Pre-close update

PRE-CLOSE UPDATE

John Laing Group plc ("John Laing" or "the Group") is a responsible investor and active manager of infrastructure projects around the world. We create shareholder value through investing in sustainable greenfield infrastructure projects, and by actively managing these projects through construction and into operation. 

The Group is today issuing a pre-close update for the six months ending 30 June 2020, ahead of its interim results in August 2020.

Summary

· Continued project delivery with a resilient underlying operational performance from our diversified portfolio, particularly our availability-based projects which represent c.58% of total portfolio value.

· External factors, including the exceptional impact of COVID-19 and reductions in power price forecasts, have more than offset the underlying portfolio performance and gains from foreign exchange.

· Discount rates increased on certain assets to reflect heightened market uncertainty.

· Net Asset Value, before deducting dividends, for the first half of the year is expected to show a single digit decline.

· Successful completion of the divestments of five assets, generating total proceeds of c.£90m.

· Low investment activity, with a number of bids relating to public procurement processes delayed from 2020 into 2021 due to COVID-19.

· Infrastructure investment expected to play an important role in post-crisis economic stimulus programmes.

· Balance sheet and liquidity position remain strong, with financial resources of c.£320m available as at 18 June 2020.

Ben Loomes, John Laing's CEO said:

"While portfolio performance has been adversely impacted by external factors, the underlying operational performance of our portfolio during this crisis is a result of the commitment of our people and their hard work. Since joining in May, I have been impressed by the way in which our team has worked with our partners, clients and communities across our portfolio to prioritise well-being whilst progressing projects under construction and maintaining asset availability. I will be giving a more detailed update and sharing my initial impressions of John Laing at our interim results presentation in August."

COVID-19

Throughout the pandemic, our priority has been protecting the well-being of our employees and those of our project companies.

Operationally, our assets and teams have responded well to the challenges of COVID-19. Our focus is on supporting the public sector to keep essential infrastructure running smoothly. The team continues to provide clients with the support they need, whilst ensuring the wellbeing of our people and the communities of which we are a part.

One of the main ways that COVID-19 has impacted the valuation of our portfolio is through changes in macro-economic assumptions, particularly lower short-term expectations for inflation.

We have also been impacted by the reduction in power prices through our renewable energy assets which represent c.34% of total portfolio value. As a result of the pandemic, demand for electricity has fallen and the power price forecasts received during the period show material reductions both in the short and in the long term.  Off-take arrangements, in place for most of our renewable assets, have provided some protection against short-term volatility. However, we expect a negative impact from lower power prices across all regions.

Portfolio

In our primary portfolio, construction delays have had only a modest impact on project delivery and the two projects (Ruta del Cacao in Colombia and the University of Brighton in the UK) which had experienced site closures during the lock-down have since re-opened.

We have made good progress on a number of key projects, including: IEP East (a UK train fleet replacement project), where 59 out of 65 trains have now reached qualified acceptance; I-4 Ultimate (a highway project in Florida), where we reached a settlement with the client in February and opened a key interchange three months ahead of schedule in May; MBTA AFC 2.0 (a fare collection and ticketing system upgrade in Boston), where the project was significantly expanded and refinanced in June; and Clarence Correctional Centre (an Australian correctional facility) which is expected to commence operations in early July.

In our secondary portfolio, asset availability has been maintained in-line with our expectations. We have two volume-based projects that are operational, together accounting for c.5% of total portfolio value. These projects are the I-77 managed lanes in the US and the A130 road in the UK. While these projects experienced sharp traffic declines at the beginning of the lockdown, both have experienced a good improvement in traffic volumes in May and June, although we remain cautious about the pace of recovery during the rest of the year.

Net Asset Value ("NAV")

The underlying operational performance of our availability-based PPP projects in particular has been resilient, with continued project delivery enabling us to realise the embedded value in the portfolio, through the unwinding of discount rates and reduction in construction risk premia.

However, NAV growth in the first half of the year has been impacted by external factors namely the exceptional impact of COVID-19, specifically changes in macro-assumptions and lower power prices. We currently expect the combined impact of these factors to be c.£100m, equivalent to c.6% of NAV or c.20 pence per share.

Foreign exchange movements have been favourable in the period, notably the weakening of sterling against the US dollar and the Australian dollar with the benefit expected to be c.£60m, equivalent to c.4% of NAV or c.12 pence per share.

We have also taken the conservative decision to increase discount rates on a select number of assets to reflect the currently heightened uncertainty and greater market volatility which we expect to impact NAV by c.£60m, equivalent to c.4% of NAV or c.12 pence per share.

Overall, we therefore expect for the first half of the year that NAV, before deducting dividends, will show a single digit decline.

Investments and realisations

New investment commitments during the first half of the year amounted to c.£2m. A number of bids relating to public procurement processes have been delayed from 2020 into 2021 due to COVID-19. We continue to review a number of investment opportunities and are maintaining a cautious approach, particularly due to the uncertainty caused by the pandemic and the deteriorating macro-economic backdrop. Beyond the immediate crisis, we expect governments around the world to consider infrastructure investment as part of the measures to stimulate their economies and we are well placed to capture this over the medium-term given our track record, our relationships and the strength of our balance sheet.

We are pleased to have successfully completed the divestments of Buckthorn wind farm, Auckland South Corrections Facility and our French wind portfolio, for total proceeds of c.£90m.

ENDS

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014.

A call for analysts and investors will be held at 8.00am (London time) today.

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