Interim Results

JOHN LAING INFRASTRUCTURE FUND LIMITED ("JLIF")

INTERIM REPORT 2018

 

FUND AT A GLANCE

Introduction

JLIF is one of Europe's largest listed funds investing directly in infrastructure projects. With a Premium Listing on the London Stock Exchange, JLIF invests predominantly in the equity and sub-ordinated debt issued with respect to operational Public-Private Partnership ("PPP") projects. With no fixed life, JLIF aims to own infrastructure assets over the long-term. Our purpose is to provide shareholders with the opportunity to invest in a diversified portfolio of predominantly operational, yielding infrastructure projects. Our objective is to provide shareholders with a source of stable, predictable income and to deliver a shareholder IRR of 7-8% over the long-term, by actively managing our portfolio of projects and selectively investing in new, value-accretive investments.

 

Key facts and figures

	30 June 2018	31 December 20171
Market capitalisation	£1,173.4m	£1,221.0m
Ordinary shares in issue	991,057,224	991,057,224
Share price	118.4p	123.2p
Number of assets	65	65
Fair value of investments through profit and loss	£1,288.0m	£1,236.8m
Portfolio Value	£1,452.8m	£1,379.3m
Net Assets	£1,288.5m	£1,234.8m
NAV per share	130.0p	124.6p
Interim dividend per share	3.57p	3.48p
Company cash	£3.9m	£1.9m
Group2 cash	£29.1m	£40.4m
Group borrowings	£194.2m	£186.6m
Profit before tax	£89.0m	£34.7m
Management fees	1.1% on APV3 up to £500m;1.0% from £500m to £1bn; 0.9% above £1bn
Board	Six independent Directors	Six independent Directors

 

1 Interim dividend per share and Profit before tax both at 30 June 2017.

2 Group is defined as the Company, its two wholly owned Luxembourg subsidiaries (JLIF Luxco 1 S.à.r.l and JLIF Luxco 2

S.à.r.l.), the English Limited Partnership (JLIF Limited Partnership), the General Partner (JLIF (GP) Limited), and the 38

wholly owned subsidiaries of the English Limited Partner that together held the investments in the 65 assets at 30 June

2018.

3 Adjusted Portfolio Value is an Alternative Performance Measure ("APM") and is used in the calculation of the fees paid to the Investment Adviser as follows:

(a) the Fair Value of the Investment Portfolio (see 2017 Annual Report for definition); plus

(b) any cash owned by or held to the order of the Company (the Group); plus

(c) the aggregate amount of payments made to shareholders by way of dividend in the period ending on the relevant valuation day, less (i) any borrowings and any other liability of the Company; and

(ii) any uninvested cash.

 

 

CHAIRMAN'S STATEMENT

Introduction

JLIF's six months to 30 June 2018 saw strong financial performance with further growth in the Net Asset Value ("NAV") (driven by reductions in discount rates and value enhancements) and an increase in the dividend paid in the period, supported by good performance across the majority of the Portfolio and the acquisition of a 50% interest in the Lambeth Social Housing project. As announced on 16 July 2018, the Board received notification of a possible unsolicited cash offer for the entire issued and to be issued share capital of the Company. This was followed by a firm offer that was announced on 3 August 2018. I discuss this in more detail below.

Dividends

In May 2018, the Company paid a dividend relating to the six-month period ended 31 December 2017 of 3.57 pence per share. This represented a 2.5% increase on the previous dividend paid in October 2017, broadly in-line with inflation for the period to which the dividend related. A scrip dividend alternative was not offered for this dividend, as the Board concluded that it was not in the interests of shareholders to issue new shares given the prevailing discount to NAV at which the Company's shares traded at the time. Today we announce a dividend for the six months to 30 June 2018 of 3.57 pence per share, representing an annualised dividend yield on the closing share price at 30 June 2018 of 6.0%.

Financial and Portfolio Performance

Overall the Portfolio continued to perform well during the first half of 2018 with Underlying Portfolio Growth4 of 5.1% which was ahead of expectations (being the unwind of the discount rate adjusted for the timing of acquisitions and distributions during the period). While JLIF's share price closed at 118.4 pence, below the opening share price of 123.2 pence, the NAV per share increased from 124.6 pence (at 31 December 2017) to 130.0 pence at 30 June 2018. This increase in NAV per share, plus the dividend paid to shareholders in May 2018, resulted in a NAV total return5 over the period of 7.2%. Total shareholder return since launch delivered by JLIF through to the end of June 2018 was 75.0%, which equates to an annualised compound return of 7.7%.

 

As noted in earlier statements made by the Company, several of its projects were impacted by the liquidation of Carillion in January 2018. In total, Carillion had provided facilities management services to nine of JLIF's projects. I am pleased to say that at all nine projects, a replacement provider is now in situ with the overall cost to JLIF of the transition being managed efficiently and remaining within the £3.0 million provision included in our Portfolio Value in March 2018. Additionally, we have fully provided for our 50% interest in the Camden Social Housing project that represented less than 0.2% of the Portfolio Value at the December 2017 year-end.

 

 

4 Underlying Portfolio Growth is an APM and defined as the growth on the rebased Portfolio Value arising from: 1) the unwind of the discount rate; and 2) adjustments to forecast Portfolio cash flows during the year (for example, as a result of cost savings or higher revenues).

5 NAV total return is an APM calculated by considering both the change in NAV per share over a specified period and any dividends paid during that period. It is expressed as a percentage increase/decrease on the opening NAV per share value.

 

On 30 May 2018, JLIF completed the acquisition of a 50% interest in the Lambeth Social Housing project from John Laing Group plc for approximately £9.5 million. This represented the final asset of a portfolio of five UK PPP projects, an agreement for which was signed in October 2017, following satisfaction of certain conditions precedent.

 

Prior to the unsolicited offer being received, the Board had requested that the Investment Advisor undertake a sale process of JLIF's holding in the IEP Phase 1 project. The Board's decision followed the highly successful sale of a similar holding by John Laing Group plc earlier in the year. The sale strategy adopted by the Investment Advisor was a focussed approach targeting bidders in the final round of the John Laing Group sales process. Following the Investment Advisor's approach to these parties, the JLIF Board received the unsolicited cash offer outlined below. If the sale of the IEP Phase 1 holding had been successfully concluded, JLIF's bank debt would have been fully repaid thereby allowing further accretive acquisitions to be undertaken in line with the Company's strategy.

Gearing

JLIF continues to have access to £330.0 million of debt finance via its £180.0 million revolving credit facility and £150.0 million accordion facility. As at 30 June 2018, JLIF's credit facilities were drawn by approximately £194.2 million (Sterling equivalent).

Going Concern

As explained in note 2(b) to the condensed set of financial statements, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, we continue to adopt the going concern basis in preparing this interim financial report. The Directors' going concern assessment has been completed on the basis that no offer for the share capital of the Company had been received.

AGM and EGM Results

At our Annual General Meeting in May 2018, shareholders approved certain amendments to the Company's investment policy. A resolution was passed that amalgamated the two previously discrete investment policy limits described below into a single limit, in order to simplify JLIF's investment policy. The limits on JLIF's Portfolio regarding demand-based assets and non-PPP/PFI assets is now aggregated into a single limit of 25% of Total Assets (calculated at the time of investment). Previously, the demand-based limit was 15% and the non-PPP/PFI limit was 10% (both also expressed as a percentage of Total Assets calculated at the time of investment).

 

At our Extraordinary General Meeting in May 2018, a resolution was approved by shareholders to amend JLIF's Articles of Association to allow board meetings and AGMs to take place in the UK and to remove provisions that were originally included to ensure Guernsey tax residency. This means that the Company is now able to proceed with the various actions and seek the various approvals required to allow adoption by the Company of UK Investment Trust status.

Recommended Cash Acquisition

On 16 July 2018, we announced that a possible offer for the entire issued share capital of the Company had been received from a consortium comprising Dalmore Capital Limited and Equitix Investment Management Limited (together acting for and on behalf of certain infrastructure funds) ("the Consortium"). Following a period of due diligence, on 3 August 2018 the Consortium made a firm offer of 142.5 pence per share (in addition to the payment of a dividend of up to 3.57 pence per share, for total consideration of 146.07 pence per share). The Board, advised by its financial advisers, J.P. Morgan Cazenove and Rothschild, concluded, after much deliberation, that the terms of the offer were fair and reasonable. Consequently, on 3 August 2018, the Board made a recommendation to shareholders to accept the offer. Today the Scheme Document setting out the detail of the offer and the formal process of voting by shareholders on the offer has been published and shareholder meetings at which shareholders will vote on the offer have been convened for 24 September 2018. If approved, the transaction is expected to complete in late September/early October 2018, at which point the Company will enter private ownership.

Conclusion

If the offer is accepted by our shareholders and this becomes my last Chairman's statement, I will be sorry to see the departure of one of the larger UK-listed infrastructure funds. Launched in 2010, JLIF has significantly outperformed the original stated objective of targeting an Internal Rate of Return of 7-8%; the annualised compound return on receipt of the cash from the offer will equate to 9.4% for any shareholder who acquired shares at the IPO.

 

The performance of JLIF since IPO reflects the hard work and commitment by the advisory team at John Laing Capital Management and, as a Board, we would like to thank them for all their contributions, collectively and individually. Finally, I would like to thank my fellow directors for their unfailing advice and support over the period since I assumed the chairmanship of JLIF and believe we can take satisfaction and some pride in what we have all achieved for our shareholders.

 

 

D MacLellan

Chairman

 

31 August 2018

 

FINANCIAL AND OPERATIONAL HIGHLIGHTS

• Net Asset Value ("NAV") as at 30 June 2018 of £1,288.5 million (31 December 2017 - £1,234.8 million)

• NAV per share of 130.0 pence, up 4.3% against that at 31 December 2017 of 124.6 pence

• Total Shareholder Return of 75.0% from launch (November 2010) to 30 June 2018, equating to a 7.7% compound annualised return

• Portfolio Value of £1,452.8 million at 30 June 2018 (£1,379.3 million as at 31 December 2017)

• Underlying Portfolio Growth of 5.1% on a rebased Portfolio Value of £1,382.3 million, 1.5% or £20.6 million ahead of expectations

• Profit before tax for the six-month period of £89.0 million (30 June 2017 - £34.7 million)6

• Paid a dividend of 3.57 pence per share in May 2018 relating to the six-month period to 31 December 2017, a 2.5% increase on the previous dividend paid in October 2017

• Completed the acquisition of a 50% interest in the Lambeth Social Housing project from John Laing Group plc, representing JLIF's ninth regeneration and social housing investment

• Declaring a dividend of 3.57 pence per share relating to the six-months to 30 June 2018, payable in September 2018

• Shareholder approval for the Company to seek various approvals to allow adoption of UK Investment Trust status

 

6 See section 7 for further detail

 

 

 

GROUP INVESTMENT PORTFOLIO (as at 30 June 2018)

Health

Abbotsford Regional Hospital and Cancer Centre, Canada

100%

 

Forth Valley Royal Hospital

100%

 

Kelowna and Vernon Hospitals, Canada

50%

 

Kingston Hospital

60%

 

Newcastle Hospital

15%

 

North Birmingham Mental Health

100%

 

North Staffordshire Hospital

90%

 

Northampton Mental Health

100%

 

Peterborough Hospital

30%

 

Queen Elizabeth Hospital, Greenwich

27.5%

 

Realise Health LIFT (Colchester)

60%

 

Tunbridge Wells Hospital

37.5%

 

Vancouver General Hospital, Canada

100%

 

Education

Bexley Schools

100%

 

Bristol BSF

37.5%

 

Edinburgh Schools

20%

 

Enfield Schools

100%

 

Glasgow Schools

20%

 

Highland School, Enfield

100%

 

Leeds Combined Secondary Schools

100%

 

Newham Schools

100%

 

North Swindon Schools

100%

 

Peterborough Schools

100%

 

South Lanarkshire Schools

15%

 

Justice & Emergency Services

Avon & Somerset Courts

40%

 

British Transport Police, London

100%

 

Cleveland Police Station and HQ

50%

 

Greater Manchester Police Stations

27.08%

 

Metropolitan Specialist Police Training Centre

27.08%

 

North East Fire and Rescue

100%

 

South East London Police Stations

50%

 

Transport

A55 Llandegai to Holyhead DBFO

100%

 

Aylesbury Vale Parkway

100%

 

Barcelona Metro Stations L9T2, Spain

53.5%

 

Barcelona Metro Stations L9T4, Spain

13.5%

 

City-Greenwich-Lewisham DLR

52%

 

Coleshill Parkway

100%

 

Connecticut Service Stations P3, USA

100%

 

E18 Road, Finland

50%

 

Intercity Express Programme Phase 1

15%

 

LUL Connect (CityLink), London

33.5%

 

M6/M74 Motorway (UK)

11%

 

M40 Motorway (UK)

50%

 

Sirhowy Way

100%

 

Regeneration & Social Housing

Bentilee Hub Community Centre

100%

 

Brockley Social Housing PPP

100%

 

Canning Town Social Housing

100%

 

Islington I Housing

45%

 

Islington II Housing

45%

 

Kirklees Social Housing

100%

 

Lambeth Social Housing

50%

 

Miles Platting Social Housing, Manchester

50%

 

Oldham Social Housing

95%

 

Government Buildings

Groningen Tax Office, The Netherlands

40%

 

Kromhout Barracks PPP Project, The Netherlands

40%

 

MoD Main Building, London

26%

 

Street Lighting

Barnet Street Lighting

100%

 

Croydon and Lewisham Street Lighting

50%

 

Enfield Street Lighting

100%

 

Lambeth Street Lighting

100%

 

Manchester Street Lighting

50%

 

Redcar and Cleveland Street Lighting

100%

 

Surrey Street Lighting

50%

 

Wakefield Street Lighting

50%

 

Walsall Street Lighting

100%

 

 

 

Portfolio Value as at 30 June 2018 £1,452.8 million.

 

Sector Breakdown	%
Education	8.4%
Government Buildings	4.3%
Health	26.5%
Justice & Emergency Services	4.7%
Regeneration & Social Housing	8.0%
Street Lighting	3.1%
Transport - Rail	29.3%
Transport - Road	15.7%

 

 

Asset Breakdown	%
Intercity Express Programme Phase 1	14.1%
Barcelona Metro Stations L9T2	8.6%
Connecticut Service Stations P3	6.5%
Forth Valley Royal Hospital	5.6%
North Staffordshire Hospital	5.5%
Abbotsford Regional Hospital and Cancer Centre	4.2%
M40 Motorway	3.2%
Ministry of Defence Main Building	2.8%
A55 Llandegai to Holyhead DBFO	2.3%
Leeds Combined Secondary Schools	2.2%
Other	45.0%

 

 

Geographic Breakdown	%
UK	72.3%
North America	12.7%
Continental Europe	15.0%

 

 

Remaining Concession Length	%
Less than 10 years	11.0%
10 to 20 years	38.7%
20 to 30 years	50.3%

 

Weighted average remaining concession length is 19.1 years (19.3 years at 31 December 2017).

 

Shareholding	%
0% - 50%	44.9%
50% - 100%	18.9%
100% ownership	36.2%

 

Payment Basis	%
Availability-based[1]	91.5%
Demand-based[2]	8.5%

 

Project Status	%
In construction	14.1%
Operational	85.9%

 

Figures in the tables above may not sum to 100% due to rounding.

 

 

INVESTMENT ADVISER REPORT

 

1. ABOUT THE INVESTMENT ADVISER

JLIF is advised by John Laing Capital Management Limited ("JLCM"). JLCM, a wholly owned subsidiary of John Laing Group plc, acts as the Investment Adviser to the Company and as the Operator of the Partnership. JLCM was incorporated in England and Wales on 19 May 2004 under the Companies Act 1985 (registered number 5132286) and has been authorised and regulated in the UK by the FCA (previously FSA) since December 2004.

 

2. INVESTMENT PERFORMANCE

2.1 Share Price and NAV

During the first half of 2018, JLIF's share price declined from 123.2 pence at the start of the period, to 118.4 pence at its close. A dividend of 3.57 pence per share was paid during the period (ex-dividend date of 5 April 2018) and, therefore, JLIF delivered a broadly flat total shareholder return during the first half of 2018. While JLIF is not managed with regard to any benchmark, the share price of JLIF, with its government-backed and partially inflation-linked revenues, should theoretically broadly track the capital performance of a basket of gilts. This has largely been the case when JLIF has reported in previous years, however, with JLIF's share price performance over the period this proved an exception.

 

Prior to mid-September 2017, JLIF's share price consistently traded at a significant premium to its underlying Net Asset Value, reflecting investors' appetite for steady, low-risk returns. However, this mood has somewhat changed in the last year following the emergence of exogenous risks in the environment in which JLIF invests. 

 

In the early part of the year, JLIF's shares outperformed the capital performance of the basket of gilts, however this reversed towards the end of January with news of the liquidation of Carillion, the construction contractor and facilities management service provider for PFI/PPP assets. This event triggered a further wave of negative sentiment across the sector as listed PFI/PPP funds (including JLIF) disclosed the potential negative financial impact caused principally by contractor replacement costs and delays to distributions at project level. The Carillion situation has led some market participants to re-assess the basis on which listed PFI/PPP infrastructure funds are valued, viewing them less as "gilt proxies" and more as entities with idiosyncratic risk.

 

From launch in November 2010 to the end of the period, JLIF delivered a total shareholder return of 75.0%, or 7.7% on a compound annualised basis. JLIF's NAV as at 30 June 2018 was £1,288.5 million, an increase on the NAV of £1,234.8 million as at 31 December 2017. The increase in NAV was primarily driven by an increase in the Portfolio Value (itself mainly driven by changes to discount rates and Underlying Portfolio Growth), offset by dividends paid in cash in the period (£35.4 million). On a per share basis, it increased from 124.6 pence to 130.0 pence.

 

2.2 Dividends

In recognition of the performance of the Portfolio and of the Company in 2017, in March 2018 JLIF announced an increase of its interim dividend to 3.57 pence per share. This represented an increase of approximately 2.5% on the previous dividend of 3.48 pence per share, a level of growth in-line with average UK RPI over the first half of 2018. The dividend was paid in May 2018. Based on the closing share price at 30 June 2018 of 118.4 pence, the implied dividend yield was 6.0%. With respect to the six-month period ended 30 June 2018, JLIF has today announced that it has maintained the dividend of 3.57 pence per share, which will be paid in September 2018.

 

3. VALUATION

3.1 Valuation of the Company

The Company accounts for its interests in its wholly owned subsidiary JLIF Luxco 1 S.à.r.l. as an investment at fair value through profit or loss. The fair value of the Company's investment in JLIF Luxco 1 S.à.r.l. comprises the fair value of JLIF Luxco 1 S.à.r.l., all the intermediate holding companies and the Portfolio of PPP investments. The fair value of JLIF Luxco 1 S.à.r.l. and all the intermediate holding companies is equivalent to their net book value. The investment at fair value through profit or loss of the Company as at 30 June 2018 was £1,288.0 million (31 December 2017: £1,236.8 million).

 

The fair value of the intermediate holding companies principally comprises cash, debt drawn on the Group's revolving credit facility and working capital balances, while the principal component of the investments of the Company is its Portfolio of 65 PPP assets.

3.2 Portfolio Value

At 30 June 2018, JLIF's Portfolio of 65 PPP assets was valued at £1,452.8 million, compared to £1,379.3 million at 31 December 2017. This increase of £73.5 million is the net impact of investments, cash distributed from the Portfolio, discount rate movements, exchange rate movements, underlying growth in the Portfolio, and the net of value enhancements and provisions made against certain projects.

 

A breakdown of the movement in Portfolio value during the period is shown in the table below.

 

	£'000s	% growth
Portfolio Value at 31 December 2017	1,379,325
Investments	9,525
Cash distributed from the Portfolio	(35,737)
Discount rate movements	30,266
Exchange rate movements	(1,046)
Opening value rebased at 31 December 2017	1,382,333
Growth from discount rate unwind	49,929	3.6
Net growth from value enhancements & other movements	20,587	1.5
Portfolio Value at 30 June 2018	1,452,849	5.1

 

While the growth expected from the unwind of the discount rate (adjusted for the timing of acquisitions and distributions in the period) was 3.6%, the actual Underlying Portfolio Growth for the period was 5.1%, being 1.5% or £20.6 million ahead of expectations. This outperformance was driven by a number of factors as detailed in the table below.

 

		£'000s		% growth
Unwind of discount rate (adjusted for timing of acquisitions and distributions)		49,929		3.6
Value enhancements	21,725		1.6
Cost provisions on certain projects with ongoing operational issues8	(3,224)		(0.2)
Macroeconomic factors	2,086		0.1
Net growth from value enhancements & other movements		20,587		1.5
Underlying Portfolio Growth		70,516		5.1

 

8 See section 3.4.4 for further details

3.3 Valuation Assumptions

3.3.1 Discount Rates

In line with market practice, JLIF uses the discounted cash flow methodology to value its investments. This methodology has been consistently applied since launch. This involves applying certain discount rates to forecast cash flows (taken from the underlying project financial models) in order to arrive at a net present value. The discount rates used to value the investments comprising JLIF's Portfolio are therefore a key determinant of value and, as such, are regularly reviewed by the Investment Adviser. This is to ensure they remain appropriate and reflect both the risk profile of the underlying investments and also current market rates for such investments (given the Portfolio Value is prepared on a fair market value basis). JLIF determines the discount rate applicable for each asset by taking the representative gilt rate for a project and adding a risk premium that reflects the particular risk profile and characteristics of each project.

 

The weighted average discount rate ("WADR") of the Portfolio at 30 June 2018 was 7.41%, a decrease on the level of 7.74% at 31 December 2017. The decrease in WADR was mainly a consequence of two factors. Firstly, a decrease in the discount rate used to value the Intercity Express Programme Phase 1 project following significant further progress in the delivery phase of the project, with a further 12 trains having been delivered since the year-end. Secondly, a general reduction in the discount rates applied to UK assets following recent market activity and evidence of increased market pricing due to the competitive dynamics of the infrastructure asset class. The range of discount rates used in the valuation of the Portfolio at 30 June 2018 excluding short-life assets (i.e. those with less than three years concession remaining) was 6.65% to 9.50% (31 December 2017: 7.00% to 9.50%).

 

An analysis of the change in average WADR by geography over the period is shown in the table below.

 

	June 2018	December 2017	Movement
UK	7.00%	7.32%	(0.32%)
Continental Europe	8.97%	9.00%	(0.03%)
North America	7.87%	7.93%	(0.06%)
Portfolio	7.41%	7.74%	(0.33%)

 

The sensitivity of the Portfolio Valuation to movements in the weighted average discount rate is presented below and remains broadly unchanged from the year-end.

 

	June 2018	December 2017
Increases by 1% (i.e. to 8.41%)	Decreases by 8.4% (£121.6m)	Decreases by 8.3% (£114.6m)
Decreases by 1% (i.e. 6.41%)	Increases by 9.9% (£143.4m)	Increases by 9.7% (£134.2m)

3.3.2 Macroeconomic Assumptions

Long-term inflation and corporation tax rate assumptions used in the valuation of the Portfolio at 30 June 2018 remain unchanged from those used in the valuation at 31 December 2017, with the exception of the Canadian corporation tax rate that increased from 26% to 27% during the period. However, whilst the long-term inflation assumptions are unaltered, for the UK we have reflected higher projected inflation rates of 3.0% for the period to March 2021.

 

The long-term macroeconomic assumptions by country are as set out in the table below. For further details including near-term assumptions, please see Note 8.

 

	Deposit Rates	Inflation	Corporation tax rates
UK	2.5%	2.75%	19/17%
The Netherlands	2.0%	2.0%	20-25%
Spain	2.0%	2.0%	25%
Finland	2.0%	Maku 3.0%[3]Elspot 2.5%[4]	20%
Canada	2.5%	2.1%	27%
USA	2.5%	2.0%	21%/9%[5]

3.4 Valuation Drivers

3.4.1 Investments

On 30 May 2018, JLIF completed the acquisition of a 50% interest in the Lambeth Social Housing project for a value of £9.5 million. The completion of this transaction was the final acquisition of a five-asset portfolio from John Laing Group plc agreed in October 2017. The project reached construction completion in March 2017 and comprises the refurbishment of 172 tenanted, leasehold and freehold properties; construction of 205 new-build tenanted properties; and construction of an additional 503 private properties (including 146 additional affordable homes). Alongside the properties, the project has developed new streets, green spaces, allotments and a new showpiece community centre with sports facilities.

3.4.2 Cash distributed from the Portfolio

Cash distributed from the Portfolio during the period was £35.7 million, after taking account of exchange rate movements.

 

3.4.3 Exchange rate impact

As at 30 June 2018, the Portfolio included nine assets that have non-Sterling cash flows. In Canada, the Abbotsford, Vancouver, and Kelowna and Vernon hospital projects have Canadian Dollar cash flows, while the Barcelona Metro Stations L9T2 and L9T4 projects, as well as the E18 Road, Kromhout Barracks and Groningen Tax Office projects have Euro cash flows. The Connecticut Service Stations P3 project has US Dollar cash flows. As at 30 June 2018, these nine assets represented 27.7% of the Portfolio by value.

 

During the six months to 30 June 2018, Sterling strengthened against the Canadian Dollar and Euro but depreciated against the US Dollar. The movements in Sterling resulted in a small decrease in the value of the Portfolio of £1.0 million.

3.4.4 Portfolio return performance

During the six-month period to 30 June 2018, the Portfolio demonstrated underlying growth of £70.5 million (or 5.1%) on a rebased opening Portfolio Value of £1,382.3 million. The rebased value represents the Portfolio Value after adjusting for investments, cash distributed from the Portfolio during the period, changes to discount rates and unrealised foreign exchange movements. The rebased valuation is an alternative financial measure not defined within IFRS, but which the Directors consider is an important component in measuring the operational performance of the Company.

 

The Underlying Portfolio Growth on the rebased valuation of 5.1% was above that expected of 3.6% by 1.5% (£20.6 million). The expected growth is the level of growth that would arise solely from the unwind of the discount rate, adjusted to take into account the timing of investments and distributions in the period. The outperformance of 1.5% (£20.6 million) resulted from the net impact of value enhancements delivered across a number of projects in the Portfolio - including notably from enhanced cash flows forecast from the IEP Phase 1 project and operational cost savings at a number of other projects. These enhancements were partly offset by the further provision against the Camden Social Housing project that, as noted in the Trading Update Statement released on 18 May 2018, has now been fully provided for.

 

Good progress continues to be made in transitioning the facilities management services at the nine projects affected by the compulsory liquidation of Carillion. Together these projects represented approximately 8.3% of the Portfolio value as at 30 June 2018. Of these nine projects, the largest (the M40 Motorway project represented approximately 3.2% of the Portfolio) has fully transitioned to a new provider on a long-term contractual arrangement while the remaining eight projects have transitioned to new providers initially on an interim basis, with the expectation of a full transition over the coming months. The terms of the contracts with the new facilities management providers are similar to the pre-existing terms.

 

The remainder of the portfolio continues to perform broadly in line with expectations.

 

4. INFLATION

Each project in the Portfolio receives a revenue stream from its public-sector counterparty that is fully or partially inflation linked10. After taking account of the indexation of the cost base of the assets, cash flows from the Portfolio are positively correlated to inflation. As at 30 June 2018, the approximate correlation of the Portfolio to inflation was 0.5; i.e. for every 1-percentage point increase in inflation, returns from the Portfolio increase by 0.5%. This is unchanged from the correlation to inflation as at 31 December 2017. 

 

10 With the exception of the Connecticut Service Stations P3 project, which receives inflation-linked revenues from corporate counterparties.

5. RISK

The Board regularly reviews the principal risks facing the Company, as well as the systems and controls designed to manage and mitigate these. The Board considers that the principal risks and uncertainties have not materially altered from those published in the Annual Report for the year ended 31 December 2017, with the exception of supply chain risk where the Company's Risk Committee considers this to have increased. JLIF has now successfully replaced Carillon as the facilities management provider on the nine projects where it provided such services, with alternative providers now in place either on a permanent or interim basis. JLIF continues to mitigate this risk by ensuring there is diversification across its Portfolio in terms of the mix of subcontractors in order to avoid reliance on a single sub-contractor.

 

A detailed description of the principal risks and uncertainties, and the way by which each risk is mitigated, can be found on pages 12 to 19 of the Company's 2017 Annual Report.

6. GEARING AND HEDGING

JLIF makes prudent use of leverage (held in JLIF Limited Partnership) for financing acquisitions and for working capital purposes. Under the Company's Articles of Incorporation, and in accordance with JLIF's investment policy, borrowings (excluding intra-group borrowings and the debts of underlying Project Entities, but including any financial guarantees to support subscription obligations) will be limited to 35% of JLIF's Total Assets.

 

JLIF has access to £330.0 million of debt finance via its £180.0 million revolving credit facility and £150.0 million accordion facility. As at 30 June 2018, JLIF had outstanding Sterling-debt of £155.4 million and Euro-debt equivalent of £39.7 million, totalling £194.2 million. JLIF continues to use income from its Euro-denominated projects to repay this debt, thereby creating a natural hedge against its Euro-denominated income.

 

JLIF, under its investment policy, can use currency hedging via forward foreign exchange contracts of up to three years to hedge the income from assets that are exposed to exchange rate risk. This policy enables the Company to manage the exchange rate risk to its dividend distributions (that are paid in Sterling). Under its investment policy, JLIF can also use foreign currency borrowings to finance the acquisition of foreign currency assets.

 

It is also the Company's hedging policy, where possible, to match the currency of its costs and income, thereby creating a natural hedge. During the first half of 2018, the Euro income was hedged in this way; being used to service the Company's Euro borrowings on its revolving credit facility.

 

Current practice, given the relatively low volume of forecast non-Sterling income, is to hedge exchange rates for up to 12 months. As at 30 June 2018, JLIF had in place forward foreign exchange contracts for both Canadian and US Dollars. This included an outstanding hedge of approximately 20% of JLIF's forecast 2018 Canadian Dollar income (c.CAD 13.4 million) at a rate of 1.6472, and a separate outstanding hedge of approximately 37% of JLIF's 2018 forecast US Dollar income (c.USD 10.1 million) at a rate of 1.3110. Since 30 June 2018, JLIF has hedged 90% its remaining expected US dollar and Canadian dollar income for 2018.

7. FINANCIAL RESULTS

The condensed financial statements of JLIF (or "the Company") for the six months ended 30 June 2018 are on pages 18 to 37.

 

The Company prepared the condensed financial statements for the six-month period ended 30 June 2018 in accordance with International Financial Reporting Standards ("IFRS") as published by the EU and in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the EU.

 

In order to continue providing useful and relevant information to its investors, the financial statements also refer to the "Group" (defined below) which comprises the Company and its intermediate holding companies.

Basis of accounting

The Company applies IFRS 10 and Investment Entities - Amendments to IFRS 10, IFRS 12 and IAS 27. The Company accounts for its interest in its 100% owned immediate subsidiary JLIF Luxco 1 S.à.r.l. as an investment at fair value through profit or loss.

 

These accounting standards are consistent with those adopted by JLIF for the year ended 31 December 2017, except that the Company also adopted IFRS 9 and IFRS 15 (both effective from 1 January 2018). Neither standard has any impact on the financial results of the Company.

 

The Company does not consolidate its subsidiaries that provide investment services or its project companies' subsidiaries, instead reporting them as investments at fair value. All intermediate holding companies and all the investments in PPP assets are accounted for on the same consistent basis.

 

The Group comprises the Company, its two wholly owned Luxembourg subsidiaries (JLIF Luxco 1 S.à.r.l. and JLIF Luxco 2 S.à.r.l.), JLIF (GP) Limited (the General Partner), JLIF Limited Partnership (the English Limited Partnership) and 38 (31 December 2017: 38) wholly owned subsidiaries of the English Limited Partnership.

 

The Company's subsidiaries provide services that relate to the Company's investment activities on its behalf, which are incidental to the management of the investment portfolio. These companies are recognised in the financial statements at their fair value, which is equivalent to their Net Assets.

Results for the six months ended 30 June 2018

All amounts presented in £'000s (except as noted)	Six months ended 30 June 2018	Year ended 31 December 2017	Six months ended 30 June 2017
Net assets11	1,288,463	1,234,835	1,204,396
PPP Assets12 13	1,452,849	1,379,325	1,220,750
Intermediate Holding companies (liabilities)12	(164,807)	(142,537)	(16,797)
Operating income (including unrealised foreign exchange movements)	96,254	113,613	41,778
Net assets per share (pence)	130.0	124.6	121.6
Distributions, repayments and fees from PPP investments	35,737	111,397	53,555
Profit before tax	89,009	99,013	34,653

 

 

11 Also referred to as Net Asset Value or "NAV".

12 Classified as investments at fair value through profit or loss on the Balance Sheet.

13 Also referred to as Portfolio Value.

 

Key points to note:

 

• Interim dividend of 3.57 pence per share declared in March 2018 and paid in May 2018

• 5.1% underlying growth on a rebased Portfolio Value of £1,382.3 million

 

Net assets

The movement in net assets since 31 December 2017 is primarily driven by the growth in the Portfolio Value.

 

The Company's Net Assets increased from £1,234.8 million as at 31 December 2017 to £1,288.5 million at 30 June 2018. The Net Assets include investments at fair value through profit or loss of £1,288.0 million (£1,452.8 million relates to the PPP investments less £164.8 million to the intermediate holding companies' fair value) and, a cash balance of £3.9 million, offset by other net liabilities of £3.4 million.

 

The intermediate holding companies' negative fair value of £164.8 million comprises outstanding debt of £194.2 million drawn on the revolving credit facility offset by cash balances of £25.2 million and other net assets of £4.2 million.

Analysis of the Group's net assets

£'000s (except as noted)	30 June 2018	31 December 2017
Portfolio Value	1,452,849	1,379,325
Intermediate holding companies' cash	25,281	38,577
Intermediate holding companies' credit facility debt	(194,198)	(186,581)
Intermediate holding companies' other net assets	4,110	5,467
Fair value of the Company's investment in JLIF Luxco 1 S.à.r.l.	1,288,042	1,236,788
Company's cash	3,857	1,865
Company's other net liabilities	(3,436)	(3,818)
Net Asset Value	1,288,463	1,234,835
Number of shares	991,057,224	991,057,224
Net Asset Value per share (pence)	130.0	124.6

 

 

At 30 June 2018, the Group (i.e. the Company plus its intermediate holdings companies) had a total cash balance of £29.1 million (£3.9 million in the Company's balance sheet (31 December 2017: £1.9 million) and £25.2 million in the intermediate holding companies) (31 December 2017: £38.5 million). This is included in the Company's balance sheet under Investments at fair value though profit or loss.

 

The intermediate holding companies' other net liabilities include the outstanding debt of £194.2 million (31 December 2017: £186.6 million) under the Group's credit facilities.

 

The Portfolio Value is the fair value of the investments in 65 (31 December 2017: 65) PPP projects calculated using the discounted cash flow method, as described in Section 3.3.1.

 

The movement in the valuation of the Portfolio of PPP assets is summarised as follows:

 

		£'000s
Portfolio Value at 31 December 2017		1,379,325
Investments		9,525
Growth from discount rate unwind		49,929
Net growth from value enhancements & other movements		20,587
Underlying growth of the PPP investments		70,516
Unrealised exchange rate movements		(1,046)
Discount rate movements		30,266
Increase in movement in accrued interest receivable on subordinated loans		10,969
Subordinated debt and equity repayments		(26,464)
Dividends & other income from the PPP investments		(20,242)
Portfolio Value at 30 June 2018		1,452,849

 

Further details on the Portfolio Valuation and the movements over the period are provided in Section 3 of this Investment Adviser's Report.

 

Profit before tax

The Company's profit before tax ("PBT") for the six months ended 30 June 2018 was £89.0 million (six-month period ended 30 June 2017: £34.7 million), generating earnings per share of 9.0 pence (six-month period ended 30 June 2017: 3.7 pence). The PBT for the six months to 30 June 2018 has increased compared to the prior period predominantly due to an increase in Portfolio Value primarily driven by a reduction in discount rates used to value the underlying investments and value enhancements (including major maintenance cost savings and release of certain contingency items).

 

In the six-month period ended 30 June 2018, the operating income was £96.3 million (six-month period ended 30 June 2017: £41.8 million). This reflects the Underlying Portfolio Growth of £70.5 million, the impact of discount rate movements of £30.3 million, negative unrealised foreign exchange rate movements of £1.0 million and the intermediate holding companies' expenses and other net costs of £3.5 million.

 

The administrative costs included in the income statement were £7.2 million in the period (six-month period ended 30 June 2017: £7.1 million).

Cash flow statement

The Company had a total cash balance at 30 June 2018 of £3.9 million (30 June 2017: £3.6 million). The breakdown of the movements in cash is shown below.

 

Cash flows of the Company for the six-month period ended 30 June (£ million):

 

	2018	2017
Cash balance as at 1 January	1.9	5.5
Capital raising	-	119.5
Listing / share issue costs	-	(1.4)
Loan to JLIF Luxco 1 S.à.r.l.	-	(118.0)
Interest received from JLIF Luxco 1 S.à.r.l.	45.0	34.0
Directors fees and expenses	(0.2)	(0.2)
Investment Adviser and origination fees	(6.4)	(6.0)
Administrative and other expenses	(1.0)	(0.9)
Dividends paid in cash to shareholders	(35.4)	(28.9)
Cash balance at 30 June	3.9	3.6

 

The Group had a total cash balance at 30 June 2018 of £29.1 million (31 December 2017: £40.4 million), and borrowings of £194.2 million (31 December 2017: £186.6 million). The breakdown of the movements in cash is shown below.

 

Cash flows of the Group for the six-month period ended 30 June (£ million):

	2018	2017
Cash balance as at 1 January	40.4	32.7
Capital raising	-	119.5
Listing / share issue costs	-	(1.4)
Investments	(9.5)	(11.6)
Acquisition costs	(0.1)	(1.3)
Proceeds from divestments	-	-
Cash received from projects (net of withholding tax)	35.7	53.6
Administrative and other expenses	(7.8)	(7.8)
Proceeds / (repayment) from borrowings	7.8	(129.1)
Financing costs (net of interest income) Exchange rate gain on non-Sterling cash	(2.4) 0.4	(2.0) 0.2
Dividends paid in cash to shareholders	(35.4)	(28.9)
Cash balance at 30 June	29.1	23.9

 

During the period, £35.7 million of cash was distributed from the Portfolio (six-month period to 30 June 2017: £53.6 million). The cash distributed from the Portfolio in the six-month period was lower than anticipated due to delays primarily caused by the transfer of contracts from Carillion and approvals of distributions from several overseas assets. The delayed distributions are expected to be received in the second half of the year. While forecast Portfolio cash flows demonstrate natural year on year variation, the Investment Adviser anticipates future revenues from the Portfolio will continue to fully cover future costs as well as dividends payable to shareholders.

 

The Company has declared an interim dividend of £35.4 million (3.57 pence per share) for the six-month period ended 30 June 2018, payable in September 2018.

 8. EVENTS AFTER BALANCE SHEET DATE

As noted, the Company announced on 6 August 2018 that the Board had reached agreement on the recommended cash acquisition of the Company by a consortium comprising Dalmore Capital Limited and Equitix Investment Management Limited (together acting for and on behalf of certain infrastructure funds). The Scheme Document was posted to shareholders on 31 August 2018 and shareholder meetings at which shareholders will vote on the offer has been convened for 24 September 2018. Further details are set out in the Scheme Document and the notice of shareholder meetings. The scheme is expected to become effective in October 2018.

 

RESPONSIBILITY STATEMENT

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in Guernsey and the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

We confirm that to the best of our knowledge:

 

• The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

 

• The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and their impact on the condensed financial statements and description of principal risks and uncertainties for the remaining six months of the year); and

 

• The interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein); and

 

• The condensed set of financial statements, which has been prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole as required by DTR 4.2.10R.

 

By order of the Board

 

 

David MacLellan

Chairman

 

31 August 2018

 

 

INDEPENDENT REVIEW REPORT TO JOHN LAING INFRASTRUCTURE FUND LIMITED

 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the condensed income statement, the condensed statement of financial position, the condensed statement of changes in equity, the condensed cash flow statement and related notes 1 to 18. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review 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, for our review work, for this report, or for the conclusions we have formed.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 2(a), the annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

Deloitte LLP

Statutory Auditor

Guernsey, Channel Islands

31 August 2018

 

 

CONDENSED INCOME STATEMENT

six months ended 30 June 2018

 

		2018	2017
	Notes	£'000s	£'000s
Operating income	8	96,254	41,778
Administrative expenses	4	(7,245)	(7,125)
Operating profit		89,009	34,653
Profit before tax		89,009	34,653
Tax	5	-	-
Profit for the period		89,009	34,653
Attributable to:
Owners of the Company		89,009	34,653
		89,009	34,653
Earnings per share
From continuing operations
Basic and diluted (pence)	7	8.98	3.66

 

The accompanying notes form an integral part of the financial statements.

 

All results are derived from continuing operations.

 

There are no items of Other Comprehensive Income in both the current and preceding period, other than profit for the period and therefore no separate Statement of Comprehensive Income has been presented.

 

 

CONDENSED STATEMENT OF FINANCIAL POSITION

		30 June 2018	31 December 2017
	Notes	£'000s	£'000s
Non-current assets
Investments at fair value through profit or loss	8	1,288,042	1,236,788
Total non-current assets		1,288,042	1,236,788
Current assets
Trade and other receivables	9	138	135
Cash and cash equivalents		3,857	1,865
Total current assets		3,995	2,000
Total assets		1,292,037	1,238,788
Current liabilities
Trade and other payables	10	(3,574)	(3,953)
Total current liabilities		(3,574)	(3,953)
Total liabilities		(3,574)	(3,953)
Net assets		1,288,463	1,234,835
Equity
Share capital	12	99	99
Share premium account	13	1,067,910	1,067,910
Retained earnings	14	220,454	166,826
Equity attributable to owners of the Company		1,288,463	1,234,835
Total equity		1,288,463	1,234,835
Net Asset Value per share (pence)		130.0	124.6

The accompanying notes form an integral part of the financial statements.

 

The financial statements were approved by the Board of Directors and authorised for issue on 31 August 2018. They were signed on its behalf by:

D MacLellan C Spencer

Chairman Director

 

CONDENSED STATEMENT OF CHANGES IN EQUITY

six months ended 30 June

	Statement of Changes in Equity for the six months ended 30 June 2018
	Notes	Share capital £'000s	Share premium account £'000s	Retained earnings £'000s	Total equity £'000s
Balance at 1 January 2018	12, 13 & 14	99	1,067,910	166,826	1,234,835
Profit for the period	14	-	-	89,009	89,009
Total comprehensive income for the period		-	-	89,009	89,009
Dividends paid	6	-	-	(35,381)	(35,381)
Balance at 30 June 2018		99	1,067,910	220,454	1,288,463
	Statement of Changes in Equity for the six months ended 30 June 2017
	Notes	Share capital £'000s	Share premium account £'000s	Retained earnings £'000s	Total equity £'000s
Balance at 1 January 2017	12, 13 & 14	90	946,907	133,571	1,080,568
Profit for the period	14	-	-	34,653	34,653
Total comprehensive income for the period		-	-	34,653	34,653
Ordinary shares issued	12 & 13	9	121,830	-	121,839
Cost of shares issued		-	(1,379)	-	(1,379)
Dividends paid	6	-	-	(31,285)	(31,285)
Balance at 30 June 2017		99	1,067,358	136,939	1,204,396

The accompanying notes form an integral part of the financial statements.

 

CONDENSED CASH FLOW STATEMENT

six months ended 30 June

	Notes	2018 £'000s	2017 £'000s
Operating profit		89,009	34,653
Adjustments for:
Decrease / (increase) in accrued interest income		13,657	(5,276)
Net gain on investments at fair value through profit or loss		(64,911)	(2,502)
Operating cash flows before movements in working capital		37,755	26,875
Increase in receivables	9	(3)	(6)
(Decrease) / increase in payables	10	(379)	98
Cash inflow from operations		37,373	26,967
Net cash inflow from operating activities		37,373	26,967
Investing activities
Investment in subsidiaries		-	(118,000)
Net cash used in investing activities		-	(118,000)
Financing activities
Dividends paid - equity shareholders	6	(35,381)	(28,916)
Proceeds on issue of share capital (net of costs)	13	-	118,090
Net cash from financing activities		(35,381)	89,174
Net increase / (decrease) in cash and cash equivalents		1,992	(1,859)
Cash and cash equivalents at beginning of the period		1,865	5,511
Cash and cash equivalents at end of the period		3,857	3,652

The accompanying notes form an integral part of the financial statements.

 

Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets is approximately equal to fair value.

 

Notes to the Condensed set of Financial Statements

for the six months ended 30 June 2018

1. GENERAL INFORMATION

John Laing Infrastructure Fund Limited (the "Company" or "JLIF") is a company domiciled and incorporated in Guernsey, Channel Islands, whose shares are publicly traded on the London Stock Exchange under a Premium Listing. The interim condensed unaudited financial statements of the Company as at and for the six months ended 30 June 2018 have been prepared on the basis of the accounting policies set out in the Company's 2017 Annual Report, available at www.jlif.com. The financial statements comprise the Company and its investment in JLIF Luxco 1 S.à.r.l. The Company and its subsidiaries invest in PPP infrastructure projects in the UK, Continental Europe and North America.

 

The financial information for the period ended 30 June 2018 and the comparative information for the period ended 30 June 2017 are prepared on a consistent basis with the accounting policies for the year ended 31 December 2017.

 

The Company accounts for its investment in its direct subsidiary, JLIF Luxco 1 S.à.r.l., at fair value. The Company, together with its direct subsidiary JLIF Luxco 1 S.à.r.l. and all the intermediate holding subsidiaries comprise the Group investing in PPP assets (the "Group").

 

The net assets of the intermediate holding companies, which at 30 June 2018 principally comprise working capital and outstanding loan balances, are included at fair value in the carrying value of investments.

 

The condensed set of financial statements is presented in Sterling, which is the currency of the primary economic environment in which the Company operates. Foreign operations are included in accordance with the policies set out in note 2.

 

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

The annual financial statements of JLIF are prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union and IFRSs as issued by the IASB using the historical cost basis, except that the financial instruments classified at fair value through profit or loss are stated at their fair value. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting.

 

The financial information for the most recent Annual Report for the year ended 31 December 2017 is derived from the financial statements delivered to the UK Listing Authority. The financial information for the year ended 31 December 2017 included in this Interim Report does not constitute statutory accounts as defined in The Companies (Guernsey) Law, 2008. The auditors reported on the statutory accounts for the year ended 31 December 2017: their audit report was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under section 263(2) and (3) of the Companies Act (Guernsey) Law 2008.

 

As detailed in the most recent Annual Report for the year ended 31 December 2017, the Investment Adviser performed a detailed analysis of the potential impact of IFRS 9, IFRS 15 and IFRS 16 (the latter due to become effective from 1 January 2019) on the Company, the underlying projects and intermediate holding entities. The Directors have concluded that IFRS 9 and IFRS 15 do not have a material impact on the financial statements and IFRS 16 is not expected to, once it becomes effective.

 

 (b) Going concern

The Directors, in their consideration of going concern, have reviewed comprehensive cash flow forecasts prepared by the Investment Adviser, which are based on prudent market data and past experience and believe, based on those forecasts and an assessment of the Company's and the Group's committed banking facilities, that it is appropriate to prepare the financial statements of the Company on the going concern basis. This assessment was carried out on the basis that of no offer for the share capital of the Company had been received..

 

In arriving at their conclusion that the Group has adequate financial resources, the Directors were mindful that the Group had unrestricted cash of £29.1 million (including £3.9 million for the Company) and a five-year banking facility (available for investment in new or existing projects and working capital) of £180.0 million, which expires in August 2020, and an accordion facility of £150.0 million which expires in June 2019.

 

As at 30 June 2018, there was the equivalent of £194.2 million drawn under the banking facilities, which was used to finance the acquisition of investments.

 

All key financial covenants are forecast to continue to be complied with.

 

The Company, through its intermediate holding companies, holds investments in 65 infrastructure PPP project companies, which yield annual interest, dividends and loan repayments. The cash flow yields from the projects cover the Group's expected cash flow requirements for overheads and dividends payable to investors.

 

The Company and its intermediate holding companies have sufficient financial resources together with their PPP investments' public-sector long-term contracts across a range of infrastructure projects. Consequently, the Directors consider that the Company and its intermediate holdings companies are well placed to manage its business risks successfully.

 

As reported on pages 12 to 19 of the 2017 Annual Report, the Board has considered the principal risks and uncertainties facing the Company. The Board has concluded that these do not represent a significant threat to the Company and the Group as the Group's income is generated from a portfolio of PPP concessions that are supported by government-backed cash flows and are forecast to cover the Group's committed costs, and the Company has in place mitigation processes to reduce the risks to an acceptable level.

 

The Directors, at the time of approving the financial statements, are satisfied that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future, a period of not less than 12 months from the date of this report. Thus, they continue to adopt the going concern basis of accounting in preparing the condensed financial statements.

 

(c) Segmental reporting

In the condensed financial statements, the Company recognises one investment in its 100% owned subsidiary JLIF Luxco 1 S.à.r.l. The Directors consider and analyse the performance of the Company by considering the Group's main activity, which is to invest predominantly in PPP investments through its intermediate holding companies. Information reported to the Company's Directors for the purposes of resource allocation and assessment of segment performance is focused on the sector risk associated within the Group. The Group has investments in the Health, Education, Justice & Emergency Services, Transport, Regeneration & Social Housing, Government Buildings and Street Lighting sectors and therefore these form the Group's reportable segments under IFRS 8. The Directors also consider and analyse the performance of the Group by geography as the Group predominately invests in the UK, but also has investments in Continental Europe and North America, as well as administration functions in Guernsey. Geographical segments therefore form part of the Group's reportable segments under IFRS 8.

 

 (d) Statement of compliance

Pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987 the Company is a Registered Closed-Ended Investment Scheme. As a registered scheme, the Company is subject to certain ongoing obligations, with which it continues to comply.

 

3. OPERATING SEGMENTS

Segment results

The following is an analysis of the Company's operating income and results by reportable segment for the six-month period ended 30 June 2018.

 

	Six months to 30 June 2018
	Health £'000s	Education £'000s	Justice & Emergency Services £'000s	Transport £'000s	Regeneration & Social Housing £'000s	Government Buildings £'000s	Street Lighting £'000s	Unallocated £'000s	Total £'000s
Operating income/(loss)	21,069	4,953	5,311	59,915	4,876	1,936	2,254	(4,060)	96,254
Profit/(loss) before tax	21,069	4,953	5,311	59,915	4,876	1,936	2,254	(11,305)	89,009
Reportable segment profit/(loss)	21,069	4,953	5,311	59,915	4,876	1,936	2,254	(11,305)	89,009

 

The following is analysis of the Company's operating income and results by reportable segment for the six-month period ended 30 June 2017.

 

	Six months to 30 June 2017
	Health £'000s	Education £'000s	Justice & Emergency Services £'000s	Transport £'000s	Regeneration & Social Housing £'000s	Government Buildings £'000s	Street Lighting £'000s	Unallocated £'000s	Total £'000s
Operating income/(loss)	(225)	2,129	4,473	21,950	5,894	5,328	2,123	106	41,778
Profit/(loss) before tax	(225)	2,129	4,473	21,950	5,894	5,328	2,123	(7,019)	34,653
Reportable segment profit/(loss)	(225)	2,129	4,473	21,950	5,894	5,328	2,123	(7,019)	34,653

 

The unallocated segment above includes the Company's and subsidiaries' investment adviser fee, general overhead costs and fair value movement of intermediate holding companies.

 

No inter-segment income was earned in the six-month period ended 30 June 2018 (six-month period ended 30 June 2017: £nil).

 

Segment net assets

 

The following is an analysis of the Company's assets and liabilities by reportable segment for the period ended 30 June 2018.

 

	Six-month period ended 30 June 2018
	Health £'000s	Education £'000s	Justice & Emergency Services £'000s	Transport £'000s	Regeneration & Social Housing £'000s	Government Buildings £'000s	Street Lighting £'000s	Unallocated £'000s	Total £'000s
Total assets	385,657	121,400	68,667	655,789	117,179	62,780	45,264	(164,699)	1,292,037
Total liabilities	-	-	-	-	-	-	-	(3,574)	(3,574)
Total net assets	385,657	121,400	68,667	655,789	117,179	62,780	45,264	(168,273)	1,288,463

 

 

The following is analysis of the Company's assets and liabilities by reportable segment for the year ended 31 December 2017.

 

	Year ended 31 December 2017
	Health £'000s	Education £'000s	Justice & Emergency Services £'000s	Transport £'000s	Regeneration & Social Housing £'000s	Government Buildings £'000s	Street Lighting £'000s	Unallocated £'000s	Total £'000s
Total assets	374,435	118,105	64,152	608,513	108,970	65,453	44,885	(145,725)	1,238,788
Total liabilities	-	-	-	-	-	-	-	(3,953)	(3,953)
Total net assets	374,435	118,105	64,152	608,513	108,970	65,453	44,885	(149,678)	1,234,835

 

Information about major customers

The Company, via its subsidiaries, has one investment (30 June 2017: three) from which it receives more than 10% of the Company's operating income. The operating income from this major customer was £30.3 million (30 June 2017: £18.5 million) which was reported within the Transport segment (30 June 2017: Government Buildings and Transport segments). The Company has treated each PPP asset as a separate customer.

 

Analysis by geographical areas

The following is an analysis of the Group's operating income and results by geographical area:

 

	Six-month period ended 30 June 2018
	UK £'000s	Continental Europe £'000s	North America £'000s	Other - (incl  Guernsey) £'000s	Total £'000s
Operating income	76,919	7,237	12,098	-	96,254
Profit/(loss) before tax	76,919	7,237	12,098	(7,245)	89,009
Profit/(loss)	76,919	7,237	12,098	(7,245)	89,009

 

	Six-month period ended 30 June 2017
	UK £'000s	Continental Europe £'000s	North America £'000s	Other - (incl Guernsey) £'000s	Total £'000s
Operating income/(loss)	28,470	12,874	434	-	41,778
Profit/(loss) before tax	28,470	12,874	434	(7,125)	34,653
Profit/(loss)	28,470	12,874	434	(7,125)	34,653

 

The operating income included in the above tables is derived from the distributions from PPP investments and the movements in fair value of investments. No inter-segment income was earned in the six-month period ended 30 June 2018 (six-month period ended 30 June 2017: £nil).

The following is an analysis of the Group's net assets by geographical area:

 

	As at 30 June 2018
	UK £'000s	Continental Europe £'000s	North America £'000s	Other - (incl Guernsey) £'000s	Total £'000s
Total assets	885,483	217,483	185,077	3,994	1,292,037
Total liabilities	-	-	-	(3,574)	(3,574)
Total net assets	885,483	217,483	185,077	420	1,288,463

 

	As at 31 December 2017
	UK £'000s	Continental Europe £'000s	North America £'000s	Other - (incl  Guernsey) £'000s	Total £'000s
Total assets	850,534	211,617	174,637	2,000	1,238,788
Total liabilities	-	-	-	(3,953)	(3,953)
Total net assets	850,534	211,617	174,637	(1,953)	1,234,835

 

 

 

 

4. ADMINISTRATIVE EXPENSES

	Six months ended 30 June
	2018 £'000s	2017 £'000s
Investment advisory fees & asset origination fee	6,326	6,271
Directors' fees and expenses	158	161
Administration fee	110	84
Other expenses	651	609
	7,245	7,125

 

The Company had no employees other than the Directors for the current or preceding periods. There was no Directors' remuneration for the current or preceding periods other than directors' fees as detailed in note 16.

 

 

 

 

5. TAX

The Company has obtained exempt status from income tax in Guernsey under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. The income from its investments is therefore not subject to any further tax in Guernsey, although the underlying project companies in which the Group invests provide for and pay taxation at the appropriate rates in the countries in which they operate. For further details, refer to note 8.

 

At the EGM in May 2018, shareholders voted in favour of a resolution allowing board meetings and general meetings to take place in the UK and removing certain provisions in JLIF's Articles of Association originally included to ensure Guernsey tax residency. This means the Company is now able to proceed with the various actions and seek the various approvals required to allow adoption by the Company of UK Investment Trust status.

 

 

 

 

 

6. DIVIDENDS

	Six months ended 30 June
	2018 £'000s	2017 £'000s
Amounts recognised as distributions to equity holders during the period:
Final dividend for the year ended 31 December 2017 of 3.57 pence (final dividend for the year ended 31 December 2016: 3.48 pence) per share*	35,381	31,285
Approved interim dividend for the six months ended 30 June 2018 of 3.57 pence (six months ended 30 June 2017: 3.48 pence) per share	35,381	34,472

 

* Dividends paid for the year ending 31 December 2016 include scrip dividends of £2,396,000 with 1,758,396 new shares issued. For the year ending 31 December 2017 the Board chose not to offer shareholders the option of a scrip dividend alternative as the Board concluded that it would not be in the interest of shareholders to issue new shares given the share price at the time; being at a small discount to the prevailing Net Asset Value per share.

 

The final dividend for the year ended 31 December 2017 of 3.57 pence per share, amounting to £35.4 million, was approved by the Board in March 2018, and paid in May 2018. This dividend has been recognised in the condensed statement of changes in equity for the six months ended 30 June 2018.

 

An interim dividend for the six-month period ended 30 June 2018 of 3.57 pence per share, amounting to £35.4 million, was approved by the Board on 30 August 2018 and is payable in September 2018. The dividend has not been included as a liability at 30 June 2018.

 

 

7. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share is based on the following data:

	Six months ended 30 June
	2018 £'000s	2017 £'000s
Earnings
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to owners of the Company	89,009	34,653
Number of shares
Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share	991,057,224	946,587,148

The denominator for the purposes of calculating both basic and diluted earnings per share is the same, as the Company has not issued any share options or other instruments that would cause dilution.

 

	Pence	Pence
Basic and diluted earnings per share	8.98	3.66

 

 

8. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

As set out in note 1, the Company accounts for its interest in its wholly owned subsidiary JLIF Luxco 1 S.à.r.l. as an investment at fair value through profit or loss. JLIF Luxco 1 S.à.r.l. in turn owns investments in intermediate holding companies and in PPP projects.

 

The table below shows the Company's investment in JLIF Luxco 1 S.à.r.l. in the period as recorded in the Company Statement of Financial Position:

 

	30 June 2018 £'000s	31 December 2017 £'000s
Fair value of PPP investments	1,452,849	1,379,325
Fair value of intermediate holding companies	(164,807)	(142,537)
Fair value	1,288,042	1,236,788

 

 

Reconciliation of movement in fair value of the portfolio of assets

The table below shows the movement in the fair value of the Company's portfolio of PPP investments. These investments are held through other intermediate holding companies. The table below also presents a reconciliation of the fair value of the asset portfolio to the Company balance sheet as at 30 June 2018, by incorporating the fair value of these intermediate holding companies.

 

Six months ended 30 June 2018 Year ended 31 December 2017

	PortfolioValue 30 June 2018£'000s	Cash andother FV inintermediateholdings £'000s	Total2018£'000s	PortfolioValue 31 December 2017£'000s	Cash andother FV inintermediateholdings £'000s	Total2017£'000s
Opening balance	1,379,325	(142,537)	1,236,788	1,217,647	(139,472)	1,078,175
Acquisitions and further loan and
equity subscriptions	9,525	-	9,525	149,813	-	149,813
	9,525	-	9,525	149,813	-	149,813
Portfolio Movements
Growth in Portfolio	70,516	-	70,516	115,176	-	115,176
Growth due to discount rate	30,266	-	30,266	9,632	-	9,632
Decline due to exchange rate	(1,046)	-	(1,046)	(1,546)	-	(1,546)
	99,736	-	99,736*	123,262	-	123,262*
Net expenses in intermediate
holding companies	-	(3,482)	(3,482)*	-	(9,649)	(9,649)*
Distributions from portfolio
Dividends received from
PPP investments	(19,153)	19,153	-	(58,422)	58,422	-
Interest received from
PPP investments	(20,841)	20,841	-	(37,417)	37,417	-
Loans and equity repayments	(5,606)	5,606	-	(18,731)	18,731	-
Movement in accrued interest	10,952	-	10,952	4,890	-	4,890
Other income	(1,089)	1,089	-	(1,717)	1,717	-
	(35,737)	46,689	10,952	(111,397)	116,287	4,890
Other movements
PPA interest income	-	(31,342)	(31,342)	-	(57,880)	(57,880)
Net increase in external borrowing	-	(7,617)	(7,617)	-	(15,189)	(15,189)
Difference in timing of capital
movements between the
Company and
the intermediate holding companies	-	(26,518)	(26,518)	-	(36,634)	(36,634)
	-	(65,477)	(65,477)	-	(109,703)	(109,703)
Fair value of the Company's
Investment in JLIF Luxco 1 S.à.r.l.	1,452,849	(164,807)	1,288,042	1,379,325	(142,537)	1,236,788

 

 

* Operating income for the period ended 30 June 2018 is £96.3 million (year ended 31 December 2017: £113.6 million; six months to 30 June 2017: £41.8 million).

 

The above balances represent the total net movements in the fair value of the Company's investment. The "Cash and other FV in intermediate holdings" balances reflect investment in, distributions from or movement in working capital and are not value generating.

 

The following table categorises the total net movement in fair value into its component factors:

 

 

	30 June  2018	31 December 2017
	£'000s	£'000s
Portfolio Value at 1 January	1,379,325	1,217,647
Acquisitions and further loan and equity subscriptions	9,525	149,813
Cash distributed from Portfolio	(35,737)*	(111,397)*
Growth due to discount rate movements	30,266	9,632
Decline due to exchange rate movements	(1,046)	(1,546)
Growth from discount rate unwind	49,929**	91,830**
Net growth from value enhancements and other movements	20,587**	23,346**
Portfolio valuation closing balance	1,452,849	1,379,325
Fair value of intermediate holding companies	(164,807)	(142,537)
Fair value of the Company's Investment in JLIF Luxco 1 S.à.r.l.	1,288,042	1,236,788

 

* Distributions include dividends, interest, loan stock and equity repayments (including movement in accrued interest) and other fees.

 

** In the six-month period ended 30 June 2018, the total underlying growth in value of the Portfolio is £70,516,000 (year ended 31 December 2017: £115,176,000 and six-month period ended 30 June 2017: £40,952,000).

 

The fair value of the intermediate holding companies comprises cash of £25.2 million (31 December 2017: £38.6 million), working capital balances of £4.2 million (31 December 2017: £5.5 million), offset by debt drawn under JLIF Limited Partnership's revolving credit facilities of £194.2 million (31 December 2017: £186.6 million).

 

The Investment Adviser has carried out fair market valuations of the PPP investments as at 30 June 2018. The Directors have satisfied themselves as to the methodology used and the discount rates applied for the valuation of the PPP investments. Investments in PPP projects are valued using a discounted cash flow methodology. The valuation techniques and methodologies have been applied consistently with the methodology used to value the Portfolio in previous years. The range of discount rates used in the valuation of the Portfolio at 30 June 2018 excluding short-life assets (i.e. those with less than three years concession remaining) was 6.65% to 9.50% (weighted average 7.41%) (year ended 31 December 2017: 7.00% to 9.50% (weighted average 7.74%)).

 

Valuation assumptions

The long-term macroeconomic assumptions used in the discounted cash flow valuation are detailed below:

 

Inflation rates

 

Country	Index	30 June 2018	31 December 2017
United Kingdom	RPI / RPIx	3.50% to March 2019,	3.50% to March 2019,
		3.00% to March 2021,	2.75% thereafter
		2.75% thereafter
Canada	CPI	2.10%	2.10%
The Netherlands	CPI	2.00%	2.00%
Finland	MAKU / Elspot	3.0% / 2.50%	3.0% / 2.50%
Spain	CPI	2.00%	2.00%
USA	CPI	2.00%	2.00%

 

Exchange rates

 

The prevailing Sterling exchange rate was:

 

	30 June 2018	31 December 2017
Euro	1.1307	1.1252
Canadian Dollar	1.7361	1.6934
US Dollar	1.3199	1.3527

 

Deposit rates

 

Country	30 June 2018	31 December 2017
United Kingdom	2018 - 1.0%	2018 - 1.0%
	2019 - 1.5%	2019 - 1.5%
	2020 - 2.0%	2020 - 2.0%
	Thereafter 2.5%	Thereafter 2.5%
Continental Europe	2019 - 1.0%	2018 - 1.0%
	2020 - 1.5%	2019 - 1.5%
	Thereafter 2.0%	Thereafter 2.0%
USA	2019 - 1.5%	2018 - 1.5%
	2020 - 2.0%	2019 - 2.0%
	Thereafter 2.5%	Thereafter 2.5%
Canada	2019 - 1.0%	2018 - 1.5%
	2020 - 1.5%	2019 - 2.0%
	2021 - 2.0%	2020 - 2.0%
	Thereafter 2.5%	Thereafter 2.5%

 

Corporation tax rates

 

Country	30 June 2018	31 December 2017
United Kingdom	19%, then 17% from 1 April 2020 onwards	19%, then 17% from 1 April 2020 onwards
Canada	27%	26%
The Netherlands	20% - 25%	20% - 25%
Finland	20%	20%
Spain	25%	25%
USA	21%/9%*	21%/9%*

* Federal tax rate / Connecticut State tax rate

 

Investment acquisitions

 

On 30 May 2018, the Group completed the acquisition of a 50% interest in the Lambeth Social Housing project from John Laing Investments Limited, a member of John Laing Group plc, for a consideration of £9.5 million.

 

There are no future loan stock or capital commitments on investments held at fair value through profit or loss.

 

 

9. TRADE AND OTHER RECEIVABLES

	30 June 2018 £'000s	31 December 2017 £'000s
Other debtors	64	64
Prepayments and accrued income	74	71
	138	135

There were no overdue amounts included in trade and other receivables.

 

 

 

10. TRADE AND OTHER PAYABLES

	30 June 2018 £'000s	31 December 2017 £'000s
Accruals and deferred income	3,572	3,951
Other payables	2	2
	3,574	3,953

 

 

11. LOANS AND BORROWINGS

At 30 June 2018, the Company had no outstanding loans and borrowings (31 December 2017: £nil).

 

The Company's indirect subsidiary, JLIF Limited Partnership had the equivalent of £194.2 million drawn under its revolving credit facilities (31 December 2017: £186.6 million, comprising £144.9 million and €46.9 million) comprising £154.4 million and €45.0 million. The outstanding amount is included in the 'Investments at fair value through profit or loss' in the Company's Statement of Financial Position.

 

There were no other outstanding loans and borrowings (31 December 2017: £nil).

 

 

12. SHARE CAPITAL

Issued and fully paid	30 June 2018 £'000s	31 December 2017 £'000s
991,057,224 (31 December 2017: 991,057,224) ordinary shares of 0.01p each	99	99

The Company is authorised to issue an unlimited number of shares.

 

All new shares issued rank pari passu with the original ordinary shares of 0.01 pence each in the capital of the Company including the right to receive all future dividends and distributions declared, made or paid.

 

At present, the Company has one class of ordinary shares, which carry no right to fixed income.

 

13. SHARE PREMIUM ACCOUNT

	30 June 2018 £'000s	31 December 2017 £'000s
Opening balance	1,067,910	946,907
Premium arising on issue of equity shares	-	122,453
Expenses of issue of equity shares	-	(1,450)
	1,067,910	1,067,910

 

 

 

14. RETAINED EARNINGS

		30 June 2018 £'000s	31 December 2017 £'000s
Opening balance		166,826	133,571
Profit for the period / year		89,009	99,013
Dividends paid (note 6)		(35,381)	(65,758)
		220,454	166,826

 

 15. FINANCIAL INSTRUMENTS

The Company held the following financial instruments at fair value at 30 June 2018. There have been no transfers of financial instruments between levels of the fair value hierarchy. There are no non-recurring fair value measurements.

 

Financial instruments by category

	30 June 2018
	Cash and bank balances £'000s	Loans and receivables £'000s	Financial assets at FVTPL* £'000s	Financial liabilities at amortised cost £'000s	Total £'000s
Levels	1	1	3	1
Non-current assets
Investments at fair value through profit or loss	-	-	1,288,042	-	1,288,042
Current assets
Trade and other receivables	-	138	-	-	138
Cash and cash equivalents	3,857	-	-	-	3,857
Total financial assets	3,857	138	1,288,042	-	1,292,037
Current liabilities
Trade and other payables	-	-	-	(3,574)	(3,574)
Total financial liabilities	-	-	-	(3,574)	(3,574)
Net financial instruments	3,857	138	1,288,042	(3,574)	1,288,042

 

 

	31 December 2017
	Cash and bank balances £'000s	Loans and receivables £'000s	Financial assets at FVTPL* £'000s	Financial liabilities at amortised cost £'000s	Total £'000s
Levels	1	1	3	1
Non-current assets
Investments at fair value through profit or loss	-	-	1,236,788	-	1,236,788
Current assets
Trade and other receivables	-	135	-	-	135
Cash and cash equivalents	1,865	-	-	-	1,865
Total financial assets	1,865	135	1,236,788	-	1,238,788
Current liabilities
Trade and other payables	-	-	-	(3,953)	(3,953)
Total financial liabilities	-	-	-	(3,953)	(3,953)
Net financial instruments	1,865	135	1,236,788	(3,953)	1,234,835

* FVTPL = Fair value through profit or loss

 

The above table provides an analysis of financial instruments that are measured, subsequent to their initial recognition, at fair value as follows:

 

• Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

• Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

 

• Level 3: fair value measurements are those derived from valuation techniques that include inputs to the asset or liability that are not based on observable market data (unobservable inputs).

 

There were no Level 2 assets or liabilities during the period (year ended 31 December 2017: none). There were no transfers between Level 1 and 2, Level 1 and 3 or Level 2 and 3 during the period (year ended 31 December 2017: none).

 

In the table above, financial instruments are held at carrying value as an approximation to fair value unless stated otherwise.

 

Reconciliation of Level 3 fair value measurement of financial assets and liabilities

An analysis of the movement between opening to closing balances of the investments at fair value through profit or loss is given in note 8.

 

The investments at fair value through profit or loss, whose fair values include the use of Level 3 inputs, include the fair value of the Company's 100% owned subsidiary JLIF Luxco 1 S.à.r.l., the intermediate holding companies and the Group's PPP investments.

 

The fair value of the Company's direct subsidiary and the intermediate holding companies mainly comprises cash and working capital and an outstanding loan balance of £194.2 million. The fair values of these companies are equivalent to their Net Assets.

 

The Group's PPP investments are valued by discounting future cash flows from investments in both equity (dividends and equity redemptions) and subordinated loans (interest and repayments) to the Group at an appropriate discount rate. The basis of each discount rate, which is a weighted average cost of capital, is the long-run average government bond rate plus an appropriate premium to reflect PPP specific risk, phase of the PPP project and counterparty credit risk. The weighted average discount rate applied was 7.41% (31 December 2017: 7.74%). The discount rate is considered the most significant unobservable input through which an increase or decrease would have a material impact on the fair value of the investments at fair value through profit or loss. An absolute increase of 1% in the discount rate would cause a decrease in fair value of the PPP investments of £121.6 million (31 December 2017: £114.6 million). An absolute decrease of 1% would cause an increase in fair value of the PPP investments of £143.4 million (31 December 2017: £134.2 million).

 

The Directors consider that the carrying value amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements are approximately equal to their fair values.

 

 

 

 

16. TRANSACTIONS WITH INVESTMENT ADVISER AND RELATED PARTIES

 

Details of transactions between the Company and its related parties are disclosed below. This note also details the terms of engagement by the Company with John Laing Capital Management Limited ("JLCM") as Investment Adviser and Operator of JLIF Limited Partnership ("the Limited Partnership") together with the details of further investment acquisitions from members of John Laing Group plc, of which JLCM is a wholly owned subsidiary.

 

Transactions with the Investment Adviser

JLCM's appointment as Investment Adviser is governed by an Investment Advisory Agreement (amended and restated on 8 August 2017) which may be terminated by either party giving one year's written notice or (subject to the payment to JLCM of certain termination fees) by the Company by giving JLCM six months' notice. The appointment may also be terminated if JLCM's appointment as Operator is terminated.

 

JLCM is also the Operator of JLIF Limited Partnership, the limited partnership through which the Group holds its investments, by JLIF (GP) Limited ("the General Partner"), General Partner of the partnership. The Operator and the General Partner may each terminate the appointment of the Operator, by either party giving one year's written notice. Either the Operator or the General Partner may terminate the appointment of the Operator by written notice if the Investment Advisory Agreement is terminated in accordance with its terms.

 

JLCM is entitled to fees equal to: i) a Base fee of a) 1.1% per annum of the Adjusted Portfolio Value* of the Fund up to and including £500 million; b) 1.0% per annum of the Adjusted Portfolio Value of the Fund in excess of £500 million up to and including £1 billion; c) 0.9% per annum of the Adjusted Portfolio Value of the Fund in excess of £1 billion; and ii) an Asset Origination Fee of 0.375% (amended from 0.75% in August 2017, effective from 1 July 2017) of the purchase price of new investment capital acquired by the Fund that is not sourced from any of John Laing Group plc, its subsidiary undertakings, or funds or holdings managed by John Laing Group plc or any of its subsidiary undertakings.

 

The total Investment Adviser, Operator fee and asset origination fee charged to the Income Statement for the period was £6,326,000 (six months ended 30 June 2017: £6,271,000) of which £3,182,000 remained payable at the period end (31 December 2017: £3,145,000).

 

* Adjusted Portfolio Value is defined in the Investment Advisory Agreement as:

(a) the Fair Value of the Investment Portfolio; plus

(b) any cash owned by or held to the order of the Fund (the Consolidated Group); plus

(c) the aggregate amount of payments made to Shareholders by way of dividend in the period ending on the relevant Valuation Day, less

(i) any borrowings and any other liabilities of the Fund; and

(ii) any Uninvested Cash.

 

On 30 May 2018, the Group completed the acquisition of a 50% interest in the Lambeth Social Housing project from John Laing Investments Limited, a member of John Laing Group plc, for a consideration of £9.5 million.

 

Individual project companies make provision for the payment of fees to directors appointed by its shareholders that are accounted for in the valuation of the investments. During the period, the Investment Adviser received directors' fees of £0.6 million (six-month period ended 30 June 2017: £0.5 million) from the Portfolio for the provision of director services provided to assets within the Portfolio.

 

 

Transactions with related parties

The Company has loans under a Profit Participating Agreement under which it received interest income from its direct subsidiary JLIF Luxco 1 S.à.r.l.

 

As at 30 June 2018 the Profit Participating Agreement loan balance was £1,096.2 million (31 December 2017: £1,096.2 million).

 

The balance of interest receivable increased from negative £15.1 million on 31 December 2017 to £28.8 million as at 30 June 2018. This is due to the interest earned for the six-month period ended 30 June 2018 of £31.3 million (six months ended 30 June 2017: £39.3 million), offset by the receipt of £45.0 million during the period (six-month period ended 30 June 2017: £34.0 million).

 

The Company accounts for the Profit Participating Agreement as part of its investment in JLIF Luxco 1 S.à.r.l., which has been fair valued.

 

The Directors of the Company, who are considered to be key management, received fees for their services. Total fees paid in the period were £150,880 (six-month period ended 30 June 2017: £155,534). The Directors were paid £7,103 of expenses in the period (six-month period ended 30 June 2017: £5,305).

 

All of the above transactions were undertaken on an arms' length basis.

 

The Directors and their close family members were paid dividends in the period of £4,753 (six-month period ended 30 June 2017: £7,743).

 

 

17. GUARANTEES AND OTHER COMMITMENTS

 

The Company has provided a guarantee under JLIF Limited Partnership's £180.0 million multi-currency revolving credit facility, which expires in August 2020, and under the accordion facility of £150.0 million that expires in June 2019. As at 30 June 2018, £194.2 million was drawn on the facilities. The fair value of the guarantee is considered to be immaterial to the Company accounts as the probability of the guarantee being called upon is considered extremely unlikely. In making this assessment, consideration has been given to the proximity of the current and forecast metrics to default.

 

 

 

18. EVENTS AFTER BALANCE SHEET DATE

 

The Company announced on 6 August 2018 that the Board had reached agreement on the recommended cash acquisition of the Company by a consortium comprising Dalmore Capital Limited and Equitix Investment Management Limited (together acting for and on behalf of certain infrastructure funds). The Scheme Document was posted to shareholders on 31 August 2018 and shareholder meetings at which shareholders will vote on the offer have been convened for 24 September 2018. Further details are set out in the Scheme Document and the notice of shareholders meetings. The scheme is expected to become effective in October.

 

DIRECTORS, AGENTS AND ADVISERS

DIRECTORS (ALL NON-EXECUTIVE)

David MacLellan (Chairman)

Theresa Grant

Helen Green

Talmai Morgan

Christopher Spencer

Guido Van Berkel

INVESTMENT ADVISER AND OPERATOR

John Laing Capital Management Limited

1 Kingsway

London WC2B 6AN

United Kingdom

 

ADMINISTRATOR TO COMPANY, COMPANY SECRETARY AND REGISTERED OFFICE

Estera International Fund Managers (Guernsey) Limited

(formerly known as Heritage International Fund Managers Limited)

P.O. Box 225, Heritage Hall

Le Marchant Street

St Peter Port

Guernsey GY1 4HY

Channel Islands

 

REGISTRAR

Link Market Services (Guernsey) Limited

(formerly known as Capital Registrars (Guernsey) Limited)

Longue Hougue House

St Sampson

Guernsey GY2 4JN

Channel Islands

UK TRANSFER AGENT

Link Market Services Limited

(formerly known as Capita Registrars Limited)

The Registry

34 Beckenham Road

Beckenham

Kent BR3 4TU

United Kingdom

FINANCIAL ADVISER

J.P. Morgan Securities plc

25 Bank Street

London E14 5JP

United Kingdom

AUDITOR

John Clacy FCA (for and On Behalf Of Deloitte LLP, Recognised Auditor)

Regency Court

Glategny Esplanade

St Peter Port

Guernsey GY1 3HW

Channel Islands

PUBLIC RELATIONS

Finsbury

The Adelphi

1-11 John Adam Street

London WC2N 6HT

United Kingdom

CORPORATE BANKERS

Royal Bank of Scotland International

PO Box 55

35 High Street

St Peter Port

Guernsey GY1 4BE

Channel Islands

 

CAUTIONARY STATEMENT

Pages 2 to 15 of this report (including but not limited to the Chairman's Statement, the Investment Adviser's Report, together the "Review Section") have been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. These should not be relied on by any other party or for any other purpose.

 

The Review Section may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "forecasts", "projects", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology.

 

These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include statements regarding the intentions, beliefs or current expectations of the Directors and the Investment Adviser concerning, amongst other things, the investment objectives and investment policy, financing strategies, investment performance, results of operations, financial condition, liquidity, prospects, opportunities and distribution policy of the Company and the markets in which it invests.

 

These forward-looking statements reflect current expectations regarding future events and performance and speak only as at the date of this report.

 

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance or results and will not necessarily be accurate indications of whether or not the times at or by which such performance or results will be achieved. The Company's actual investment performance, results of operations, financial condition, liquidity, prospects, opportunities, distribution policy and the development of its financing strategies may differ materially from the impression created by the forward-looking statements contained in this report.

 

Subject to their legal and regulatory obligations, the Directors and the Investment Adviser expressly disclaim any obligations to update or revise any forward-looking statement contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

 

In addition, the Review Section may include target figures for future financial periods. Any such figures are targets only and are not forecasts.

 

This report has been prepared for the JLIF Group as a whole and therefore gives greater emphasis to those matters that are significant to John Laing Infrastructure Fund Limited and its subsidiary undertakings when viewed as a whole.

 

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