expenses.
The retirement benefit obligations recognised in the Group Balance Sheet represent the present value of:
(i)
defined benefit scheme obligations as 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
(ii) unfunded post-retirement medical benefits.
Net interest expense or income is recognised within finance costs.
k) 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. Effective from 1 January 2019, the Group is applying the
new leasing standard, IFRS 16 Leases. The effect of applying this new standard and adopting the new accounting policy is
described in note 2 above.
l)
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.
m) Employee benefit trust
In June 2015, the Group established the John Laing Group Employee Benefit Trust (EBT) as described further in note 7. 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 Company’s shares is deducted from equity in the Group Balance Sheet as if
such shares were treasury shares as defined by IFRS. 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.
4 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 required to
make critical judgements and material accounting estimates (which are those estimates where there is a risk of material
adjustment in the next reporting period) are in respect of the fair value of investments and accounting for the Group’s defined
benefit pension liabilities.
Fair value of investments
Critical accounting 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 full valuation of the Group’s investment portfolio is prepared on a
consistent, principally discounted cash flow basis, at 30 June and 31 December. The key inputs, therefore, to the valuation of
each investment are (i) the discount rate; and (ii) the cash flows forecast to be received from such investment. 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,
a risk premium is added to reflect the additional risk during the construction phase. The construction risk premium reduces over
time as the project progresses through its construction programme, reflecting the significant reduction in risk once the project
reaches the operational stage. 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.
112
John Laing / Annual Report and Accounts 2018
4 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED)
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); the outcome of any disputes; the level of volume-based
revenue; future rates of inflation and, for renewable energy projects, energy yield and future energy prices. Value enhancements
are only incorporated when the Group has sufficient evidence that they can be realised.
Key sources of estimation uncertainty
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, a risk premium is added
during the construction phase to reflect the additional risks throughout construction. This premium reduces over time as the
project progresses through its construction programme, reflecting the significant reduction in risk once the project reaches
the operational stage. The discount rates applied to investments at 31 December 2018 were in the range of 6.8% to 11.7%
(31 December 2017 – 6.8% to 11.8%). Note 18 provides details of the weighted average discount rate applied to the investment
portfolio as a whole and sensitivities to the investment portfolio value from changes in discount rates.
The key sources of estimation uncertainty present in the forecast cash flows to be received from investments are the forecasts
of future energy prices on renewable energy projects and forecasts for long-term inflation. Note 18 provides details of the
sensitivities to the investment portfolio value from changes in forecast energy prices and forecast long-term inflation. The Group
does not consider the other factors that affect cash flows, as described in the critical accounting judgements in applying the
Group’s accounting policies above, to be key sources of estimation uncertainty. They are based either on reliable data or the
Group’s experience and individually not considered likely to deviate materially year on year.
Pension and other post-retirement liability accounting
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 2018
was £40.1 million (31 December 2017 – £40.3 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 was higher, an additional liability would need to be recognised. Under 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.
Key sources of estimation uncertainty
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 2018 and the sensitivity of the pension liabilities to certain changes in
these assumptions are illustrated in note 20.
Brexit
While the outcome is uncertain, the Group has considered the potential impact of Brexit on the Group’s results. The most likely
impact would come from any resulting macroeconomic changes, including changes in interest rates, which could impact
discount rates in relation to both the Group’s investment portfolio and its retirement benefit obligations, inflation and sterling
exchange rates. The above sections on key sources of estimation uncertainty provide more details on these areas.
5 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. For the year ended 31 December 2018, the principal categories of activity, and thus the reportable segments under
IFRS 8, were: 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 PPP and renewable
energy infrastructure 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 Jura’s and JLEN’s
portfolios plus fee income and associated costs from project management services.
The Board’s primary measure of profitability for each segment is profit before tax.
113
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE GROUP FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
5 OPERATING SEGMENTS (CONTINUED)
The following is an analysis of the Group’s operating income and profit before tax for the years ended 31 December 2018 and
31 December 2017:
Net gain on investments at FVTPL
Other income
Operating income
Administrative expenses
(excluding GMP equalisation charge)
GMP equalisation charge
Profit from operations
Finance costs
Profit before tax
Net gain on investments at FVTPL
Other income
Operating income
Administrative expenses
Profit from operations
Finance costs
Profit before tax
Reportable segments
Year ended 31 December 2018
Primary
Investment
£ million
Secondary
Investment
£ million
Asset
Management
£ million
Segment
Sub-total
£ million
Non-
segmental
results
£ million
Total
£ million
308.3
4.0
312.3
(27.3)
–
285.0
(8.7)
276.3
53.1
–
53.1
(6.4)
–
46.7
(2.5)
44.2
–
26.0
26.0
(26.2)
–
(0.2)
–
(0.2)
361.4
30.0
391.4
(59.9)
–
331.5
(11.2)
320.3
5.1
0.9
6.0
(5.7)
(21.3)
(21.0)
(2.7)
(23.7)
Reportable segments
Year ended 31 December 2017
Primary
Investment
£ million
Secondary
Investment
£ million
Asset
Management
£ million
Segment
Sub-total
£ million
Non-
segmental
results
£ million
179.9
3.7
183.6
(24.4)
159.2
(8.4)
150.8
(21.5)
–
(21.5)
(4.4)
(25.9)
(2.2)
(28.1)
–
25.1
25.1
(23.6)
1.5
–
1.5
158.4
28.8
187.2
(52.4)
134.8
(10.6)
124.2
7.9
1.6
9.5
(6.5)
3.0
(1.2)
1.8
366.5
30.9
397.4
(65.6)
(21.3)
310.5
(13.9)
296.6
Total
£ million
166.3
30.4
196.7
(58.9)
137.8
(11.8)
126.0
Non-segmental results include results from corporate activities.
Since 1 January 2018, the Group’s Asset Management segment has not charged an internal fee to the Primary Investment and
Secondary Investment segments. Therefore the segmental results for the year ended 31 December 2017 as originally reported in
the 2017 Annual Report and Accounts have been restated above to exclude this internal fee in order to make the results in both
years comparable. The effect of the restatement is shown below:
Primary Investment – administrative expenses
Secondary Investment – administrative expenses
Asset Management – other income
Year ended 31 December 2017
As previously
reported
£ million
Adjustment
£ million
Restated
£ million
(37.9)
(8.2)
42.4
13.5
3.8
(17.3)
(24.4)
(4.4)
25.1
For the year ended 31 December 2018, the Group had two investments (2017 – three investments) from which it received more
than 10% of its operating income. The operating income from the two investments was £184.1 million all of which was reported
within the Primary Investment sector. The Group treats each investment in a project company as a separate customer for the
purpose of IFRS 8.
The Group’s investment portfolio, comprising investments in project companies and a listed fund included within investments
at FVTPL (see note 13) 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.
114
Segment assets
Primary Investment
Secondary Investment
Investment portfolio
Other assets and liabilities
Investments at FVTPL
Other assets
Total assets
Retirement benefit obligations
Other liabilities
Total liabilities
Group net assets
John Laing / Annual Report and Accounts 2018
31 December
2018
£ million
31 December
2017
£ million
868.6
691.6
1,560.2
140.3
1,700.5
13.7
1,714.2
(40.1)
(87.6)
(127.7)
580.3
613.5
1,193.8
152.6
1,346.4
10.7
1,357.1
(40.3)
(192.9)
(233.2)
1,586.5
1,123.9
Other assets and liabilities within investments at FVTPL above include cash and cash equivalents, trade and other receivables
and trade and other payables within recourse investment entity subsidiaries.
In January 2018, the Group initiated an internal reorganisation under which the Primary Investment and Asset Management
teams in each of the three core geographical regions now report to a single regional head. The principal objective behind this
revised structure was to enable the Group to focus more effectively on value creation in each region. Accordingly, certain regional
performance targets for 2018 were set, principally in relation to the investment portfolio in each region and including movement
in fair value. Additional analysis, based on the regional reorganisation, is presented below showing net gain on investments at
FVTPL and portfolio valuation by region.
In the light of this internal reorganisation and greater focus on regional value creation, from January 2019 the information
reported internally, including to the Group’s Board, is now based on the Group’s core geographical regions. Accordingly, the
Group’s reportable segments under IFRS 8 have changed and this will be reflected in the June 2019 interim report.
Europe
North America
Asia Pacific
Investment in JLEN
Other
Total
Net gain on investments at FVTPL
Portfolio valuation
Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
31 December
2018
£ million
31 December
2017
£ million
187.2
84.7
82.1
0.2
12.3
78.4
44.1
37.3
0.9
5.6
579.9
465.3
505.1
9.9
–
609.1
283.2
291.2
10.3
–
366.5
166.3
1,560.2
1,193.8
115
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE GROUP FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
6 EARNINGS PER SHARE
The calculation of basic and diluted earnings per share (EPS) is based on the following information:
Earnings
Profit for the purpose of basic and diluted EPS
Profit for the year
Number of shares
Weighted average number of ordinary shares for the purpose of basic EPS
Dilutive effect of ordinary shares potentially issued under share-based incentives
Weighted average number of ordinary shares for the purpose of diluted EPS
EPS (pence/share)
Basic
Diluted
Year ended
31 December
2018
£ million
Year ended
31 December
20171
£ million
296.3
296.3
127.5
127.5
469,502,029
399,828,392
5,535,545
5,330,145
475,037,574
405,158,537
63.1
62.4
31.9
31.5
In accordance with IAS 33 Earnings Per Share, EPS for all periods shown above have been calculated as if the bonus element of
the Rights Issue in March 2018 had arisen proportionately at the start of each respective period. In the calculation of the number
of shares used to calculate EPS, the number of shares in issue (and potentially issued for the purposes of the diluted EPS) prior
to the Rights Issue has been adjusted by a bonus factor (“the Rights Issue bonus factor”) of 0.918. This bonus factor is calculated
as follows:
Rights Issue theoretical ex-rights fair value per share (pence)
Closing share price on the day the Rights Issue was announced (pence)
=
241.95
263.60
=
0.918
1
As a result of the above, the EPS disclosed for the year ended 31 December 2017 have been restated from that previously reported.
7 SHARE-BASED INCENTIVES
Long-term incentive plan (LTIP)
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 (TSR) (50% of the award), and a non-share
based performance condition, NAV per share growth (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 was as follows:
At 1 January
Granted
Adjustment to awards granted in prior periods
Adjustment for the Rights Issue bonus factor
Lapsed
Vested
At 31 December
Number of share awards
under LTIP
2018
2017
5,258,970
1,747,340
–
436,067
3,774,330
1,557,430
35,500
–
(842,082)
(108,290)
(1,383,367)
–
5,216,928
5,258,970
Following the Rights Issue in March 2018, the number of outstanding awards at the time of the Rights Issue was adjusted by a bonus
factor (“the Rights Issue bonus factor”) of 0.918 (see note 6). This resulted in an increase to the number of awards of 436,067.
116
John Laing / Annual Report and Accounts 2018
7 SHARE-BASED INCENTIVES (CONTINUED)
In April 2018, 1,747,340 share awards were granted (2017 – 1,557,430). The weighted average fair value of the awards was
191p per share (2017 – 136.26p per share) for the share-based performance condition, determined using the Stochastic
valuation model, and 285p per share (2017 – 291.09p per share) for the non-share based performance condition determined
using the Black Scholes model. The weighted average fair value of awards granted during the year from both models was
238.02p per share (2017 – 213.69p per share). The significant inputs into the model were the share price of 286p (2017 – 291.2p)
at the grant date, expected volatility of 17.28% (2017 – 12.79%), expected dividend yield of 3.12% (2017 – 2.80%), an expected
award life of three years and an annual risk-free interest rate of 0.88% (2017 – 0.14%). The volatility measured at the standard
deviation of continuously compounded share returns was based on statistical analysis of daily share prices over three years.
The weighted average exercise price of the awards granted during 2018 was £nil (2017 – £nil).
The 2015 LTIP award vested in April 2018. As detailed in the Directors’ Remuneration Report, vesting was at 78.4% of the
maximum, taking into account the TSR and NAV performance conditions over the relevant performance period, which resulted in
1,383,367 shares vesting. In addition, a further 77,115 shares were issued in lieu of dividends payable since the grant date on the
vested shares (see note 22).
During the year ended 31 December 2018, a total of 842,082 awards lapsed (2017 – 108,290), of which 380,350 awards lapsed on
the vesting of the 2015 LTIP award (2017 – nil) and a further 461,732 awards lapsed as a result of leavers in the year (2017 – 108,290).
Of the 5,216,928 awards outstanding at 31 December 2018 (2017 – 5,258,970), none were exercisable at 31 December 2018
(2017 – nil). 1,987,075 awards are due to vest or lapse on 15 April 2019, 1,558,533 awards are due to vest or lapse on 18 April
2020 and 1,671,320 awards are due to vest or lapse on 17 April 2021 subject to the conditions described above. The weighted
average exercise price of the awards outstanding at 31 December 2018 was £nil (31 December 2017 – £nil).
Deferred Share Bonus Plan
The Group operated a Deferred Share Bonus Plan (DSBP) in 2018 for Executive Directors and certain senior executives under
which any amount over 60% of their base 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, normally subject to continued employment. For further details on
this plan, refer to the Directors’ Remuneration Report.
The movement in the number of shares awarded was as follows:
At 1 January
Granted
Adjustment to awards granted in the prior period
Adjustment for the Rights Issue bonus factor
Vested in the period
At 31 December
Number of share awards under
DSBP
2018
63,121
138,987
(8)
5,647
2017
84,439
9,762
5,000
–
(32,606)
(36,080)
175,141
63,121
Following the Rights Issue in March 2018, the number of outstanding awards at the time of the Rights Issue was adjusted by the
Rights Issue bonus factor of 0.918 (see note 6). This resulted in an increase to the number of awards of 5,647.
In April 2018, 138,987 share awards were granted (2017 – 9,762). The weighted average fair value of the awards was 286p per
share (2017 – 269p per share). The significant inputs into the model were the share price of 286p (2017 – 269.2p) at the grant
date, expected volatility of 17.28% (2017 – 12.63%), expected dividend yield of 3.12% (2017 – 3.03%), an expected award life of
three years and an annual risk-free interest rate of 0.88% (2017 – 0.07%). The volatility measured at the standard deviation of
continuously compounded share returns was based on statistical analysis of daily share prices over three years. The weighted
average exercise price of the awards granted during 2018 was £nil (2017 – £nil).
During the year ended 31 December 2018, 32,606 shares vested under the 2016 DSBP and 2017 DSBP. A further 1,559 shares
were awarded in lieu of dividends payable since the grant date on the vested shares (see note 22).
Of the 175,141 awards outstanding at 31 December 2018 (2017 – 63,121), none were exercisable at 31 December 2018
(2017 – nil). 78,937 awards are due to vest in March and April 2019, 49,870 awards are due to vest in March and April 2020
and 46,334 awards are due to vest in April 2021 subject to the conditions described above. The weighted average exercise price
of the awards outstanding at 31 December 2018 was £nil (31 December 2017 – £nil).
The total expense recognised in the Group Income Statement for awards granted under share-based incentive arrangements for
the year ended 31 December 2018 was £2.7 million (2017 – £3.2 million).
117
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE GROUP FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
7 SHARE-BASED INCENTIVES (CONTINUED)
Employee Benefit Trust (EBT)
On 19 June 2015 the Company established 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 through the acquisition
and distribution of shares in the Company. The EBT is able to acquire shares in the Company to satisfy obligations under
the Company’s share-based incentive arrangements.
During the year ended 31 December 2018, 1,495,458 shares in John Laing Group plc were issued to the EBT and after satisfying
obligations under share-based incentive arrangements for 1,494,647 shares, 811 shares remained. These shares were held by
the EBT as at 31 December 2018.
8 OTHER INCOME
Fees from asset management services
Recovery of bid costs
Other income
Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
26.9
4.0
30.9
26.7
3.7
30.4
Other income represents revenue from contracts with customers under IFRS 15 Revenue From Contracts with Customers.
The Group estimates that £16.1 million of revenue will be recognised in 2019 as performance conditions are satisfied over the
remaining term of the twelve month notice periods on its material contracts for providing asset management services.
9 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 and Group financial statements
The audit of the annual accounts of the Company's subsidiaries
Total audit fees
Audit related assurance services
Other assurance services
Non-assurance related services
Total non-audit fees
Operating lease charges:
– rental of land and buildings
Depreciation of plant and equipment
118
Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
(0.1)
(0.2)
(0.3)
(0.1)
–
(0.3)
(0.4)
(1.5)
(0.1)
(0.1)
(0.2)
(0.3)
(0.1)
–
–
(0.1)
(1.2)
(0.3)
John Laing / Annual Report and Accounts 2018
9 PROFIT FROM OPERATIONS (CONTINUED)
The fee payable for the audit of the Company and Group financial statements was £151,576 (2017 – £93,449). The fees payable for
the audit of the annual accounts of the Company’s subsidiaries were £186,744 (2017 – £190,212).
Fees for audit related assurance services comprised £42,200 (2017 – £48,500) for a review of the Group interim report and
£12,875 (2017 – £12,500) for a FCA regulatory review. Fees for other assurance services of £15,000 (2017 – £nil) were paid for
agreed upon procedures.
Fees for non-assurance related services of £276,000 (2017 – £nil) were paid for reporting accountant services in relation to the
Rights Issue of the Company in March 2018, which have been deducted from share premium as an expense on the issue of equity
shares. Total non-audit fees paid in 2018 were £346,075 (2017 – £61,000).
10 EMPLOYEE COSTS AND DIRECTORS’ EMOLUMENTS
Employee costs comprise:
Salaries
Social security costs
Pension charge
– defined benefit schemes (note 20)1
– defined contribution
Share-based incentives (note 7)
1
The cost for 2018 includes a one-off GMP equalisation charge of £21.3 million.
Annual average employee numbers (including Directors):
Staff
UK
Overseas
Activity
Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
(27.1)
(3.2)
(22.9)
(1.6)
(2.7)
(57.5)
(25.1)
(2.9)
(1.3)
(1.1)
(3.2)
(33.6)
Year ended
31 December
2018
No.
Year ended
31 December
2017
No.
168
99
69
160
101
59
Primary investments, asset management and central activities
168
160
Details of Directors’ remuneration for the year ended 31 December 2018 can be found in the audited sections of the Directors’
Remuneration Report.
11 FINANCE COSTS
Finance costs on corporate banking facilities
Amortisation of debt issue costs
Net interest cost of retirement obligations (note 20)
Finance costs
Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
(9.5)
(3.3)
(1.1)
(9.2)
(1.3)
(1.3)
(13.9)
(11.8)
119
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE GROUP FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
12 TAX (CHARGE)/CREDIT
The tax (charge)/credit for the year comprises:
Current tax:
UK corporation tax credit – current year
UK corporation tax credit – prior year
Foreign tax charge
Deferred tax:
Deferred tax charge – prior year
Tax (charge)/credit
Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
–
0.2
–
0.2
(0.5)
(0.5)
(0.3)
0.5
1.6
(0.1)
2.0
(0.5)
(0.5)
1.5
The tax (charge)/credit for the year can be reconciled to the profit in the Group Income Statement as follows:
Profit before tax
Tax at the UK corporation tax rate
Tax effect of expenses and other similar items that are not deductible
Non-taxable movement on fair value of investments
Adjustment for management charges to fair value group
Other movements
Prior year – current tax credit
Prior year – deferred tax charge
Total tax (charge)/credit
Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
296.6
(56.3)
(4.7)
69.6
(6.6)
(2.0)
0.2
(0.5)
(0.3)
126.0
(24.3)
(1.1)
32.0
(6.1)
(0.1)
1.6
(0.5)
1.5
The tax charge for the year ended 31 December 2018 of the Company and the recourse group subsidiary entities that are
consolidated is primarily in relation to a group relief charge with recourse group subsidiary entities held at FVTPL, where there are
tax losses primarily as a result of the tax deduction from the payment of contributions to JLPF obtained by a recourse subsidiary
held at FVTPL. There is a corresponding tax credit within ‘net gain on investments at FVTPL’ on the Group Income Statement.
For the year ended 31 December 2018 a tax rate of 19% has been applied (2017 – 19.25%). The UK Government has announced
its intention to reduce the main corporation tax rate by 2% to 17% from 1 April 2020.
13 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
31 December 2018
Investments in
project
companies
£ million
Listed
investment
£ million
1,183.5
(33.2)
342.1
(296.1)
354.0
–
1,550.3
10.3
(0.6)
–
–
0.2
–
9.9
Portfolio
valuation
sub-total
£ million
1,193.8
(33.8)
342.1
(296.1)
354.2
–
Other assets
and liabilities
£ million
Total
investments at
FVTPL
£ million
152.6
33.8
(342.1)
296.1
12.3
(12.4)
1,346.4
–
–
–
366.5
(12.4)
1,560.2
140.3
1,700.5
Opening balance
Distributions
Investment in equity and loans
Realisations from investment portfolio
Fair value movement
Net cash transferred from investments at FVTPL
Closing balance
120
John Laing / Annual Report and Accounts 2018
13 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
Opening balance
Distributions
Investment in equity and loans
Realisations from investment portfolio
Proceeds received on acquisition of Manchester Waste
VL Co by GMWDA
Fair value movement
Net cash transferred from investments at FVTPL
Closing balance
31 December 2017
Investments in
project
companies
£ million
Listed
investment
£ million
1,165.9
(39.6)
209.9
(289.0)
(23.5)
159.8
–
1,183.5
10.0
(0.6)
–
–
–
0.9
–
10.3
Portfolio
valuation
sub-total
£ million
1,175.9
(40.2)
209.9
(289.0)
(23.5)
160.7
–
Other assets
and liabilities
£ million
81.6
40.2
(209.9)
289.0
23.5
5.6
(77.4)
Total
investments at
FVTPL
£ million
1,257.5
–
–
–
–
166.3
(77.4)
1,193.8
152.6
1,346.4
Included within other assets and liabilities at 31 December 2018 above is cash collateral of £131.7 million (31 December 2017
– £133.1 million) in respect of future investment commitments to the I-66 Managed Lanes and I-77 Managed Lanes projects
(31 December 2017 – I-66 Managed Lanes and I-77 Managed Lanes).
The investment disposals that have occurred in the years ended 31 December 2018 and 2017 are as follows:
Year ended 31 December 2018
During the year ended 31 December 2018, the Group disposed of shares and subordinated debt in three PPP project companies
for £296.1 million.
Details were as follows:
Acquired by Jura
Date of
completion
Original
holding
%
Holding
disposed of
%
Retained
holding
%
Regenter Myatts Field North Holdings Company Limited
30 May 2018
50.0
50.0
Sold to other parties
Agility Trains West (Holdings) Limited
INEOS Runcorn (TPS) Holding Limited
18 May 2018
21 December 2018
15.0
37.43
15.0
37.43
–
–
–
The Group’s shareholding in a non-portfolio investment, A mobil Services GmbH, was also sold for £0.1 million.
Year ended 31 December 2017
During the year ended 31 December 2017, the Group disposed of shares and subordinated debt in eight PPP and renewable
energy project companies for £289.0 million (including £1.9 million deferred). In addition, the Group’s shareholding in Viridor
Laing (Greater Manchester) Limited was acquired by the Greater Manchester Waste Development Authority (GMWDA) for
£23.5 million.
121
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE GROUP FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
13 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
Details were as follows:
Date of
completion
Original
holding
%
Holding
disposed of
%
Retained
holding
%
Acquired by John Laing Environmental Assets Group Limited (JLEN)
Llynfi Afan Renewable Energy Park (Holdings) Limited
12 December 2017
100.0
100.0
Acquired by John Laing Infrastructure Fund Limited (JLIF)
Aylesbury Vale Parkway Limited
City Greenwich Lewisham Rail Link plc
Croydon & Lewisham Lighting Services (Holdings) Limited
John Laing Rail Infrastructure Limited
Rail Investments (Great Western) Limited*
Acquired by GMWDA
20 October 2017
20 October 2017
1 June 2017
20 October 2017
26 October 2017
50.0
5.0
50.0
100.0
80.0
50.0
5.0
50.0
100.0
30.0
Viridor Laing (Greater Manchester) Limited
28 September 2017
50.0
50.0
Sold to other parties
Gdansk Transport Co. SA
MAK Mecsek Autopálya Koncessziós Zrt.
* This entity held a 30% interest in IEP (Phase 1) at the time of this disposal.
2 March 2017
29 March 2017
29.69
30.0
29.69
30.0
–
–
–
–
–
50.0
–
–
–
14 TRADE AND OTHER RECEIVABLES
Current assets
Trade receivables
Other taxation
Other receivables
Prepayments and contract assets
31 December
2018
£ million
31 December
2017
£ million
6.5
–
0.2
1.2
7.9
6.2
0.1
0.3
1.0
7.6
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:
Sterling
Other currencies
31 December
2018
£ million
31 December
2017
£ million
7.1
0.8
7.9
6.9
0.7
7.6
Other currencies mainly comprise trade and other receivables in Canadian dollars (31 December 2017 – Canadian dollars).
Included in the Group’s trade receivables are debtors with a carrying value of £0.5 million which were overdue at 31 December
2018 (31 December 2017 – £0.1 million). The overdue balances have an ageing of up to 3 years (31 December 2017 – up to 2 years).
The Group has not recorded any credit risk adjustment against these receivables on the basis that any credit risk would not be
material. 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 2018
(31 December 2017 – £nil).
122
15 TRADE AND OTHER PAYABLES
Current liabilities
Trade payables
Other taxation and social security
Accruals
Contract liability
16 BORROWINGS
Current liabilities
Interest-bearing loans and borrowings net of unamortised financing costs (note 17 c and note 18)
John Laing / Annual Report and Accounts 2018
31 December
2018
£ million
31 December
2017
£ million
(1.3)
(1.3)
(17.3)
(0.1)
(20.0)
(1.5)
(0.7)
(15.0)
(0.1)
(17.3)
31 December
2018
£ million
31 December
2017
£ million
(65.7)
(65.7)
(173.2)
(173.2)
17 FINANCIAL INSTRUMENTS
a) Financial instruments by category
31 December 2018
Fair value measurement method
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
Cash and cash
equivalents
£ million
Loans and
receivables
£ million
Assets at
FVTPL
£ million
Financial
liabilities at
amortised
cost
£ million
n/a
–
–
5.7
5.7
–
–
–
n/a
Level 1 / 3*
n/a
–
1,700.5
7.0
–
7.0
–
–
–
–
–
1,700.5
–
–
–
–
–
–
–
(65.7)
(18.6)
(84.3)
Total
£ million
1,700.5
7.0
5.7
1,713.2
(65.7)
(18.6)
(84.3)
5.7
7.0
1,700.5
(84.3)
1,628.9
123
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE GROUP FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
17 FINANCIAL INSTRUMENTS (CONTINUED)
a) Financial instruments by category (continued)
31 December 2017
Fair value measurement method
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
Cash and cash
equivalents
£ million
Loans and
receivables
£ million
Assets at
FVTPL
£ million
Financial
liabilities at
amortised
cost
£ million
n/a
Level 1 / 3*
n/a
–
1,346.4
6.9
–
6.9
–
–
–
–
–
1,346.4
–
–
–
–
–
–
–
(173.2)
(16.5)
(189.7)
Total
£ million
1,346.4
6.9
2.5
1,355.8
(173.2)
(16.5)
(189.7)
6.9
1,346.4
(189.7)
1,166.1
n/a
–
–
2.5
2.5
–
–
–
2.5
* Investments at FVTPL are split between: Level 1, investment in JLEN, which is a listed investment fair valued at £9.9 million (31 December 2017 – £10.3 million)
using a quoted market price; and Level 3 investments in project companies fair valued at £1,550.3 million (31 December 2017 – £1,183.5 million). Level 1
and Level 3 investments are fair valued in accordance with the policy and assumptions set out in note 3e). The investments at FVTPL include other assets
and liabilities in investment entity subsidiaries as shown in note 13. Such other assets and liabilities are recorded at amortised cost that the Directors
believe approximates to their fair value.
The tables above 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 have been no transfers of financial instruments between levels of the fair value hierarchy. There are no non-recurring
fair value measurements.
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 13. Level 3 financial
assets are those relating to investments in project companies.
All items in the above table are measured at amortised cost other than the investments at FVTPL. The Directors believe that
the amortised cost of these financial assets and liabilities approximates to their fair value.
b) Foreign currency and interest rate profile of financial assets (excluding investments at FVTPL)
Floating
rate
£ million
1.3
–
–
–
–
–
31 December 2018
Non-interest
bearing
£ million
Total
£ million
6.4
0.4
0.9
0.7
0.5
2.5
7.7
0.4
0.9
0.7
0.5
2.5
Floating
rate
£ million
0.5
–
–
–
–
–
1.3
11.4
12.7
0.5
31 December 2017
Non-interest
bearing
£ million
Total
£ million
6.5
0.2
0.4
0.3
0.7
0.8
8.9
7.0
0.2
0.4
0.3
0.7
0.8
9.4
Currency
Sterling
Euro
Canadian dollar
US dollar
New Zealand dollar
Australian dollar
Total
124
John Laing / Annual Report and Accounts 2018
17 FINANCIAL INSTRUMENTS (CONTINUED)
c) Foreign currency and interest rate profile of financial liabilities
The Group’s financial liabilities at 31 December 2018 were £84.3 million (31 December 2017 – £189.7 million), of which
£65.7 million (31 December 2017 – £173.2 million) related to short-term cash borrowings of £69.5 million (31 December 2017
– £176.0 million) net of unamortised finance costs of £3.8 million (31 December 2017 – £2.8 million).
Currency
Sterling
Euro
US dollar
Australian dollar
Other
Total
31 December 2018
Fixed
rate
£ million
Floating
rate
£ million
Non-interest
bearing
£ million
Total
£ million
Fixed
rate
£ million
31 December 2017
Non-interest
bearing
£ million
Total
£ million
(51.2)
(14.5)
(11.9)
(77.6)
(173.2)
(12.0)
(185.2)
–
–
–
–
–
–
–
–
(0.9)
(2.0)
(3.3)
(0.5)
(0.9)
(2.0)
(3.3)
(0.5)
–
–
–
–
(1.0)
(1.2)
(1.9)
(0.4)
(1.0)
(1.2)
(1.9)
(0.4)
(51.2)
(14.5)
(18.6)
(84.3)
(173.2)
(16.5)
(189.7)
18 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 (including power price risk which impacts the fair value of the Group’s investments in renewable
energy projects), 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.
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:
Market risk – foreign currency exchange rate risk
As at 31 December 2018 the Group held investments in 42 overseas projects (31 December 2017 – 31 overseas projects) all of which
are fair valued based on the spot exchange rate at 31 December 2018. 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’s 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 12 forward currency
contracts open as at 31 December 2018 (31 December 2017 – eight). The fair value of these contracts was a net asset of £0.5 million
(31 December 2017 – net asset of £1.3 million) and is included in investments at FVTPL.
At 31 December 2018, the Group’s most significant currency exposure was to the US dollar (31 December 2017 – US dollar).
Foreign currency exposure of investments at FVTPL:
Project
companies
£ million
31 December 2018
Listed
investment
£ million
Other assets
and liabilities
£ million
Total
£ million
Project
companies
£ million
31 December 2017
Listed
investment
£ million
Other assets
and liabilities
£ million
Sterling
Euro
Australian dollar
US dollar
New Zealand dollar
361.3
218.6
482.9
465.3
22.2
9.9
–
–
–
–
2.9
1.5
4.6
131.3
–
374.1
220.1
487.5
596.6
22.2
405.0
204.1
269.4
283.2
21.8
10.3
–
–
–
–
1,550.3
9.9
140.3
1,700.5
1,183.5
10.3
2.1
5.8
2.7
142.0
–
152.6
Total
£ million
417.4
209.9
272.1
425.2
21.8
1,346.4
Investments in project companies are fair valued based on the spot exchange rate at the balance sheet date. As at 31 December
2018, a 5% movement of each relevant currency against Sterling would decrease or increase the value of investments in overseas
projects by c.£59.4 million. The Group’s profit before tax would be impacted by the same amounts. There would be no additional
impact on equity.
125
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE GROUP FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
18 FINANCIAL RISK MANAGEMENT (CONTINUED)
Market risk – interest rate risk
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:
31 December 2018
31 December 2017
Interest-
bearing
floating rate
£ million
Non-interest
bearing
£ million
Interest-
bearing
floating rate
£ million
Non-interest
bearing
£ million
Total
£ million
Total
£ million
Financial assets
Investments at FVTPL
Trade and other receivables
Cash and cash equivalents
Financial assets exposed to interest rate risk
–
–
1.3
1.3
1,700.5
1,700.5
7.0
4.4
7.0
5.7
1,711.9
1,713.2
–
–
0.5
0.5
1,346.4
1,346.4
6.9
2.0
6.9
2.5
1,355.3
1,355.8
An analysis of the movement between opening and closing balances of investments at FVTPL is given in note 13. Investments in
project companies are principally valued on a discounted cash flow basis. At 31 December 2018, the weighted average discount
rate was 8.6% (31 December 2017 – 8.8%). For investments in project companies, changing the discount rate used to value the
underlying instruments would alter their fair value. As at 31 December 2018, a 0.25% increase in the discount rate would reduce
the fair value by £35.1 million (31 December 2017 – £40.7 million) and a 0.25% reduction in the discount rate would increase the
fair value by £37.0 million (31 December 2017 – £42.6 million). The Group’s profit before tax would be impacted by the same
amounts. There would be no additional impact on equity.
The exposure of the Group’s financial liabilities to interest rate risk is as follows:
31 December 2018
31 December 2017
Interest-
bearing
fixed rate
£ million
Interest-
bearing
floating rate
£ million
Non-interest
bearing
£ million
Interest-bearing loans and borrowings
(51.2)
(14.5)
Trade and other payables
–
–
Total financial liabilities
(51.2)
(14.5)
–
(18.6)
(18.6)
Total
£ million
(65.7)
(18.6)
(84.3)
Interest-
bearing
fixed rate
£ million
(173.2)
–
(173.2)
Non-interest
bearing
£ million
–
(16.5)
(16.5)
Total
£ million
(173.2)
(16.5)
(189.7)
Market risk – inflation risk
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 their value. However, all other things being equal, an increase in inflation expectations would also tend to increase
JLPF’s pension liabilities.
Based on a sample of five of the larger PPP investments by value at 31 December 2018, 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 decrease the value of
PPP investment by c.£13 million. Certain of the underlying project companies incorporate some inflation hedging.
Credit risk
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 counterparty credit ratings.
A significant number 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.
126
John Laing / Annual Report and Accounts 2018
18 FINANCIAL RISK MANAGEMENT (CONTINUED)
Price risk
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 economically hedged through short to medium-term fixed price purchase agreements with electricity
suppliers, or do not benefit from governmental support mechanisms at fixed prices. At 31 December 2018, based on a sample
of seven of the larger renewable energy investments by value, a 5% increase in power price forecasts is estimated to increase
the value of renewable energy investments by £17.6 million and a 5% decrease in power price forecasts is estimated to decrease
the value of renewable energy investments by £17.7 million. The Group’s profit before tax would be impacted by the same
amounts. There would be no additional impact on equity.
The Group’s investment in JLEN is valued at its closing market share price at 31 December 2018.
Liquidity risk
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.
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
2018
Less than
one year
£ million
31 December
2017
Less than
one year
£ million
7.0
5.7
12.7
6.9
2.5
9.4
Other than certain trade and other receivables, as detailed in note 14, 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
2018
£ million
31 December
2017
£ million
(84.3)
(84.3)
(189.7)
(189.7)
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:
31 December 2018
Fixed interest rate instruments – loans and borrowings
Floating interest rate instruments – loans and borrowings
Non-interest bearing instruments*
Weighted
average
effective
interest rate
%
2.73
2.78
n/a
In one year
or less
£ million
Total
£ million
(51.2)
(14.5)
(18.6)
(84.3)
(51.2)
(14.5)
(18.6)
(84.3)
127
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE GROUP FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
18 FINANCIAL RISK MANAGEMENT (CONTINUED)
31 December 2017
Fixed interest rate instruments – loans and borrowings
Non-interest bearing instruments*
* Non-interest bearing instruments relate to trade payables and accruals.
Weighted
average
effective
interest rate
%
3.00
n/a
In one year
or less
£ million
Total
£ million
(173.2)
(173.2)
(16.5)
(16.5)
(189.7)
(189.7)
Capital risk
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. The Group monitors its net debt and a reconciliation of net debt
can be found in note 25.
At 31 December 2018, the Group had committed corporate banking facilities of £650.0 million, £500 million expiring in July 2023
and £150 million expiring in January 2020 (extended in January 2019 until January 2021).
The Group has requirements for both borrowings and letters of credit, which at 31 December 2018 were met by its £650.0 million
committed facilities and related ancillary facilities (31 December 2017 – £525.0 million). Issued at 31 December 2018 were
letters of credit of £163.9 million (31 December 2017 – £202.3 million), related to future capital and loan commitments, and
contingent commitments and performance and bid bonds of £10.4 million (31 December 2017 – £7.5 million). The committed
facilities and amounts drawn therefrom are summarised below:
31 December 2018
Total facilities
£ million
Loans drawn
£ million
Bank overdraft
£ million
Letters of
credit
in issue/other
commitments
£ million
Committed corporate banking facilities
Total
650.0
650.0
(55.0)
(55.0)
(14.5)
(14.5)
(174.3)
(174.3)
Committed corporate banking facilities
Surety facilities backed by committed liquidity facilities
Total
31 December 2017
Total facilities
£ million
Loans drawn
£ million
Letters of
credit
in issue/other
commitments
£ million
475.0
50.0
525.0
(176.0)
–
(176.0)
(159.8)
(50.0)
(209.8)
Total
undrawn
£ million
406.2
406.2
Total
undrawn
£ million
139.2
–
139.2
19 DEFERRED TAX
The movements in the deferred tax asset relating to other deductible temporary differences were:
Opening asset
Charge to income – prior year
Closing asset
31 December
2018
£ million
31 December
2017
£ million
0.5
(0.5)
–
1.0
(0.5)
0.5
The Group has no tax losses within its entities which are consolidated but there are tax losses in investment entity subsidiaries
which are held at FVTPL.
128
20 RETIREMENT BENEFIT OBLIGATIONS
Pension schemes
Post-retirement medical benefits
Retirement benefit obligations
a) Pension schemes
John Laing / Annual Report and Accounts 2018
31 December
2018
£ million
31 December
2017
£ million
(32.6)
(7.5)
(40.1)
(32.3)
(8.0)
(40.3)
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
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.
JLPF
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 Group agreed to repay the actuarial deficit of £171.0 million at 31 March 2016 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 2018, John Laing made deficit reduction contributions of £26.5 million (2017 – £24.5 million)
in cash.
The liability at 31 December 2018 allows for indexation of deferred pensions and post 5 April 1988 GMP pension increases
based on the Consumer Price Index (CPI).
The Plan
No contributions were made to the Plan in the year ended 31 December 2018 (2017 – none). At its last actuarial valuation
as at 31 March 2017, the Plan had assets of £13.1 million and liabilities of £12.0 million resulting in an actuarial surplus of
£1.1 million. The next triennial actuarial valuation of the Plan is due as at 31 March 2020.
An analysis of the members of both Schemes is shown below:
31 December 2018
JLPF
The Plan
31 December 2017
JLPF
The Plan
Deferred
Pensioners
3,928
99
4,015
321
Deferred
Pensioners
4,126
106
3,960
334
Total
7,943
420
Total
8,086
440
129
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE GROUP FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
20 RETIREMENT BENEFIT OBLIGATIONS (CONTINUED)
a) Pension schemes (continued)
The financial assumptions used in the valuation of JLPF and the Plan under IAS 19 at 31 December were:
Discount rate
Rate of increase in non-GMP pensions in payment
Rate of increase in non-GMP pensions in deferment
Inflation – RPI
Inflation – CPI
31 December
2018
%
31 December
2017
%
2.85
3.10
2.10
3.20
2.10
2.50
3.00
2.00
3.10
2.00
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 (i) any hedging entered into by JLPF, (ii) 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. The Group considers that the changes below are reasonably possible based on recent experience.
0.25% on discount rate
0.25% on inflation rate
1 year post-retirement longevity
Mortality
(Increase)/decrease
in pension liabilities at
31 December 2018
Increase in
assumption
£ million
Decrease in
assumption
£ million
40.9
(30.6)
(45.8)
(43.4)
29.9
51.5
Mortality assumptions at 31 December 2018 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 2017
core projections with a long-term improvement rate of 1.25% per annum and a smoothing parameter of 7.5; and
• SAPS S2 light (S2NA_L) year of birth tables for executive members with mortality improvements in line with CMI 2017
core projections with a long-term improvement rate of 1.25% per annum and a smoothing parameter of 7.5.
Mortality assumptions at 31 December 2017 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 2016
core projections with a long-term improvement rate of 1.25% per annum and a smoothing parameter of 7.5; and
• SAPS S2 light (S2NA_L) year of birth tables for executive members with mortality improvements in line with CMI 2016
core projections with a long-term improvement rate of 1.25% per annum and a smoothing parameter of 7.5.
The table below summarises the life expectancy implied by the mortality assumptions used:
Life expectancy – of member aged 65 in 2018
Males
Females
Life expectancy – of member reaching age 65 in 2038
Males
Females
31 December
2018
Years
31 December
2017
Years
22.1
24.2
23.1
25.3
22.3
24.2
23.3
25.4
130
20 RETIREMENT BENEFIT OBLIGATIONS (CONTINUED)
a) Pension schemes (continued)
Analysis of the major categories of assets held by the Schemes
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
Cash and equivalents
Total market value of assets
Present value of Schemes' liabilities
Net pension liability
John Laing / Annual Report and Accounts 2018
31 December 2018
£ million
%
31 December 2017
£ million
%
88.8
262.4
147.2
498.4
105.8
36.1
126.8
83.1
351.8
218.0
–
–
19.8
84.4
192.4
157.4
434.2
140.7
39.9
132.6
92.6
405.8
231.0
2.1
2.1
82.9
45.8
32.4
20.0
–
1.8
37.5
35.1
20.0
0.2
7.2
1,088.0
100.0
1,156.0
100.0
(1,120.6)
(32.6)
(1,188.3)
(32.3)
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 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 and property, whilst
balancing the risks of inflation and interest rate movements through the annuity buy-in agreement, inflation swaps and
interest rate hedging.
A significant proportion of JLPF’s assets are held either as liability-matching holdings (including an Aviva bulk annuity buy-in
agreement and index-linked UK government gilts) or to provide hedges against the impact on liabilities from movements in
interest rates and inflation (other bonds and gilts). The JLPF Trustee has adopted a long-term asset allocation strategy that
has been determined as being most appropriate to meet JLPF’s current and future liabilities. JLPF’s agreed investment
strategy is such that, in combination with an agreed recovery plan, it is expected to reach full funding on a gilts flat basis
between 2023 and 2028 (“the Journey Plan”). The Trustee has established a de-risking programme, whereby JLPF’s funding
level is monitored regularly, and if it moves ahead of the Journey Plan, the Trustee will lock-in the benefit by de-risking the
portfolio to target a lower expected return. During 2018, as part of this de-risking programme, approximately £23.9 million of
equity instruments were sold and re-invested in liability matching assets. The net loss on the returns from equity instruments
during 2018 was c.£30 million.
In late 2008, the JLPF Trustee entered into a bulk annuity buy-in agreement with Aviva to mitigate JLPF’s exposure to
changes in liabilities. At 31 December 2018, the underlying insurance policy was valued at £218.0 million (31 December 2017
– £231.0 million), being substantially equal to the IAS 19 valuation of the related liabilities.
The pension liability of £32.6 million at 31 December 2018 (31 December 2017 – £32.3 million) is net of a surplus under
IAS 19 of £1.9 million in the Plan (31 December 2017 – £2.9 million).
131
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE GROUP FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
20 RETIREMENT BENEFIT OBLIGATIONS (CONTINUED)
a) Pension schemes (continued)
Analysis of amounts charged to operating profit
Current service cost*
GMP equalisation charge**
Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
(1.6)
(21.3)
(22.9)
(1.3)
–
(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.
** Following the High Court ruling on the Lloyds Banking Group Guaranteed Minimum Pension (GMP) equalisation case in October 2018, a £21.3 million
non-recurring charge has been made. This represents the additional costs to JLPF arising from the judgement, estimated at 1.90% of JLPF’s liabilities.
Analysis of amounts charged to finance costs
Interest on Schemes' assets
Interest on Schemes' liabilities
Net charge to finance costs
Analysis of amounts recognised in Group Statement of Comprehensive Income
Return on Schemes' assets (excluding amounts included in interest on Schemes' assets above)
Experience loss 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
Actuarial (loss)/gain recognised in Group Statement of Comprehensive Income
Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
28.1
(29.0)
(0.9)
30.8
(31.9)
(1.1)
Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
(61.9)
(4.5)
56.1
7.2
(3.1)
55.9
(5.1)
(61.1)
17.0
6.7
The cumulative gain recognised in the Group Statement of Changes in Equity is £3.6 million gain (31 December 2017 –
£6.7 million).
Changes in present value of defined benefit obligations
Opening defined benefit obligation
Current service cost
Interest cost
GMP equalisation charge
Experience loss 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)
Closing defined benefit obligation
2018
£ million
2017
£ million
(1,188.3)
(1,171.2)
(1.6)
(29.0)
(21.3)
(4.5)
56.1
7.2
60.8
(1.3)
(31.9)
–
(5.1)
(61.1)
17.0
65.3
(1,120.6)
(1,188.3)
The weighted average life of JLPF liabilities at 31 December 2018 is 15.6 years (31 December 2017 – 16.4 years).
132
John Laing / Annual Report and Accounts 2018
20 RETIREMENT BENEFIT OBLIGATIONS (CONTINUED)
a) Pension schemes (continued)
Changes in the fair value of Schemes’ assets
Opening fair value of Schemes’ assets
Interest on Schemes’ assets
Return on Schemes' assets (excluding amounts included in interest on Schemes' assets above)
Contributions by employer
Benefits paid (including administrative costs paid)
Closing fair value of Schemes’ assets
Analysis of the movement in the deficit during the year
Opening deficit
Current service cost
GMP equalisation charge
Finance cost
Contributions
Actuarial (loss)/gain
Pension deficit
History of the experience gains and losses
Difference between actual and expected returns on assets:
Amount (£ million)
% of Schemes' assets
Experience loss 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)
% of present value of Schemes' liabilities
b) Post-retirement medical benefits
31 December
2018
£ million
31 December
2017
£ million
1,156.0
1,109.9
28.1
(61.9)
26.6
(60.8)
30.8
55.9
24.7
(65.3)
1,088.0
1,156.0
31 December
2018
£ million
31 December
2017
£ million
(32.3)
(1.6)
(21.3)
(0.9)
26.6
(3.1)
(32.6)
(61.3)
(1.3)
–
(1.1)
24.7
6.7
(32.3)
Year ended
31 December
2018
Year ended
31 December
2017
(61.9)
5.7
(4.5)
0.4
(3.1)
0.3
55.9
4.8
(5.1)
0.4
6.7
(0.6)
The Company provides post-retirement medical insurance benefits to 57 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:
Post-retirement medical benefits liability – opening
Other finance costs
Contributions
Experience loss*
Changes in financial assumptions underlying the present value of scheme’s liabilities*
Changes in demographic assumptions underlying the present value of liabilities*
Post-retirement medical benefits liability – closing
* These amounts are actuarial gains/(losses) that go through the Group Statement of Comprehensive Income.
31 December
2018
£ million
31 December
2017
£ million
(8.0)
(0.2)
0.5
(0.1)
0.2
0.1
(7.5)
(8.0)
(0.2)
0.5
(0.2)
(0.2)
0.1
(8.0)
133
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE GROUP FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
20 RETIREMENT BENEFIT OBLIGATIONS (CONTINUED)
b) Post-retirement medical benefits (continued)
The annual rate of increase in the per capita cost of medical benefits was assumed to be 5.2% in 2018 (2017 – 5.1%). It is
expected to increase in 2019 and thereafter at RPI plus 2.0% per annum (2017 – at RPI plus 2.0% per annum).
Medical cost inflation has a significant effect on the liability reported. A 1% change in assumed medical cost inflation would
result in the following liability at 31 December 2018:
Post-retirement medical benefits liability
1% increase
£ million
1% decrease
£ million
(8.3)
(6.9)
Life expectancy also has a significant effect on the liability reported. A one-year increase or decrease in life expectancy
would result in the following liability at 31 December 2018:
Life expectancy
21 PROVISIONS
Non-current provisions
Retained liabilities
Total provisions
Non-current provisions
Retained liabilities
Total provisions
1 year
increase
£ million
1 year
decrease
£ million
(8.2)
(7.0)
At 1 January
2018
£ million
(1.0)
(1.0)
At 1 January
2017
£ million
(1.5)
(1.5)
Charge to
Group
Income
Statement
£ million
(0.5)
(0.5)
Credit to
Group
Income
Statement
£ million
0.5
0.5
At 31
December
2018
£ million
(1.5)
(1.5)
At 31
December
2017
£ million
(1.0)
(1.0)
Provisions of £1.5 million as at 31 December 2018 (31 December 2017 – £1.0 million) relate to retained liabilities from the legacy
construction and home building businesses.
22 SHARE CAPITAL
Authorised:
Ordinary shares of £0.10 each
Total
134
31 December
2018
No.
31 December
2017
No.
490,775,636
366,960,134
490,775,636
366,960,134
John Laing / Annual Report and Accounts 2018
31 December 2018
No.
£ million
31 December 2017
No.
£ million
366,960,134
36.7
366,923,076
122,320,044
12.2
1,383,367
77,115
32,606
1,559
–
–
–
36,080
978
37,058
36.7
–
–
36.7
–
36.7
22 SHARE CAPITAL (CONTINUED)
Allotted, called up and fully paid:
At 1 January
Issued under Rights Issue
Issued under LTIP
Issued under LTIP – granted in lieu of dividends payable
Issued under DSBP
Issued under DSBP – granted in lieu of dividends payable
Issued under share-based incentive arrangements – total
1,494,647
0.2
Shares in issue
Retained by EBT
At 31 December
490,774,825
49.1
366,960,134
811
–
–
490,775,636
49.1
366,960,134
As shown in the table above, during the year ended 31 December 2018, 122,320,044 shares were issued as part of the Rights
Issue in March 2018. Additionally 1,494,647 shares were issued to the EBT to satisfy awards vesting under share-based incentive
arrangements (see note 7). Of these, 1,460,482 (2017 – nil) shares were issued under the Group’s LTIP and 34,165 (2017 – 37,058)
shares were issued under the Group’s DSBP. As at 31 December 2018, 811 shares were retained by the EBT, which are excluded
from the equity in the Group Balance Sheet.
The Company has one class of ordinary shares which carry no right to fixed income.
23 SHARE PREMIUM
Opening balance
Share premium on Rights Issue
Costs of Rights Issue
Closing balance
24 NET CASH OUTFLOW FROM OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Finance costs
Unrealised profit arising on changes in fair value of investments (note 13)
Depreciation of plant and equipment
Share-based incentives
IAS 19 service cost
GMP equalisation reserve
Contribution to JLPF
Increase/(decrease) in provisions
Operating cash outflow before movements in working capital
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Net cash outflow from operating activities
31 December
2018
£ million
31 December
2017
£ million
218.0
204.3
(6.0)
416.3
218.0
–
–
218.0
Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
296.6
126.0
13.9
(366.5)
11.8
(166.3)
0.1
2.7
1.6
21.3
(26.6)
0.5
(56.4)
(0.1)
2.6
(53.9)
0.3
3.2
1.3
–
(24.7)
(0.5)
(48.9)
0.6
1.0
(47.3)
135
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE GROUP FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
25 RECONCILIATION OF NET DEBT
Cash and cash equivalents
Borrowings
Net debt
Cash and cash equivalents
Borrowings
Net debt
At
1 January
2018
£ million
2.5
(173.2)
(170.7)
At
1 January
2017
£ million
1.6
(161.4)
(159.8)
Cash
movements
£ million
Non-cash
movements
£ million
At
31 December
2018
£ million
3.2
106.5
109.7
–
1.0
1.0
5.7
(65.7)
(60.0)
Cash
movements
£ million
Non-cash
movements
£ million
At
31 December
2017
£ million
0.9
(11.0)
(10.1)
–
(0.8)
(0.8)
2.5
(173.2)
(170.7)
The cash movements from borrowings make up the net amount of proceeds from borrowings and repayment of borrowings in
the Group Cash Flow Statement.
26 GUARANTEES AND OTHER COMMITMENTS
At 31 December 2018, the Group had future equity and loan commitments in PPP and renewable energy projects of £295.6 million
(31 December 2017 – £335.4 million) backed by letters of credit of £163.9 million (31 December 2017 – £202.3 million) and cash
collateral of £131.7 million (31 December 2017 – £133.1 million). There were also contingent commitments, performance and
bid bonds of £10.4 million (31 December 2017 – £7.5 million).
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.
The Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases for land
and buildings, falling due as follows:
Within one year
In the second to fifth years inclusive
After five years
31 December
2018
£ million
31 December
2017
£ million
Other
Total
Total
0.1
0.1
–
0.2
1.2
3.4
1.7
6.3
1.1
3.1
2.2
6.4
Land and
buildings
1.1
3.3
1.7
6.1
27 TRANSACTIONS WITH RELATED PARTIES
Details of transactions between the Group and its related parties are disclosed below.
Transactions with non-recourse entities
The Group entered into the following trading transactions with non-recourse project companies in which the Group holds interests:
For the year ended:
Services income*
Balances as at:
Amounts owed by project companies
Amounts owed to project companies
31 December
2018
£ million
31 December
2017
£ million
9.4
9.3
0.5
(0.6)
3.0
(0.6)
* Services income is generated from project companies through management services agreements and recoveries of bid costs on financial close.
136
John Laing / Annual Report and Accounts 2018
27 TRANSACTIONS WITH RELATED PARTIES ( CONTINUED)
Transactions with recourse subsidiary entities held at FVTPL
The Group had the following transactions and balances with recourse subsidiary entities held at FVTPL that are eliminated in the
Group financial statements:
For the year ended:
Management charge payable to the Group by recourse subsidiary entities held at FVTPL
Net interest receivable by the Group from recourse subsidiary entities held at FVTPL
Net cash transferred from investments at FVTPL (note 13)
31 December
2018
£ million
31 December
2017
£ million
31.3
4.1
12.4
27.1
0.7
77.4
Balances as at:
Net amounts owed to the Group by recourse subsidiary entities held at FVTPL
214.7
48.9
Transactions with other related parties
There were no transactions with other related parties during the year ended 31 December 2018.
Remuneration of key management personnel
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:
Cash/vested basis
Short-term employee benefits
Post-employment benefits
Awards under long-term incentive plans
Social security costs
Award basis
Short-term employee benefits
Post-employment benefits
Awards under long-term incentive plans
Social security costs
Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
4.0
0.2
2.8
0.8
7.8
4.2
0.2
1.4
0.4
6.2
2.9
0.2
–
0.4
3.5
2.9
0.2
1.2
0.4
4.7
The average number of key management personnel during 2018 was 14, an increase from 11 during 2017. This is primarily due
to the addition of the three regional heads to the Executive Committee in September 2017.
The awards under long-term incentive plans on a cash/vested basis are the awards that vested in April 2018 in relation to the
2015 LTIP. The remuneration amount is based on the number of shares issued to key management valued at the market price
of the shares on the day of vesting. No awards under long-term incentive plans vested in 2017.
The awards under long-term incentive plans on an award basis are those outstanding during the year ended 31 December 2018
on all LTIPs, including the 2018 LTIP. The remuneration amount is calculated in accordance with IFRS 2 based on the fair value
of the awards at the time of being granted, with an adjustment to the fair value for the non-share based performance condition
depending on the Group’s NAV per share.
28 EVENTS AFTER BALANCE SHEET DATE
There were no significant events after the balance sheet date.
137
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
COMPANY BALANCE SHEET
for the year ended 31 December 2018
Non-current assets
Investments at fair value through profit or loss
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
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
31 December
2018
£ million
31 December
2017
£ million
Notes
4
5
6
7
8
9
1,390.4
1,390.4
1,094.9
1,094.9
299.6
3.6
303.2
245.6
1.1
246.7
1,693.6
1,341.6
(65.7)
(17.9)
(83.6)
(173.2)
(21.5)
(194.7)
(83.6)
(194.7)
1,610.0
1,146.9
49.1
416.3
6.1
1,138.5
1,610.0
36.7
218.0
5.9
886.3
1,146.9
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 2018 was £293.9 million (2017 – £139.4 million).
The financial statements of John Laing Group plc, registered number 05975300, were approved by the Board of Directors and authorised
for issue on 4 March 2019. They were signed on its behalf by:
Olivier Brousse
CHIEF EXECUTIVE OFFICER
4 March 2019
Patrick O’D Bourke
GROUP FINANCE DIRECTOR
4 March 2019
138
COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2018
Balance at 1 January 2018
Profit for the year
Total comprehensive income for the year
Share-based incentives
Vesting of share-based incentives
Net proceeds from issue of shares
Dividends paid
Balance at 31 December 2018
Balance at 1 January 2017
Profit for the year
Total comprehensive income for the year
Share-based incentives
Dividends paid
John Laing / Annual Report and Accounts 2018
Share capital
£ million
Share premium
£ million
Other reserves
£ million
36.7
218.0
–
–
–
0.2
12.2
–
49.1
–
–
–
–
198.3
–
416.3
5.9
–
–
2.7
(2.5)
–
–
6.1
Share capital
£ million
Share premium
£ million
Other reserves
£ million
36.7
218.0
–
–
–
–
–
–
–
–
2.7
–
–
3.2
–
5.9
Retained
earnings
£ million
886.3
293.9
293.9
–
2.3
–
(44.0)
Total equity
£ million
1,146.9
293.9
293.9
2.7
–
210.5
(44.0)
1,138.5
1,610.0
Retained
earnings
£ million
777.0
139.4
139.4
–
(30.1)
Total equity
£ million
1,034.4
139.4
139.4
3.2
(30.1)
886.3
1,146.9
Balance at 31 December 2017
36.7
218.0
The Company had distributable reserves of £393.2 million at 31 December 2018 which are sufficient 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.
139
OverviewStrategic ReportGovernanceFinancial Statements Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
292.9
(295.5)
2.7
0.3
0.1
0.5
2.6
3.0
(54.9)
(49.3)
210.5
(8.7)
(44.0)
14.5
(121.0)
51.3
2.5
1.1
3.6
138.9
(142.2)
3.2
0.8
(0.1)
0.6
3.5
1.9
18.0
23.4
–
(3.8)
(30.1)
11.0
–
(22.9)
1.1
–
1.1
John Laing / Annual Report and Accounts 2018
COMPANY CASH FLOW STATEMENT
for the year ended 31 December 2018
Operating activities
Profit from operations
Unrealised profit on changes in fair value of investments at FVTPL
Share-based incentives
Decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Net cash inflow from operating activities
Investing activities
Interest received
Dividends received
(Increase)/decrease in intercompany loans
Net cash (outflow)/inflow from investing activities
Financing activities
Net proceeds from issue of shares
Interest paid
Dividends paid
Proceeds from borrowings
Repayment of borrowings
Net cash inflow/(outflow) 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 the year
140
John Laing / Annual Report and Accounts 2018
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 December 2018
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
a holding company.
The remuneration of the Directors of the Company is shown in the Directors’ Remuneration Report on pages 70 to 87.
2 ACCOUNTING POLICIES
a) Basis of accounting
These financial statements have been prepared in accordance with IFRS as adopted 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 108, 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 set out below.
New and amended IFRS that are effective for the current year
In 2018, the Company adopted two new IFRS together with a number of amendments to IFRS and Interpretations issued
by the International Accounting Standards Board (IASB) that are effective for an annual period that begins on or after
1 January 2018 (and have been endorsed for use within the EU).
•
•
•
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Considerations
• Amendments to IAS 40 Transfers of Investment Property
• Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions
• Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
• Amendments to IAS 28 Investments in Associates and Joint Ventures – Clarification that measuring investees at fair
value through profit or loss is an investment-by-investment choice
• Amendments arising from Annual Improvements to IFRS 2014 – 2016 Cycle
Other than IFRS 9 the above amendments do not have an impact on the financial statements of the Company. The
Company’s revenue is dividends from its underlying investments and interest income which are not within the scope of
IFRS 15 ‘Revenue from Contracts with Customers.’
The key changes in IFRS9 compared to the previous standard around financial instruments (IAS39) are disclosed in the
Group financial statements on page 105. The adoption of IFRS9 has not had a material impact on the Company financial
statements. The Company’s main financial assets (other than cash and cash equivalents) are its investment in John Laing
Holdco Limited which is held at fair value through profit and loss (FVTPL) and receivables from subsidiary undertakings.
The Company’s business model for its receivables is to hold them to collect the contractual cash flows and the contractual
terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount
outstanding. These receivables therefore continue to be held at amortised cost. The Company has assessed that expected
credit risk on these receivables is immaterial. The Company has no derivative financial instruments.
New and amended IFRS standards in issue but not yet effective
At the date of authorisation of these financial statements, the Group has not applied the following new and revised standards
that have been issued but are not yet effective and in some cases had not yet been adopted by the EU:
•
•
IFRS 16 Leases
IFRS 17 Insurance Contracts
• Amendments to IFRS 9 Prepayment Features with Negative Compensation
• Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures
• Annual Improvements to IFRS 2015 – 2017 Cycle: Amendments to IFRS 3 Business Combinations, IFRS 11 Joint
Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs
• Amendments to IAS 19 Employee Benefits: Plan Amendment, Curtailment and Settlement
•
IFRS 10 Consolidated Financial Statements and IAS 28 (amendments): Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture
•
IFRIC 23 Uncertainty over Income Tax Treatments
141
OverviewStrategic ReportGovernanceFinancial Statements
John Laing / Annual Report and Accounts 2018
NOTES TO THE COMPANY FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
2 ACCOUNTING POLICIES (CONTINUED)
a) Basis of accounting (continued)
The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial
statements of the Group in future periods. The Company has not entered into lease agreements, therefore IFRS 16 Leases
does not apply.
b)
Investments
The Company meets the definition of an Investment Entity under IFRS 10 Consolidated Financial Statements and as such
has adopted Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27). See note 2a) to the Group financial
statements for details on how the Company has concluded that it meets the definition of an investment entity. In accordance
with IAS 27 Consolidated and Separate Financial Statements and the Investment Entities standard, the Company has
accounted for its investments as follows:
Investments at fair value through profit or loss
The Company has accounted for its investment in John Laing Holdco Limited at FVTPL, consistent with the Group
financial statements.
Investments at cost
Under IAS 27, the Company has elected to account for its interest in directly-owned subsidiaries that provide investment
related services or engage in permitted investment-related activities (Service Companies) at cost less provision for
impairment. In the Group financial statements, these interests are consolidated.
c) Taxation
Current tax
The tax charge or credit represents the sum of tax currently payable or receivable.
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.
Deferred tax
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 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 Company intends to settle
its current tax assets and liabilities on a net basis.
d) Financial instruments
Financial assets and financial liabilities are recognised on the Company 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 from the instrument expire or the asset is transferred and the transfer qualifies for derecognition in accordance with
IFRS 9 Financial Instruments and IFRS 13 Fair Value Measurement.
142
John Laing / Annual Report and Accounts 2018
2 ACCOUNTING POLICIES (CONTINUED)
d) Financial instruments (continued)
(i)
Financial assets
The Company classifies its financial assets in the following categories: investments at FVTPL, loans and receivables,
cash and cash equivalents 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. All
financial assets are initially measured at fair value. They are subsequently measured at either amortised cost or fair
value, depending on the classification of the financial assets.
Financial assets that meet the following conditions are measured subsequently at amortised cost:
•
•
the financial asset is held within a business model whose objective is to hold financial assets in order to collect
contractual cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
Financial assets that meet the following conditions are measured subsequently at fair value through other
comprehensive income (FVTOCI):
•
•
the financial asset is held within a business model whose objective is achieved by both collecting contractual cash
flows and selling the financial assets; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
By default, all other financial assets are measured subsequently at FVTPL.
The financial assets that the Company holds are classified as follows:
a)
Investments at FVTPL
The Company’s accounting policy in respect of investments at FVTPL is set out in section 2(b) above.
b) Loans and receivables
The Company’s loans and receivables comprise cash and cash equivalents and amounts owed by subsidiary
undertakings and are recorded at amortised cost. Amounts owed by subsidiary undertakings are held at amortised
cost as the Company’s business model is to hold these receivables to collect contractual cash flows which
comprise payments of principal and interest.
c) Cash and cash equivalents
Cash and cash equivalents in the Company Balance Sheet comprise cash at bank and in hand and short-term
deposits with original maturities of three months or less.
d)
Investments at cost
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 provision for impairments.
(ii) Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance
of the contractual arrangement. All financial liabilities are initially measured at fair value. Subsequent measurement of
financial liabilities depends on whether they are equity instruments or financial liabilities.
a) Equity instruments – share capital
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.
b) Financial liabilities
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 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.
143
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE COMPANY FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
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 consistent with those
for the Group as set out in note 4 to the Group financial statements.
4
INVESTMENTS
At 1 January
Fair value movement
At 31 December
Investments at FVTPL*
Investments at cost less impairment
31 December
2018
£ million
31 December
2017
£ million
1,094.9
295.5
952.7
142.2
1,390.4
1,094.9
1,375.4
15.0
1,390.4
1,079.9
15.0
1,094.9
* Net gain on investments at FVTPL for the year ended 31 December 2018 is £295.5 million (2017 – £142.2 million).
Details of the Company’s direct investments and how they are recognised in the accounts are as follows:
Investments
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 (Colombia) Limited
Laing Investments Management Services (Germany) Limited
Treatment
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
Laing Investments Management Services (Netherlands) Limited
Cost less impairment
Laing Investments Management Services (New Zealand) Limited
Cost less impairment
Laing Investments Management Services (Spain) Limited
Laing Investments Management Services Limited
Cost less impairment
Cost less impairment
2018
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2017
100%
100%
100%
100%
100%
100%
100%
–
100%
100%
100%
–
100%
All entities are incorporated in the United Kingdom.
As set out in note 3a) of the Group financial statements, the Company holds its investments in non-recourse project companies
through intermediate holding company subsidiaries with its investment in its directly-held intermediate holding company
subsidiary (John Laing Holdco Limited) recorded at FVTPL in the Group and Company financial statements.
The Company also has investments in directly-owned subsidiaries that provide investment-related services or engage in
permitted investment-related activities with investees. These subsidiaries, referred to as “Service Companies”, are consolidated
in the Group financial statements rather than recorded at FVTPL. In the Company accounts, these investments are held at cost
less provision for impairment.
Inter-company transactions occur between subsidiaries in which investments are recorded at FVTPL and subsidiaries that are
consolidated in the Group financial statements.
The differences in the amounts of (i) investments at FVTPL and (ii) fair value movements in the year between the Company
financial statements (as stated above) and the Group financial statements occur because in the latter inter-company balances
arising from the transactions referred to above are eliminated under the normal basis of consolidation, whereas in the Company
financial statements these inter-company balances are not eliminated.
The differences do not relate to any items that might have an effect on the tax recognised in the Group accounts.
144
5 TRADE AND OTHER RECEIVABLES
Due within one year:
Amounts owed by subsidiary undertakings
John Laing / Annual Report and Accounts 2018
31 December
2018
£ million
31 December
2017
£ million
299.6
245.6
The amounts owed by subsidiary undertakings at 31 December 2018 and 2017 are repayable on demand and interest is charged
at arm’s length interest rates.
6 BORROWINGS
Interest bearing loans and borrowings net of unamortised financing costs
Reconciliation of net debt:
Cash and cash equivalents
Borrowings
Net debt
Cash and cash equivalents
Borrowings
Net debt
7 TRADE AND OTHER PAYABLES
Amounts owed to subsidiary undertakings
Accruals and deferred income
8 SHARE CAPITAL
Authorised:
Ordinary shares of £0.10 each
31 December
2018
£ million
31 December
2017
£ million
(65.7)
(173.2)
At
1 January
2018
£ million
1.1
(173.2)
(172.1)
At
1 January
2017
£ million
–
(161.4)
(161.4)
Cash
movements
£ million
Non-cash
movements
£ million
At
31 December
2018
£ million
2.5
106.5
109.0
–
1.0
1.0
3.6
(65.7)
(62.1)
Cash
movements
£ million
Non-cash
movements
£ million
At
31 December
2017
£ million
1.1
(11.0)
(9.9)
–
(0.8)
(0.8)
1.1
(173.2)
(172.1)
31 December
2018
£ million
31 December
2017
£ million
(17.2)
(0.7)
(17.9)
(20.3)
(1.2)
(21.5)
31 December
2018
No.
31 December
2017
No.
490,775,636
366,960,134
490,775,636
366,960,134
145
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE COMPANY FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
8 SHARE CAPITAL (CONTINUED)
Allotted, called up and fully paid:
490,775,636 ordinary shares of £0.10 (31 December 2017 – 366,960,134 of £0.10) each
31 December
2018
£ million
31 December
2017
£ million
49.1
49.1
36.7
36.7
The Company has one class of ordinary shares which carry no right to fixed income.
31 December 2018
No.
£ million
31 December 2017
No.
£ million
Allotted, called up and fully paid:
At 1 January
Issued under Rights Issue
Issued under LTIP
Issued under LTIP – granted in lieu of dividends payable
Issued under DSBP
Issued under DSBP – granted in lieu of dividends payable
36.7
12.2
366,960,134
122,320,044
1,383,367
77,115
32,606
1,559
Issued under share-based incentive arrangements – total
1,494,647
0.2
366,923,076
–
–
–
36,080
978
37,058
490,774,825
49.1
366,960,134
811
–
–
490,775,636
49.1
366,960,134
36.7
–
–
36.7
–
36.7
31 December
2018
£ million
31 December
2017
£ million
218.0
204.3
(6.0)
416.3
218.0
–
–
218.0
Shares in issue
Retained by EBT
At 31 December
9 SHARE PREMIUM
Opening balance
Share premium on Rights Issue
Costs of Rights Issue
Closing balance
146
John Laing / Annual Report and Accounts 2018
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 financial statements in note 17 and in the Financial Review section. The
Company’s valuation methods are disclosed in note 13 to the Group financial statements.
31 December 2018
Cash and cash
equivalents
£ million
Loans and
receivables
£ million
Assets at
FVTPL
£ million
Investments
at cost less
impairment
£ million
Financial
liabilities at
amortised cost
£ million
Total
£ million
Fair value measurement method
n/a
n/a
Level 3
Non-current assets
Investments
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
Non-current assets
Investments
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
3.6
299.6
1,375.4
15.0
(83.6)
1,610.0
–
1,375.4
299.6
–
–
–
299.6
1,375.4
15.0
–
–
–
–
–
–
–
–
–
–
1,079.9
245.6
–
–
–
245.6
1,079.9
15.0
–
–
–
–
–
–
–
–
–
n/a
15.0
–
–
n/a
15.0
–
–
n/a
–
1,390.4
–
–
–
(65.7)
(17.9)
(83.6)
299.6
3.6
1,693.6
(65.7)
(17.9)
(83.6)
n/a
–
1,094.9
–
–
–
(173.2)
(21.5)
(194.7)
245.6
1.1
1,341.6
(173.2)
(21.5)
(194.7)
–
–
3.6
3.6
–
–
–
–
–
1.1
1.1
–
–
–
1.1
245.6
1,079.9
15.0
(194.7)
1,146.9
31 December 2017
Cash and cash
equivalents
£ million
Loans and
receivables
£ million
Assets at
FVTPL
£ million
Investments
at cost less
impairment
£ million
Financial
liabilities at
amortised cost
£ million
Total
£ million
Fair value measurement method
n/a
n/a
Level 3
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.
Amounts owed by subsidiary undertakings
Amounts owed to subsidiary undertakings
Dividends received
Interest income received
Interest paid
Year ended
31 December
2018
£ million
Year ended
31 December
2017
£ million
299.6
(17.2)
3.0
5.8
(0.7)
245.6
(20.3)
1.9
2.5
(0.8)
147
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE COMPANY FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
12 GUARANTEES AND OTHER COMMITMENTS
On 25 July 2018 the Group refinanced its £475 million facility and two £25 million term facilities (HSBC and Barclays) with a
£650 million syndicated, committed, revolving credit facility. At 31 December 2018, the Company was a guarantor under the
Group’s £650 million facility and associated credit facilities. The total amount utilised under these facilities, and hence
guaranteed by the Company, was £196.6 million (31 December 2017 - £335.8 million). At 31 December 2017, the Company had
been a guarantor under the Group’s £475 million syndicated, committed, revolving credit facility and associated credit facilities
dated 17 February 2015 and amended on 21 June 2016 and 6 October 2017.
On 8 April 2016, the Company became an indemnitor to each of two uncommitted bonding facilities, one from Euler Hermes UK
and the other QBE Insurance Limited, which were each subsequently utilised to the sum of £25 million. At 31 December 2018 the
sums outstanding on these facilities were £nil (31 December 2017 – £50 million) with no outstanding guarantees by the Company.
On 23 February 2018, the Company became an indemnitor to an uncommitted bonding facility from Tokio Marine HCC. At
31 December 2018 the sum outstanding on this facility was £24.9 million (2017 – £nil).
On 14 August 2018 and 5 October 2018, the Company became an indemnitor to utilisations on an uncommitted bonding facility
from Chubb. At 31 December 2018 the sum outstanding on this facility was £7.8 million (31 December 2017 – £nil).
On 24 November 2016, the Company became a Guarantor to each of two committed £25 million term facilities backing the
bonding facilities from Euler Hermes and QBE. One facility was provided by Barclays Bank plc and the other HSBC Bank plc.
On 9 February 2018, the HSBC term facility was extended until February 2019 and was amended and made available for general
corporate purposes. On 23 February 2018, the Barclays term facility was extended until February 2019 and was made available
for the surety facility provided by Tokio Marine HCC. Both of these facilities were undrawn when cancelled on 25 July 2018
(31 December 2017 – undrawn).
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 2018 were as follows:
Country of
incorporation
Ownership
interest
Registered office
Name
Recourse subsidiaries
Service Companies (consolidated)
John Laing (USA) Limited
John Laing and Son BV
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 (Colombia) Limited
Laing Investments Management Services (Germany) Limited
Laing Investments Management Services (Netherlands) Limited
Laing Investments Management Services (New Zealand) Limited
Laing Investments Management Services (Spain) Limited
Laing Investments Management Services Limited
*
**
*
*
*
*
*
*
*
*
*
*
*
United Kingdom
Netherlands
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
RL Design Solutions Limited
**
United Kingdom
Investment Entity subsidiaries (measured at fair value)
Argon Ventures Limited
Denver Rail (Eagle) Holdings Inc.
Hungary M6 Limited
Hyder Investments Limited
John Laing AFC Holdco Corp
John Laing Buckthorn Wind HoldCo Corp
**
**
**
**
**
**
United Kingdom
United States
United Kingdom
United Kingdom
United States
United States
148
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Note 1
Note 3
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
Note 8
Note 1
Note 1
Note 8
Note 8
John Laing / Annual Report and Accounts 2018
13 SUBSIDIARIES AND OTHER INVESTMENTS (CONTINUED)
Name
John Laing Cambridge Limited
John Laing Funding Limited
John Laing GHIB Holdco Corp
John Laing Holdco Limited
John Laing Homes Limited
John Laing I-4 Holdco Corp
John Laing I-66 Holdco Corp
John Laing I-75 Holdco Corp
John Laing I-77 Holdco Corp
John Laing Infrastructure Limited
John Laing Infrastructure (A1 Mobil Holdings) Limited
John Laing Infrastructure (German Holdings) Limited
John Laing Infrastructure Management Services India Private Limited
John Laing Investments Limited
John Laing Investments (Cherry Tree) Pty Ltd
John Laing Investments (Grafton) BV
John Laing Investments (Granville) BV
John Laing Investments (Hornsdale) Pty Limited
John Laing Investments (Hornsdale 2) Pty Limited
John Laing Investments (Hornsdale 3) Pty Limited
John Laing Investments (LBAJQ) BV
John Laing Investments (Melbourne Metro) BV
John Laing Investments Netherlands Holdings BV
John Laing Investments (NGR) BV
John Laing Investments (NRAH) BV
John Laing Investments NZ Holdings Limited
John Laing Investments Overseas Holdings Limited
John Laing Investments (Perth Stadium) BV
John Laing Investments (SLR) BV
John Laing Investments (Sunraysia) BV
John Laing Limited
John Laing Projects & Developments (Holdings) Limited
John Laing Rocksprings Wind HoldCo Corp
John Laing Social Infrastructure Limited
John Laing Sterling Wind Holdco Corp
Laing Infrastructure Holdings Limited
Laing Investment Company Limited
Laing Investments Greenwich Limited
Laing Property Limited
Laing Property Holdings Limited
Country of
incorporation
Ownership
interest
**
**
**
*
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
United Kingdom
United Kingdom
Canada
United Kingdom
United Kingdom
United States
United States
United States
United States
United Kingdom
United Kingdom
United Kingdom
India
United Kingdom
Australia
Netherlands
Netherlands
Australia
Australia
Australia
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
United Kingdom
United Kingdom
Netherlands
Netherlands
Netherlands
United Kingdom
United Kingdom
United States
United Kingdom
United States
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Registered office
Note 1
Note 1
120 Adelaide Street West,
Suite 2201, Toronto,
Ontario, Canada
Note 1
Note 1
Note 8
Note 8
Note 8
Note 8
Note 1
Note 1
Note 1
Delhi Rectangle, 4th Floor
Rectangle No. 1, Saket
Commercial Complex,
D4 Saket, New Delhi, India
Note 1
Note 4
Note 3
Note 3
Note 4
Note 4
Note 4
Note 3
Note 3
Note 3
Note 3
Note 3
Note 1
Note 1
Note 3
Note 3
Note 3
Note 1
Note 1
Note 8
Note 1
Note 8
Note 1
Note 1
Note 1
Note 1
Note 1
149
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE COMPANY FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
13 SUBSIDIARIES AND OTHER INVESTMENTS (CONTINUED)
Name
Non-recourse subsidiaries
Subsidiary project companies (measured at fair value)
AEM Holdco LLC
AEM Wind LLC
ALTRAC Light Rail Holdings 3 Pty Limited
ALTRAC Light Rail Holdings Trust 3
ALTRAC Light Rail 3 Pty Limited
ALTRAC Light Rail Trust 3
Boston AFC 2.0 Holdco LLC
Boston AFC 2.0 Opco LLC
Brantley Farm Solar LLC
Brantley HoldCo LLC
Buckthorn Wind Class B Holdco LLC
Buckthorn Wind John Laing OpCo LLC
Buckthorn Wind Project LLC
Buckthorn Wind Tax Equity Holdco LLC
Buckleberry HoldCo LLC
Buckleberry Solar LLC
CCP-PL Lessor III LLC
CCP-PL Lessor IV LLC
CCP-PL Lessor V LLC
CCP-PL Managing Member III LLC
CCP-PL Managing Member IV LLC
CCP-PL Managing Member V LLC
Cherry Tree Finance Company Pty Ltd
Cherry Tree Hold Co Pty Ltd
Cherry Tree Hold Trust
Cherry Tree Project Trust
Cherry Tree Wind Farm Pty Ltd
CountyRoute (A130) Plc
CountyRoute 2 Limited
CountyRoute Limited
Courtibeaux (Holdings) Limited
CY Holdings 3 Pty Limited
Cross Yarra Holding Trust 3
Cross Yarra Trust 3
Cypress Creek Fund 11 LLC
Cypress Creek Fund 11 Managing Member LLC
Cypress Creek Fund 12 LLC
Cypress Creek Fund 12 Managing Member LLC
Defence Support (St Athan) Holdings Limited
Defence Support (St Athan) Limited
Dritte Nordergründe Beteiligungs GmbH
150
Country of
incorporation
Ownership
interest
Registered office
United States
United States
Australia
Australia
Australia
Australia
United States
United States
92.5% 645 N. Michigan, Suite 980,
Chicago, IL 60611 USA
92.5% 645 N. Michigan, Suite 980,
Chicago, IL 60611 USA
100%
100%
100%
100%
90%
90%
Note 4
Note 4
Note 4
Note 4
Note 8
Note 8
United States
90.1%
United States
90.1%
176 Mine Lake Court,
Suite 100, Raleigh,
NC 27615 USA
176 Mine Lake Court,
Suite 100, Raleigh,
NC 27615 USA
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
Australia
Australia
Australia
Australia
Australia
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Australia
Australia
Australia
90.05%
90.05%
90.05%
90.05%
90.1%
90.1%
90.1%
90.1%
90.1%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Note 8
Note 8
Note 8
Note 8
Note 9
Note 9
Note 8
Note 8
Note 8
Note 8
Note 8
Note 8
Note 4
Note 4
Note 4
Note 4
Note 4
Note 2
Note 2
Note 2
Note 1
Note 4
Note 4
Note 4
United States
90.1%
United States
100%
United States
90.1%
United States
100%
United Kingdom
United Kingdom
Germany
100%
100%
100%
176 Mine Lake Court,
Suite 100, Raleigh,
NC 27615 USA
176 Mine Lake Court,
Suite 100, Raleigh,
NC 27615 USA
176 Mine Lake Court,
Suite 100, Raleigh,
NC 27615 USA
176 Mine Lake Court,
Suite 100, Raleigh,
NC 27615 USA
Note 2
Note 2
Lise-Meitner-Strasse 5,
28359 Bremen, Germany
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
13 SUBSIDIARIES AND OTHER INVESTMENTS (CONTINUED)
Name
Education Support (Southend) Limited
Finley Solar Holdings Pty Ltd
Finley Solar Farm Pty Ltd
Finley Solar Finance Pty Ltd
Finley Solar Trust
Fox Creek Farm Solar LLC
Fox Creek HoldCo LLC
Glencarbry (Holdings) Limited
Glencarbry Supply Company Limited
Glencarbry Windfarm Limited
Innovative Solar 54 LLC
Innovative Solar 67 LLC
IS54 HoldCo LLC
IS67 HoldCo LLC
John Laing US Solar Corp
Kabeltrasse Morbach GmbH & Co. KG
KGE Windpark Schipkau-Nord GmbH & Co. KG
KGE Schipkau-Nord Infrastruktur GmbH & Co. KG
Kiata Wind Farm Holdings Pty Limited
Kiata Wind Farm Pty Limited
Klettwitz Schipkau Nord Beteiligungs GmbH
Klettwitz SN Holdings GmbH
Klettwitz SN Verwaltungs GmbH
Nordergrunde Holdco GmbH
NorthernPathways Holding Pty Ltd
NorthernPathways Pty Ltd
NorthernPathways Project Trust
NorthernPathways Holding Trust
Parc Eolien des Courtibeaux SAS
Parc Eolien des Tournevents du Cos SAS
Parkway 6 BV
Parkway 6 Holding BV
Rammeldalsberget Vindkraft AB
Rammeldalsberget Holding AB
John Laing / Annual Report and Accounts 2018
Country of
incorporation
Ownership
interest
Registered office
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
United Kingdom
Australia
Australia
Australia
Australia
United States
100%
100%
100%
100%
100%
90.1%
United States
90.1%
Ireland
Ireland
100%
100%
Ireland
100%
United States
United States
United States
United States
United States
90.1%
90.1%
90.1%
90.1%
100%
Germany
81.82%
Germany
100%
Germany
85%
Australia
72.3%
Australia
72.3%
Germany
Germany
Germany
Germany
Australia
Australia
Australia
Australia
France
100%
100%
100%
100%
80%
80%
80%
80%
100%
France
100%
Netherlands
Netherlands
85%
85%
Sweden
100%
Sweden
100%
Note 1
Note 4
Note 4
Note 4
Note 4
176 Mine Lake Court,
Suite 100, Raleigh,
NC 27615 USA
176 Mine Lake Court,
Suite 100, Raleigh,
NC 27615 USA
Note 1
Arthur Cox Building,
Earlsfort Terrace,
Dublin 2, Ireland
Arthur Cox Building,
Earlsfort Terrace,
Dublin 2, Ireland
Note 9
Note 9
Note 9
Note 9
Note 9
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
Lise-Meitner-Strasse 5,
28359 Bremen, Germany
Note 4
Note 4
Note 4
Note 4
1 Rue des Arquebusiers,
67000 Strasbourg, France
1 Rue des Arquebusiers,
67000 Strasbourg, France
Taurusavenue 100,
Hoofddorp, Netherlands
Taurusavenue 100,
Hoofddorp, Netherlands
Sveavagen 17, 111 57
Stockholm, Sweden
Sveavagen 17, 111 57
Stockholm, Sweden
151
OverviewStrategic ReportGovernanceFinancial Statements Country of
incorporation
Ownership
interest
Registered office
John Laing / Annual Report and Accounts 2018
NOTES TO THE COMPANY FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
13 SUBSIDIARIES AND OTHER INVESTMENTS (CONTINUED)
Name
Rocksprings Val Verde Wind LLC
Rocksprings Wind John Laing OpCo LLC
Services Support (Surrey) Holdings Limited
Services Support (Surrey) Limited
Société d'Exploitation du Parc Eolien Du Tonnerois
Solar House Holdings
Solar House 1
Solar House 2
Solar House 3
Solar House 4
Sterling Wind John Laing Op Co. LLC
Sunraysia Solar Farm Holdings Pty Ltd
Sunraysia Solar Project Pty Ltd
Sunraysia Solar Project Holdings Trust
Sunraysia Solar Project Trust
Sunraysia Solar Finance Pty Ltd
Svartvallsberget SPW AB
Svartvallsberget Holding AB
Tonnerois (Holdings) Limited
Tournevents (Holdings) Limited
Uliving@Brighton (Holdco) Limited
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
United States
United States
United Kingdom
United Kingdom
France
France
France
France
France
France
95.3%
100%
100%
100%
100%
80%
80%
80%
80%
80%
United States
Australia
100%
90.1%
Australia
90.1%
Australia
90.1%
Australia
90.1%
Australia
90.1%
Sweden
100%
Sweden
100%
United Kingdom
United Kingdom
United Kingdom
100%
100%
85%
Uliving@Brighton Limited
**
United Kingdom
85%
US Solar John Laing Op Co LLC
Val Verde Wind HoldCo III LLC
Vierte Nordergründe Beteiligungs GmbH
Wind Hold Co 1 Limited
Wind Project Co 1 Limited
Windpark Horath Holding GmbH
Windpark Horath Verwaltungs GmbH
WP Horath GmbH & Co KG
Zweite Nordergründe Beteiligungs GmbH
**
**
**
**
**
**
**
**
**
United States
United States
Germany
United Kingdom
United Kingdom
Germany
Germany
Germany
Germany
100%
95.3%
100%
100%
100%
100%
100%
100%
100%
152
Note 8
Note 8
Note 1
Note 1
1 Rue des Arquebusiers,
67000 Strasbourg, France
6 Avenue du Coq, 75009
Paris, France
6 Avenue du Coq, 75009
Paris, France
6 Avenue du Coq, 75009
Paris, France
6 Avenue du Coq, 75009
Paris, France
6 Avenue du Coq, 75009
Paris, France
Note 8
Level 4, 5 Talavera Road
Macquarie Park, NSW 2113,
Australia
Level 4, 5 Talavera Road
Macquarie Park, NSW 2113,
Australia
Level 4, 5 Talavera Road
Macquarie Park, NSW 2113,
Australia
Level 4, 5 Talavera Road
Macquarie Park, NSW 2113,
Australia
Level 4, 5 Talavera Road
Macquarie Park, NSW 2113,
Australia
Sveavagen 17, 111 57
Stockholm, Sweden
Sveavagen 17, 111 57
Stockholm, Sweden
Note 1
Note 1
Linkcity, Becket House,
1 Lambeth Palace Road,
London SE1 7EU
Linkcity, Becket House,
1 Lambeth Palace Road,
London SE1 7EU
Note 8
Note 8
Lise-Meitner-Strasse 5,
28359 Bremen, Germany
Note 1
Note 1
Note 7
Note 7
Note 7
Lise-Meitner-Strasse 5,
28359 Bremen, Germany
John Laing / Annual Report and Accounts 2018
13 SUBSIDIARIES AND OTHER INVESTMENTS (CONTINUED)
Details of the Company’s joint ventures and other investments at 31 December 2018 were as follows:
Name
Non-recourse
Joint venture project companies (measured at fair value)
A1 mobil GmbH & Co. KG
A1 mobil Verwaltungs GmbH
A-Lanes A15 Holding BV
A-Lanes A15 BV
A-Lanes Management Services BV
Agility Trains East (Holdings) Limited
Agility Trains East (Midco) Limited
Agility Trains East Limited
Alder Hey Holdco 3 Limited
Alder Hey Holdco 2 Limited
Alder Hey Holdco 1 Limited
Alder Hey (Special Purpose Vehicle) Limited
ALTRAC Light Rail Partnership
Celsus Holding Pty Limited
Celsus Securitisation Pty Limited
Celsus Trust
Cramlington Renewable Energy Developments Hold Co Limited
Cramlington Renewable Energy Developments Limited
Cross Yarra Partnership
De Groene Boog Holding BV
De Groene Boog BV
Denver Transit Holdings LLC
Denver Transit Partners LLC
Forum Cambridge LLP
Granville Harbour Holdings Pty Ltd
Granville Harbour Holdings Trust
Granville Harbour Operations Pty Ltd
Granville Harbour Operations Trust
Hornsdale Asset Co Pty Limited
HWF Holdco 1 Pty Limited
HWF FinCo 1 Pty Limited
HWF 1 Pty Limited
HWF Holdco 2 Pty Limited
HWF FinCo 2 Pty Limited
Country of
incorporation
Ownership
interest
Registered office
Germany
42.5%
Germany
42.5%
Netherlands
Netherlands
Netherlands
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
28%
28%
25%
30%
30%
30%
40%
40%
40%
40%
Stader Strasse 36, 27419
Sittensen, Germany
Stader Strasse 36, 27419
Sittensen, Germany
Venkelweg 64, Hoogvliet
Rotterdam, Netherlands
Venkelweg 64, Hoogvliet
Rotterdam, Netherlands
Westkanaaldijk 2, Utrecht,
Netherlands
Note 6
Note 6
Note 6
Note 2
Note 2
Note 2
Note 2
Australia
32.5%
Level 7, 280 Elizabeth St
Surry Hills, NSW 2010,
Australia
Australia
Australia
Australia
17.26% c/- Royal Adelaide Hospital,
Port road, Adelaide SA 5000,
Australia
17.26% c/- Royal Adelaide Hospital,
Port road, Adelaide SA 5000,
Australia
17.26% c/- Royal Adelaide Hospital,
Port road, Adelaide SA 5000,
Australia
United Kingdom
44.72%***
United Kingdom
44.72%***
Australia
30%
Note 2
Note 2
Level 8, 136 Exhibition
St, Melbourne VIC 3000,
Australia
Netherlands
47.5%
Marten Meesweg 25,
Rotterdam, Netherlands
Netherlands
47.5%
Marten Meesweg 25,
Rotterdam, Netherlands
United States
United States
United Kingdom
45%
45%
50%
Note 8
Note 8
Note 1
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
49.8% Level 13, 664 Collins Street,
Dockland VIC 3008, Australia
49.8% Level 13, 664 Collins Street,
Dockland VIC 3008, Australia
49.8% Level 13, 664 Collins Street,
Dockland VIC 3008, Australia
49.8% Level 13, 664 Collins Street,
Dockland VIC 3008, Australia
23.33%
30%
30%
30%
20%
20%
Note 5
Note 5
Note 5
Note 5
Note 5
Note 5
153
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
NOTES TO THE COMPANY FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2018
13 SUBSIDIARIES AND OTHER INVESTMENTS (CONTINUED)
Name
HWF 2 Pty Limited
HWF 3 Pty Limited
HWF Holdco 3 Pty Limited
HWF FinCo 3 Pty Limited
I-4 Mobility Partners HoldCo LLC
I-4 Mobility Partners Midstream LLC
I-4 Mobility Partners Op Co LLC
I-66 Express Mobility Partners Holding LLC
I-66 Express Mobility Partners LLC
I-77 Mobility Partners Holding LLC
I-77 Mobility Partners LLC
Laing/Gladedale (Hastings) Holdings Limited
Laing/Gladedale (Hastings) Limited
Laing Wimpey Alireza Limited
NGR Holding Company Pty Limited
NGR Project Company Pty Limited
NGR Holding Trust
NGR Project Trust
Oakland Corridor Partners HoldCo LLC
Oakland Corridor Partners LLC
OWP Nordergründe GmbH & Co. KG
Palisade Granville Harbour Investments Pty Ltd
Palisade Granville Harbour Investments Trust
Rail Investments (Great Western) Limited
Securefuture Wiri Holdings Limited
Securefuture Wiri Limited
Severn River Crossing Plc
SPC Management Services BV
154
Country of
incorporation
Ownership
interest
Registered office
Australia
Australia
Australia
Australia
United States
United States
United States
United States
20%
20%
20%
20%
50%
50%
50%
10%
United States
10%
United States
10%
United States
10%
United Kingdom
United Kingdom
Saudi Arabia
Australia
50%
50%
33%
40%
Australia
40%
Australia
40%
Australia
40%
United States
40%
United States
40%
Note 5
Note 5
Note 5
Note 5
Note 8
Note 8
Note 8
1209 Orange St,
Wilmington,
Delaware 19801, USA
1209 Orange St,
Wilmington,
Delaware 19801, USA
1209 Orange St,
Wilmington,
Delaware 19801, USA
1209 Orange St,
Wilmington,
Delaware 19801, USA
Note 1
Note 1
P.O. Box 2059, Jeddah,
Saudi Arabia
c/- Allens, Level 33,
101 Collins Street,
Melbourne VIC 3000,
Australia
c/- Allens, Level 33,
101 Collins Street,
Melbourne VIC 3000,
Australia
c/- Allens, Level 33,
101 Collins Street,
Melbourne VIC 3000,
Australia
c/- Allens, Level 33,
101 Collins Street,
Melbourne VIC 3000,
Australia
1209 Orange St,
Wilmington,
Delaware 19801, USA
1209 Orange St,
Wilmington,
Delaware 19801, USA
Germany
30%
Stephanitorsbollwerk 3,
28217 Bremen, Germany
Australia
Australia
49.8% Level 13, 664 Collins Street,
Dockland VIC 3008,
Australia
49.8% Level 13, 664 Collins Street,
Dockland VIC 3008,
Australia
United Kingdom
New Zealand
50%
30%
New Zealand
30%
United Kingdom
Netherlands
35%
33.3%
Note 1
Level 3, 37 Galway Street,
Britomart, Auckland 1010,
New Zealand
Level 3, 37 Galway Street,
Britomart, Auckland 1010,
New Zealand
Note 1
Westkanaaldijk 2 Utrecht,
Netherlands
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
13 SUBSIDIARIES AND OTHER INVESTMENTS (CONTINUED)
Name
Speyside Renewable Energy Partnership Hold Co Limited
Speyside Renewable Energy Finance PLC
Speyside Renewable Energy Partnership Limited
Transcend Property Limited
Westcoast Wind Pty Ltd
Westadium Project Holdco Pty Limited
Westadium Project Co Pty Limited
Westadium Project Unit Trust
Westadium Project Unit Hold Trust
Wimpey Laing Iran Limited
**
**
**
**
**
**
**
**
**
**
John Laing / Annual Report and Accounts 2018
Country of
incorporation
Ownership
interest
United Kingdom 43.35%****
United Kingdom 43.35%****
United Kingdom 43.35%****
Registered office
13 Queens Road, Aberdeen,
Scotland, AB15 4YL
Note 2
13 Queens Road, Aberdeen,
Scotland, AB15 4YL
United Kingdom
50%
Note 1
Australia
Australia
Australia
Australia
Australia
United Kingdom
49.8% Level 13, 664 Collins Street,
Dockland VIC 3008,
Australia
50%
50%
50%
50%
Note 4
Note 4
Note 4
Note 4
50% Gate House, Turnpike Road,
High Wycombe,
Buckinghamshire,
HP12 3NR
50% Gate House, Turnpike Road,
High Wycombe,
Buckinghamshire,
HP12 3NR
Wimpey Laing Limited
**
United Kingdom
Other investments
John Laing Environmental Assets Group Limited
**
Guernsey
1.89%
Sarnia House, Le Truchot,
St Peter Port, Guernsey
GY1 1GR Channel Islands
*
**
Entities owned directly by the Company
Entities owned indirectly by the Company
***
44.72% of share capital ownership and 55.9% investment in subordinated debt loan
**** 43.35% of share capital ownership and 51% investment in subordinated debt loan
Notes:
1.
2.
3.
4.
5.
6.
7.
8.
9.
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, D-10178 Berlin, Germany
The registered office of these companies is: 251 Little Falls Drive, Wilmington, Delaware 19808, USA
The registered office of these companies is: 2626 Glendwood Avenue Suite 550, Raleigh, North Carolina 27608, USA
155
OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
ADDITIONAL FINANCIAL INFORMATION (UNAUDITED)
DETAILS OF INVESTMENTS IN PROJECT COMPANIES
Details of the Group’s investments in project companies as at 31 December 2018 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)
Social
Infrastructure
Health
Alder Hey (Special
Purpose Vehicle)
Limited
Alder Hey
Children's Hospital
40%
Design, build, finance and operate
a new hospital in Liverpool costing
£167 million.
July 2015
30
< £10 million
Celsus Holding Pty
Limited
New Royal
Adelaide Hospital
17.26% Design, build, finance and operate
a new hospital in Adelaide,
South Australia costing AUD
$1,850 million.
Nov 2011
35
£25 – £50 million
Justice and
Emergency
Services
Securefuture Wiri
Limited
Auckland South
Corrections Facility
30%
Design, build, finance and operate
a 960 place prison at Wiri, South
Auckland, New Zealand costing NZD
$270 million.
Sept 2012 28
£10 – £25 million
NorthernPathways
Pty Ltd
80%
Clarence Correctional
Centre (formerly
New Grafton
Correctional Centre)
Design, build, finance and operate
a 1,700 place prison at Grafton,
New South Wales, Australia costing
AUD $719 million.
June 2017 23
£50 – £100 million
Defence
Defence Support
(St Athan) Limited
DARA Red Dragon
100% Design, build and finance aircraft
Aug 2003
16
< £10 million
Other
accommodation
Westadium Project
Co Pty Limited
New Perth
Stadium
50%
maintenance facilities at RAF
St. Athan costing £89 million.
Design, build, finance, maintenance
and operation of new Perth Stadium
in Western Australia comprising
total expenditure of AUD $1.0 billion.
Aug 2014
28
£25 – £50 million
Environmental
Biomass
Speyside
Renewable Energy
Partnership
Limited
Cramlington
Renewable Energy
Developments
Limited
Speyside Biomass
43.35% Design, build, finance and operate
Aug 2014
23
£10 < £25 million
a 14 MWe biomass CHP plant in
Speyside.
Cramlington
Biomass
44.7% Design, build, finance and operate
Sept 2015 22
£25 – £50 million
a 28 MW biomass CHP plant in
Cramlington.
Wind and solar
Rammeldalsberget
Vindkraft AB
Rammeldalsberget
Wind Farm
100% Design, build, finance and operate
Nov 2014
24
£10 – £25 million
six 2.5 MW turbines in Sweden.
Glencarbry
Windfarm Limited
Glencarbry Wind
Farm
100% Design, build, finance and operate
Jan 2016
26
£10 – £25 million
seven 3.3 MW and five 2.5 MW
turbines in Ireland.
Kabeltrasse
Morbach GmbH
& Co. KG
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)
HWF 2 Pty Limited Hornsdale Wind
Farm (Phase 2)
HWF 3 Pty Limited Hornsdale Wind
Farm (Phase 3)
30%
20%
20%
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
35 turbines to give 109 MW total
installed capacity in Australia.
Aug 2015
31
£10 – £25 million
June 2016 31
< £10 million
Feb 2017
31
< £10 million
Kiata Wind Farm
Pty Limited
Société
d'Exploitation
du Parc Eolien
Du Tonnerois
Kiata Wind Farm
72.3% Design, build, finance and operate
Nov 2016
31
£10 – £25 million
a nine turbine 30 MW windfarm
in Australia
Pasilly Wind Farm
100% Design, build, finance and operate
Dec 2015
26
< £10 million
ten 2 MW turbines in France.
Svartvallsberget
SPW AB
Svartvallsberget
Wind Farm
100% Design, build, finance and operate
Mar 2013
26
£10 – £25 million
ten 2 MW turbines in Sweden
156
John Laing / Annual Report and Accounts 2018
DETAILS OF INVESTMENTS IN PROJECT COMPANIES (CONTINUED)
Sector
Company name
Project name
% owned Description
Wind and solar
(continued)
Klettwitz Shipkau
Nord Beteiligungs
GmbH
Klettwitz Wind Farm 100% Design, build, finance and operate
the re-powering of a windfarm with
27 turbines to give 89 MW total
installed capacity in Germany.
Period of concession or
estimated operating life
Start
date
No. of
years
Equity committed /
invested (par value)
Oct 2015
25
£25 – £50 million
AEM Wind LLC
Sterling Wind Farm 92.5% Design, build, finance and operate 13
Oct 2016
31
£10 – £25 million
2.3 MW turbines in New Mexico, US
St Martin Wind Farm 100% Design, build, finance and operate
Nov 2016
27
< £10 million
five 2.05 MW turbines in France
Parc Eolien des
Courtibeaux SAS
Parc Eolien des
Tournevents du
Cos SAS
Sommette
Wind Farm
OWP Nordergründe
GmbH & Co. KG
Nordergründe
Offshore Wind Farm
30%
100% Design, build, finance and operate
Sept 2016 27
£10 – £25 million
nine 2.4 MW turbines in France
Design, build, finance and operate
18 offshore 6.15 MW turbines in the
German North Sea
Aug 2016
26
£25 – £50 million
Rocksprings
Wind John Laing
OpCo LLC
Buckthorn
Wind John Laing
OpCo LLC
Rocksprings
Wind Farm
Buckthorn Wind
Farm
John Laing
US Solar Corp
Cypress Creek
solar farms
Finley Solar Farm
Pty Ltd
Finley solar farm
95.3% Installation of 53 General Electric
Sept 2017 30
£50 – £100 million
2.3 MW wind turbines and 16 1.72 MW
turbines in Val Verde County, Texas, US.
90.05% Design, build, finance and operate
Oct 2017
30
£25 – £50 million
29 turbines to produce a 100 MW
wind farm in Erath County, Texas, US.
100% Build, finance and operate a portfolio
Aug 2018 30
£50 – £100 million
of five utility scale solar projects
located in North Carolina. The total
capacity of the portfolio is 258.5 MW.
100% Design, build, finance and operate a
163 MW Solar PV farm in south west
NSW, Australia.
Nov 2018
31
£50 – £100 million
Sunraysia Solar
Project Pty Ltd
Sunraysia solar farm 90.1% Design, build, finance and operate a
255 MW Solar PV farm in south west
NSW, Australia.
Oct 2018
31
£50 – £100 million
Granville wind farm 49.8% Build, finance and operate a 112 MW
Nov 2018
31
£50 – £100 million
Granville Harbour
Operations Pty Ltd
Cherry Tree Wind
Farm Pty Ltd
Cherry Tree
wind farm
wind farm in Tasmania, Australia.
100% Design, build, finance and operate
a 57.6 MW wind farm in north east
Victoria, Australia.
Dec 2018
31
£25 – £50 million
Transport
Other
CountyRoute
(A130) plc
A130
100% Design, build, finance and operate
Feb 2000
30
< £10 million
I-4 Mobility
Partners Op Co LLC
I-4 Ultimate
50%
I-77 Mobility
Partners LLC
I-66 Express
Mobility
Partners LLC
Parkway 6 BV
I-77 Managed Lanes 10%
I-66 Managed Lanes 10%
A6 Parkway
Netherlands
85%
A-Lanes A15 BV
A15 Netherlands
28%
the A130 bypass linking the A12 and
A127 in Essex at a cost of £76 million.
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, operate and
maintain 22.5 miles of managed
lanes along the I-66 corridor in
Northern Virginia, US.
Design, build, finance, manage and
maintain for a 20 year operational
period the A6 Almere highway in the
greater Amsterdam region.
Design, build, finance and maintain
the A15 highway south of Rotterdam
(about 40 kilometres) at a construction
cost of $727 million.
Sept 2014 40
£10 – £25 million
May 2015
53
£10 - £25 million
Nov 2017
49
> £100 million
Nov 2016
23
< £10 million
Dec 2010
25
£10 – £25 million
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OverviewStrategic ReportGovernanceFinancial Statements John Laing / Annual Report and Accounts 2018
ADDITIONAL FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
DETAILS OF INVESTMENTS IN PROJECT COMPANIES (CONTINUED)
Sector
Company name
Project name
% owned Description
Denver Transit
Partners LLC
Denver Eagle P3
45%
Design, build, finance, maintenance
and operation of passenger rail
systems in Denver, Colorado.
Construction cost USD $1.27 billion.
ALTRAC Light
Rail Partnership
Sydney Light Rail
32.5% Design, build, finance, operate and
maintain both the Central Business
District and South East Light Rail and
to operate and maintain the Inner
West Light Rail in Sydney, Australia.
Period of concession or
estimated operating life
Start
date
No. of
years
Equity committed /
invested (par value)
Aug 2010
34
£10 – £25 million
Feb 2015
19
£50 – £100 million
Cross Yarra
Partnership
De Groene
Boog BV
Melbourne Metro
30%
Design, build, finance, operate and
maintain twin nine-kilometre tunnels
and five new underground stations in
Melbourne, Australia.
Dec 2017
31
£25 – £50 million
A16 Netherlands
47.5% Design, build and finance a new
Jun 2018
25
£25 – £50 million
A1 Mobil GmbH
& Co. KG
A1 Germany
42.5% Construct and operate the A1 Autobahn
Aug 2008
30
£25 – £50 million
11 km motorway connection on the
north side of Rotterdam.
Design, build, finance and maintain
a 5.5 mile existing section and 4 mile
new section of the I-75 at a
construction cost of $629 million.
Design, build, finance, maintenance
and operation of a replacement to
the automated fare collection system
across the Boston public transport
system at a construction cost of
$204 million.
Nov 2018
30
£10 – £25 million
Mar 2018
13
£10 – £25 million
between Bremen and Hamburg in
Germany at a cost of €417.1 million.
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.
Apr 2014
41
£50 – £100 million
Jan 2014
32
£10 – £25 million
Oakland Corridor
Partners LLC
I-75 Road
40%
Boston AFC 2.0
Opco LLC
MBTA Automated
Fare Collection
System
90%
Rail rolling
stock
Agility Trains
East Limited
IEP (Phase 2)
30%
NGR Project
Company Pty
Limited
New Generation
Rollingstock
40%
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John Laing / Annual Report and Accounts 2018
SHAREHOLDER INFORMATION
FINANCIAL DIARY
5 March 2019
18 April 2019
23 April 2019
9 May 2019
17 May 2019
August 2019
October 2019
Full year results presentation
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
Updates to the financial calendar will be made on the Company’s website www.laing.com when they become available.
REGISTERED OFFICE AND COMPANY SECRETARY
The Company’s Registered Office is:
1 Kingsway
London WC2B 6AN
Clare Underwood is the Group
Company Secretary
AUDITOR
Deloitte LLP
1 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
Canary Wharf
London E14 5HP
HSBC Bank plc
71 Queen Victoria Street
London EC4V 4AY
Australia and New Zealand Banking Group Limited
40 Bank Street
Canary Wharf
London E14 5EJ
MUFG Bank, Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9AN
Sumitomo Mitsui Banking Corporation
99 Queen Victoria Street
London EC4V 4EH
JOINT STOCKBROKERS
Barclays Bank PLC
5 The North Colonnade
Canary Wharf
London E14 4B
HSBC Bank plc
8 Canada Square
Canary Wharf
London E14 5HQ
Crédit Agricole Corporate and Investment Bank
Broadwalk House
5 Appold Street
London EC2A 2DA
ABN AMRO Bank NV
Gustav Mahlerlaan 10
1082 PP Amsterdam
The Netherlands
National Australia Bank Limited
88 Wood Street
London EC2V 7QQ
AIB Group (UK) P.L.C.
1 Undershaft
London EC3A 8AB
INDEPENDENT VALUER
KPMG LLP
15 Canada Square
Canary Wharf
London E14 5GL
159
OverviewStrategic ReportGovernanceFinancial Statements SHARE PRICE INFORMATION
The latest price of the Company’s ordinary shares is available on
www.laing.com.
DIVIDENDS
Shareholders holding shares directly may opt for dividends to
be paid straight to their bank or building society account, rather
than being paid by cheque. To elect for this swift and secure method
of payment, contact the Registrars, visit www.shareview.com
or fill in the mandate form that will be sent to you with your
next dividend cheque.
SHARE DEALING SERVICES
The Registrars offer a real-time telephone and internet
dealing service for UK residents. Further details including
terms and rates can be obtained by logging on to the website
at www.shareview.co.uk/dealing or by calling 03456 037 037.
Lines are open from 8:30am to 5:30pm (UK time) Monday
to Friday for dealing, excluding public holidays in England
and Wales. For EEA residents, the Registrars offer a
postal share dealing service. Details can be found at
www.shareview.co.uk/dealing.
John Laing / Annual Report and Accounts 2018
SHAREHOLDER INFORMATION (CONTINUED)
REGISTRARS
Equiniti Limited
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
from 8.30am to 5.30pm (UK time) Monday to Friday, excluding
public holidays in England and Wales.
Calls from overseas: +44 121 415 7047.
COMPANY WEBSITE
The Company’s website at www.laing.com contains the latest
information for shareholders. 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.
160
Photography:
Images of the CBD and South East Light Rail under construction in Sydney,
Australia are reproduced with permission of Transport for NSW.
Production:
Designed and produced by MAGEE (www.magee.co.uk)
Printed by Pureprint Group Limited, a CarbonNeutral® Printing Company.
Pureprint Group Limited is FSC® certified and ISO 14001 certified.
John Laing Group plc
Registered Office:
1 Kingsway
London
WC2B 6AN
United Kingdom
Registered No. 05975300
Tel: +44 (0)20 7901 3200
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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