Results for the six months ended 30 June 2019

JOHN LAING GROUP PLC

RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2019

John Laing Group plc (John Laing, the Company or the Group) announces its unaudited results for the six months ended 30 June 2019

Highlights: Mixed H1 results - Full year outlook unchanged

·; Net asset value (NAV) of £1,599 million or 325p1 per share at 30 June 2019 (31 December 2018 - £1,586 million or 323p) up 0.6% since 31 December 2018 or 3.0% including dividend paid in May 2019

·; Portfolio value at 30 June 2019 of £1,535 million up 3.5% on the rebased portfolio value2 at 31 December 2018

·; Good operational performance but challenges in renewable energy portfolio, mitigated by value enhancements and strong project delivery:

·; Sale of all remaining fund management activities completed

·; New investments of £7 million (six months ended 30 June 2018 - £39 million)3. One further investment completed in August, in North America, and another agreed and expected to complete in September, our first investment in Latin America, totalling approximately £137 million

·; Healthy pipeline of £2.1 billion of investment opportunities. Solar and wind investments on hold in Europe and Australia pending current issues resolution; investment in US renewable energy assets limited to recycling of capital

·; Realisations of £131 million from the sale of three investments (six months ended 30 June 2018 - £242 million from the sale of two investments)

·; Profit Before Tax (PBT) of £35 million (six months ended 30 June 2018 - £175 million, which included an exceptional gain on IEP Phase 1 disposal) and Earnings Per Share (EPS) of 7.1p (six months ended 30 June 2018 - 38.8p)4

·; Interim dividend of 1.84p per share payable in October 2019 (six months ended 30 June 2018 - 1.80p per share) in line with dividend policy

1. NAV per share at 30 June 2019 calculated as NAV of £1,599 million divided by the number of shares in issue at 30 June 2019 of 491.8 million, excluding the shares held in the Employee Benefit Trust (EBT).

2. Rebased portfolio value is described in the Portfolio Valuation section.

3. Based on new investment commitments secured in the six months ended 30 June 2019; for further details see the Business Review.

4. Basic EPS; see note 7 to the Condensed Group Financial Statements.

Olivier Brousse, John Laing's Chief Executive Officer, commented:

"Our operational performance in the first half was strong, however we have had a number of challenges with our renewable energy assets in Australia and Europe. We delivered value enhancements across the portfolio, but predominantly in renewable energy, which has helped to mitigate the impact of these challenges. In addition, we made good progress on key assets in our PPP portfolio. The Denver Eagle P3 commuter rail project fully opened to the public in April, IEP Phase 2 commenced public train services in May and Sydney Light Rail and New Generation Rollingstock also progressed well in the last six months. Our asset management teams have been instrumental in successfully progressing all of these projects, protecting and enhancing the value of our investments.

We are confident in our ability to continue to generate value from our existing portfolio, to make the most of a secondary market that remains strong and capitalise on the demand for operational infrastructure. At the same time, our investment teams are actively seeking new PPP investments, supported by our strong financial resources and partner relationships. We are particularly pleased in this regard to have agreed in July our first investment in Latin America, with the Ruta del Cacao PPP road project in Colombia. New renewable energy investments have been put on hold in Europe and Australia, and limited to recycling of capital in North America, as we re-assess our approach to risk and return in these markets. Nevertheless, our pipeline remains healthy across our established geographies and in new markets and sectors.

We remain confident in delivering our full year expectations, underpinned by the value inherent in our existing portfolio and further penetration of our targeted markets."

A presentation for analysts and investors will be held at 9:00am (London time) today at The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED. The presentation will be webcast on https://www.investis-live.com/john-laing/5d3b0a179add6d11006d4f04/dsfg

A conference call facility will also be available using the following dial in details:

UK: 020 3936 2999

Other locations: +44 20 3936 2999

Participant access code: 03 73 70

A copy of the presentation slides will be available at www.laing.com later today.

Analyst/investor enquiries:

This announcement may contain forward looking statements. It has been made by the Directors of John Laing in good faith based on the information available to them up to the time of their approval of this announcement and should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying such forward looking information.

Notes:

(1) NAV per share at 30 June 2019 calculated as NAV of £1,599 million divided by the number of shares in issue at 30 June 2019 of 491.8 million, excluding the shares held in the EBT.

(2) Basic EPS; see note 7 to the Condensed Group Financial Statements.

(3) For further details, see the Business Review.

BUSINESS REVIEW

Overview and outlook

Our NAV increased from £1,586 million at 31 December 2018 to £1,599 million at 30 June 2019. This is equivalent to 325p per share and represents growth of 3.0% after adding back dividends paid versus NAV per share of 323p per share at 31 December 2018. This growth was lower than expected, primarily as a result of industry transmission issues on three of our renewable energy assets in Australia, which led to a write down of £66 million, and performance issues for our wind assets in Europe, which led to a write down of £55 million. For more details please refer to the Regional Review section. At the same time and as part of the overall portfolio optimisation strategy, we have identified and delivered £78 million of value enhancements in the first half, which helped to mitigate these losses. Actions will continue in to the second half of the year and we expect to achieve further value enhancements in our full year results.

In line with our dividend policy, we are declaring an interim dividend for 2019 of 1.84p per share, a 2.2% increase versus 1.80p for 2018.

Our investment portfolio was valued at £1,535 million at 30 June 2019, a decrease of £25 million from £1,560 million at 31 December 2018 reflecting the realisations completed in the first half (see the Portfolio Valuation section for further details). After adjusting the portfolio value at 1 January 2019 for realisations, cash yield and cash invested into projects in the period, the value of our portfolio increased by £52 million or 3.5% of this rebased value. Cash yield from investments in the six months ended 30 June 2019 was £35 million, which included a large distribution from the Denver Eagle P3 project.

Profit before tax in the period was £35 million (six months ended 30 June 2018 - £175 million). The lower profit for the first half of 2019, compared to the same period last year, is due to the issues described above, as well as the significant one-off gain of £87 million on disposal of the Group's investment in IEP Phase 1 in the first half of 2018.

The first half highlights included:

Our investment commitments to date in 2019 are summarised in the table below. Since 30 June 2019, we have completed one further investment.

In addition, in July 2019, we agreed an investment in the Ruta del Cacao road project in Colombia. This investment of approximately £62 million is expected to complete in September 2019.

Our pipeline of PPP and renewable energy opportunities stood at £2,058 million at 30 June 2019 (31 December 2018 - £2,373 million). This included:

Following the operational issues experienced with our renewable energy assets in Australia and Europe in the first half of 2019, we have put on hold investments in solar and wind assets in these regions. Investment in renewable energy assets in the US will be limited to where capital is being recycled from renewable energy disposals.

We are seeing growth in the PPP pipeline in the US and in Australia, where the PPP market is now more active after a quieter period, and the continued emergence of opportunities in Latin America. This is reflected in the pipeline shown in the table below.

The PPP pipeline comprises opportunities to invest equity in PPP projects with the potential to reach financial close over the next three years, while the renewable energy pipeline relates to the next two years.

The total pipeline is broken down below according to the bidding stage of each project. Our overall pipeline is constantly evolving as new opportunities are added and others drop out.

The preferred bidder position and eight of the shortlisted positions are on PPP bids as detailed in the table below:

* Preferred bidder position

In August 2019, we were shortlisted on a further PPP project bid in Asia Pacific.

During the first half of 2019, we completed realisations totalling £131 million from the sale of one PPP and two renewable energy investments. These included the disposal of our interest in Optus Stadium, which was our first sale of an operational asset in Australia, and the disposal of the Rocksprings and Sterling wind farms in the US, our first sales in the US. Aggregate prices achieved were in line with the 2018 year end portfolio valuation. 

In June 2019, the Company completed the sale of its remaining fund management activities by way of a novation of the Investment Advisory Agreement (IAA) with JLEN Environmental Assets Group Limited ("JLEN" - previously John Laing Environmental Assets Group Limited) to Foresight Group, including the transfer of the investment advisory team. The sale will allow the Company to focus on its core business of investment in and active management of greenfield infrastructure projects. The JLEN IAA made a relatively small contribution to our profits compared to the fair value movements from our investing activities.

Looking forward:

BOARD CHANGE

Luciana Germinario was appointed to the Board as Chief Financial Officer Designate on 25 April 2019 and succeeded Patrick O'D Bourke as CFO upon his retirement on 9 May 2019.

REGIONAL REVIEW

ASIA PACIFIC

At 30 June 2019, our portfolio of investments in the Asia Pacific region comprised 14 assets (31 December 2018 - 15) including eight in the Primary portfolio (31 December 2018 - eight) and six in the Secondary portfolio (31 December 2018 - seven) with a total value of £527 million (31 December 2018 - £505 million). The increase in portfolio value of £22 million in the first half of 2019 is due to cash invested in to projects of £71 million, offset by disposals and cash yields received from projects totalling £35 million and a small net overall fair value loss of £14 million for the period.

In line with industry peers, we experienced transmission issues relating to marginal loss factors ("MLFs"). MLFs are defined as the portion of energy that is lost when electricity is transmitted across the transmission and distribution networks due to resistance. MLFs for operational assets are published annually by the Australian Energy Market Operator ("AEMO"). In June 2019, AEMO published final MLFs for the July 2019 - June 2020 financial year. Based on these and draft MLFs for assets still under construction, there were unfavourable results for three of our assets, whose value together represented 11% of the Group's investment portfolio at 31 December 2018. The total reduction in value was £66 million in the first half of the year, based on forecasts obtained from an external advisor. At the same time, active asset management has led to us recognising £29 million of value enhancements across the Australian portfolio, predominantly on renewable energy assets, which have partially offset the losses. Further work in this area is underway and we would expect further value enhancements in the second half of the year. Our team in Australia heads a group of approximately 20 renewable energy developers and investors which has made a proposal supporting a rule change under a consultation process with the Australian Energy Market Commission, which, if accepted, is expected to mitigate the impact from MLFs. Additionally, the team are working with advisors to explore project specific opportunities around technical performance which could provide further mitigation.

Further renewable energy investments have been put on hold in Australia, as we re-assess our approach to risk and return on these investments.

Active asset management in the region saw good progress made on Sydney Light Rail, New Generation Rollingstock and New Royal Adelaide Hospital in the last six months.

Sydney Light Rail

New Generation Rollingstock

New Royal Adelaide Hospital

We were pleased to have achieved our first realisation of an operational asset in Australia - the disposal of our 50% shareholding in Optus Stadium completed in March 2019.

The Primary Investment team has been successful in achieving one preferred bidder position and one shortlisted position at 30 June 2019 on PPP deals in Australia, which are typically expected to close over the next 18 months while renewable energy investments have been paused. We were recently shortlisted on a further PPP bid in Asia Pacific, pending formal announcement.

EUROPE

At 30 June 2019, our portfolio of investments in Europe comprised 20 assets (31 December 2018 - 19) including four in the Primary portfolio (31 December 2018 - three) and 16 in the Secondary portfolio (31 December 2018 - 16) with a total value of £574 million (31 December 2018 - £580 million). The small decrease in portfolio value of £6 million in the first half of 2019 is due to a net fair value loss in the period of £11 million and cash yields received from projects of £2 million, offset by cash invested into projects of £7 million.

We experienced operational performance issues on our wind assets, mainly driven by low levels of wind, which have translated into lower long-term energy yield forecasts and resulted in write downs in the period of £55 million. We have recognised £16 million of value enhancements, of which £14 million was from the renewable energy portfolio, including extension of asset lives and savings in operating costs, which partially offset the above losses and other smaller losses on the Europe portfolio. Further value enhancement opportunities are being explored for the second half of the year.

As in Australia, new wind and solar investments in Europe have been put on hold.

On IEP Phase 2, our largest investment, the first 18 trains for the East Coast mainline, which have a similar design to IEP Phase 1, have been accepted into service and public train services commenced in May 2019.

In the first half of the year, we secured an investment of £7 million in a student accommodation project with the University of Brighton. The Primary Investment team had also secured one shortlisted PPP position in the Netherlands and one exclusive pump storage opportunity in Israel, which are expected to close over the next 18 months.

NORTH AMERICA

At 30 June 2019, our portfolio of investments in North America comprised 12 assets (31 December 2018 - 14) including five in the Primary portfolio (31 December 2018 - six) and seven in the Secondary portfolio (31 December 2018 - eight) with a total value of £423 million (31 December 2018 - £465 million). The decrease in portfolio value of £42 million in the first half of 2019 is principally due to disposals and cash yields received from projects totalling £128 million, offset by cash invested into projects of £11 million and a positive fair value movement of £75 million, which includes £33 million of value enhancements recognised in the period.

The sale of our 95.3% shareholding in Rocksprings wind farm in Texas and our 92.5% shareholding in Sterling wind farm in New Mexico in the first half of the year represented our first disposals in the US. Proceeds are subject to customary post-completion adjustments.

The North America portfolio of investments performed in line with expectations.

Denver Eagle P3

In August 2019, we completed an investment of £75 million in a wind farm in the US. Additionally, six of the Group's eight shortlisted PPP positions at 30 June 2019 are for potential investments in North America, including two light rail projects in Ontario, Canada and two road projects in the US.

LATIN AMERICA

Our pipeline at 31 December 2018 included two investment opportunities in Colombia. One of which, the Ruta del Cacao road project, was agreed in July and is expected to complete in September 2019. Our pipeline of investment opportunities has increased from £175 million at 31 December 2018 to £305 million at 30 June 2019.

We have further strengthened our team in the region and now have three local employees in our Bogota office.

PORTFOLIO VALUATION

The Group's investments at 30 June 2019 were valued at £1,535 million compared to £1,560 million at 31 December 2018. After adjusting for realisations, cash yield and cash invested, this represented a positive movement in fair value of £52 million (3.5%) on the rebased portfolio valuation:

Cash investment in respect of one new PPP asset made into during the first half of 2019 totalled £7 million. In addition, equity and loan note subscriptions of £82 million were made into existing projects in the portfolio as they progressed through, or completed, construction.

During the first half of 2019, the Group completed the realisation of three investments for a total consideration of £131 million. Cash yield from the portfolio during the six months ended 30 June 2019 totalled £35 million.

The movement in fair value of £52 million is analysed in the table below:

Unwinding of discount and reduction of construction risk premia, which totalled £88 million in the first half of 2019, are factors of growth which we consider to be embedded in the portfolio value and that should continue to contribute value uplift in the future.

We have recognised £78 million of value enhancements in the first half of the year that have partially offset the losses in the period. Work in this area has continued in to the second half of the year and we expect to achieve further value enhancements in our full year results. Value enhancements in the first half of 2018 and full year included a gain of £87 million on the disposal of IEP Phase 1.

Net losses from project performance of £44 million include the losses on the European wind assets of £55 million, described in the Europe region review section above, and other smaller losses across the portfolio, offset by value uplift of £24 million from reduction in asset-specific risk premia reflecting the good progress made in the half on certain PPP projects through active asset management. As discussed in the Asia Pacific region review, we suffered losses of £66 million on three of our Australian renewable energy asset projects as a result of adverse changes in MLFs.

The net benefit of £12 million from the change in operational benchmark discount rates was on a number of renewable energy investments in Europe in response to our understanding and experience of the secondary market.

The split of the portfolio valuation between primary and secondary investments and the movements in the period within each are shown in the tables below:

Methodology

The methodology for the valuation of the investment portfolio is unchanged from the methodology used as at 31 December 2018, as described in the 2018 Annual Report and Accounts.

In arriving at the valuation as at 30 June 2019, we considered and reflected changes to the two principal inputs, (i) forecast cash flows from investments in projects and (ii) discount rates.

The shareholding in JLEN was valued at its closing market price on 30 June 2019 of 119.5p per share (31 December 2018 - 105.00p per share).

The Directors have obtained an independent opinion from a third party, which has considerable expertise in valuing the type of investments held by the Group, that the investment portfolio valuation as a whole represented a fair market value in the conditions prevailing at 30 June 2019.

Discount rates

For the 30 June 2019 valuation, the overall weighted average discount rate was 8.3% compared to the weighted average discount rate at 31 December 2018 of 8.6%. The weighted average discount rate at 30 June 2019 was made up of 8.6% (31 December 2018 - 8.8%) for the Primary Investment portfolio and 7.8% (31 December 2018 - 8.1%) for the Secondary Investment portfolio. The reduction in the weighted average discount rate for primary investments was primarily the result of projects moving through construction as well as reductions in project-specific risk premia on Sydney Light Rail and New Generation Rollingstock in Australia and the managed lanes projects in the US where positive progress has been achieved. The reduction in the weighted average discount rate for secondary investments was the result of renewable energy projects progressing through their ramp-up periods as well as reductions in project-specific risk premia on New Royal Adelaide Hospital, Alder Hey Children's Hospital, A15 Road and Denver Eagle P3, reflecting the progress made in the period, and reduction in the operational benchmark discount rates for select investments.

The discount rate ranges used in the portfolio valuation at 30 June 2019 were as set out below:

The table below shows the sensitivity of a 0.25% change in discount rates:

Energy yields

Revenues and therefore cash flows from investments in renewable energy projects may be affected by the volume of power production, for example from changes in wind or solar yield.

Our valuation of renewable energy projects assumes a P50 level of electricity output based on reports by technical consultants. The P50 output is the estimated annual amount of electricity generation (in MWh) that has a 50% probability of being exceeded and a 50% probability of being underachieved - both in any single year and over the long term. Hence the P50 is the expected level of generation over the long term. A P75 output means 75% probability of exceedance and a P25 output means 25% probability of exceedance.

The impact on the valuation at 30 June 2019 of a sample of renewable energy assets with total value of £304 million from changes in energy yield is shown below:

The sensitivities shown above assume that changes in energy yields move in the same direction for all of the assets in the sample. However, across a portfolio of renewable energy assets, any actual change in forecast energy yields could be an increase for some assets and a decrease on others.

Macroeconomic assumptions

During the first half of 2019, updates for actual macroeconomic outcomes and assumptions had a net adverse impact of £1 million (first half of 2018 - £5 million net adverse impact) on the portfolio valuation. Movements of foreign currencies against Sterling over the six months to 30 June 2019 resulted in net adverse foreign exchange movements of £2 million (first half of 2018 - £1 million net adverse foreign exchange movements). Additionally, during the first half of 2019, a decrease in forecast power and gas prices resulted in a £13 million adverse fair value movement (first half of 2018 - adverse fair value movement of £3 million).

The table below summarises the main macroeconomic and exchange rate assumptions used in the portfolio valuation at 30 June 2019 and at 31 December 2018. The table also shows the impact from changes in these assumptions and from changes in power and gas prices and marginal loss factors in the period or year as well as the sensitivity to the portfolio value from changes in the future:

The sensitivities shown above from changes in assumption is on the basis that changes are in the same direction across all assets. In reality, there could be an increase for some assets and a decrease on others and as a result offsetting impacts.

Further analysis of the portfolio valuation is shown in the following tables. The investment in JLEN is shown as "listed investment" in all tables.

by geographical region

There continues to be good diversification of the portfolio across our regions. While all other regions saw an increase of their portfolio values, the value of the portfolio in North America reduced since 31 December 2018 due to disposals in the six months ended 30 June 2019.

by time remaining of project concession/OPERATIONAL life

Split between PPP and renewable energy

The value of secondary renewable energy assets decreased during the first half of 2019 from £514 million to £403 million primarily as a result of the disposals of two wind farms in the US as part of our continuing divestment programme.

by revenue type

Availability-based investments continued to make up the majority of the portfolio at 30 June 2019. Renewable energy investments comprise the majority of the volume-based investments. The increase in the value of availability-based investments primarily reflects the positive progress made on assets both in construction and operation whilst the reduction in volume-based investments is primarily due to the disposal of two wind farms in the US as well as write downs on certain of the Australian and European renewable energy assets. We expect to maintain balanced availability-based investments in the portfolio in the medium-term.

by sector

The disposal of two wind farms in the US in the first half of the year has contributed to the reduction in the value of environmental assets since 31 December 2018. Further cash injections and positive fair value movements have resulted in increases in value in the first half of 2019 in other sectors.

by currency

By investment size

The valuation ranges for the five largest Primary investments and the five largest Secondary investments are shown in the tables below:

Primary

Secondary

At 30 June 2019, nine out of the ten largest investments were outside the UK.

InVestment portfolio as at 30 June 2019

APAC - Asia Pacific

NA - North America

*Cypress Creek projects

FINANCIAL REVIEW

Basis of preparation

There has been no change in the basis of preparation of the financial statements, as described in the Financial Review section of the 2018 Annual Report & Accounts, except as explained below.

There has been a change in the reportable segments under IFRS 8 Operating Segments since last year. Following an internal reorganisation, under which the Primary Investment and Asset Management teams in each of the three core geographical regions report to a single regional head, regional performance targets are set, and information is reported to the Group's Board (the chief operating decision maker under IFRS 8 Operating Segments) for the purposes of resource allocation and assessment of performance on a regional basis. Accordingly, the reportable segments under IFRS 8 are now based on regions which are currently: Asia Pacific, Europe, North America and Latin America. Further reportable segments are "Fund management", relating to the external fund management activities for Jura Infrastructure Limited ("Jura") and JLEN, which ceased in 2019, and "Central", which covers the corporate activities at the Group's headquarters.

The Group adopted IFRS 16 Leases from 1 January 2019. For further details, see note 2 to the Condensed Group Financial Statements.

Re-presented financial RESULTS

As we have done in previous periods, we set out in this Financial Review the Condensed Group Income Statement, the Condensed Group Balance Sheet and the Condensed Group Cash Flow Statement on the management reporting basis. When set out on the management reporting basis, these statements are described as "re-presented".

Re-presented income statement

Preparing the re-presented income statement involves a reclassification of certain amounts within the Condensed Group Income Statement principally in relation to the net gain on investments at FVTPL. The net gain on investments at FVTPL in the Condensed Group Income Statement includes fair value movements from the portfolio of investments in non-recourse project companies and also comprises income and costs that do not arise directly from investments in this portfolio, including investment fees earned from project companies by recourse subsidiaries that are held at FVTPL.

Notes:

a) Adjustment comprises £1 million of finance income in recourse investment entity subsidiaries reclassified from 'fair value movements - other' to 'finance costs'.

b) Under IAS 19, the costs of the pension schemes, including the post-retirement medical benefits, comprise a service cost of £0.8 million, included in administrative expenses in the Condensed Group Income Statement, and a finance charge of £0.3 million, included in finance costs in the Condensed Group Income Statement. These amounts are combined together under management reporting.

c) For a reconciliation between the Condensed Group Income Statement and re-presented income statement for the six months ended 30 June 2018, refer to the June 2018 Interim Accounts.

Profit before tax (PBT) for the six months ended 30 June 2019 was £35 million (2018 - £175 million). The main reason for the lower PBT in the first half of 2019 compared to last year was the reduction in fair value movement in the portfolio.

The movement in fair value on the portfolio for the six months ended 30 June 2019, after adjusting for investments, cash yield and realisations, was a £52 million gain (2018 - £194 million gain). A significant contributor to the fair value movement in the six months ended 30 June 2018 was the gain of £87 million on disposal of the interest in IEP Phase 1. In contrast, despite significant value enhancements of £78 million, the fair value movement for the first half of 2019 suffered from losses of £66 million on three of our Australian renewable energy assets as a result of the impact of marginal loss factors (see the Asia Pacific section above) and from losses of £55 million on our European renewable energy assets (see the Europe section above).

Other fair value movements for the six months ended 30 June 2019 comprised a £2 million loss which primarily related to standard price adjustments on renewable energy disposals previously completed.

The Group earned IMS revenue of £20 million (2018 - £9 million) from investment advisory and asset management services primarily to Jura and JLEN. The increase from last year is due to the proceeds received from the sale of the IAA with JLEN in the first half as well as an acceleration of fee income from the second half of the year following the termination of the IAA with Jura. Going forward, the Group will only earn IMS revenue from the provision of directors to project company boards (six months ended 30 June 2019 - £1 million; six months ended 30 June 2018 - £1 million).

The Group also earned PMS revenue of £3 million (2018 - £3 million) from the provision of services to project companies under management services agreements.

The Group achieved recoveries of bidding costs on financial closes of £0.5 million in the six months ended 30 June 2019 (2018 - £3 million).  

Total staff costs for the six months ended 30 June 2019 are higher than the same period last year due to: pay increases in line with inflation (c£0.5 million); increase in average headcount for the period with new recruits at higher average salaries (c£1 million); and one-off staff costs incurred in the first half of 2019 in relation to the termination of fund management activities. We expect staff costs to be lower in the second half of the year following the transfer of staff with the fund management business.

General overheads have increased from last year principally due to costs incurred in the first half of 2019 on one-off project-related costs and corporate initiatives.

Finance costs of £4 million (2018 - £5 million) include costs of the corporate banking facilities, net of any interest income, with the decrease from last year primarily due to lower investment activity in the first half of the year.

The Group's overall tax expense on profit from operations for 2019 was £0.6 million (2018 - expense of £0.2 million). This comprised a tax expense of £0.2 million (2018 - expense of £0.5 million) in recourse group subsidiary entities that are consolidated (shown in the 'Tax' line of the Condensed Group Income Statement) and a tax expense of £0.4 million (2018 - credit of £0.3 million) in recourse group subsidiary entities that are held at FVTPL (included within 'net gain on investments at fair value through profit or loss' on the Condensed Group Income Statement). The contributions made to one of the Group's defined benefit pension schemes are tax deductible when paid and, as a result, there is minimal tax payable by the UK holding and asset management activities of the Group. Capital gains from the realisation of investments in projects are generally exempt from tax under the UK's Substantial Shareholding Exemption for shares in trading companies or under the overseas equivalent. To the extent this exemption is not available, gains may be sheltered using current year losses or losses brought forward within the Group's holding companies. There are no losses in the Company but there are tax losses in recourse group subsidiary entities that are held at FVTPL (£144 million as at 31 December 2017).

The re-presented income statement for the six months ended 30 June 2019 and for the same period in 2018 by reportable segment is shown in the tables below:

Asia Pacific - the loss in the first half of 2019 was mainly due to write downs of £66 million in the portfolio from adverse changes in MLFs on three of our renewable energy investments. Value enhancements of £29 million recognised in the period partially offset some of these losses. For further details, see the Asia Pacific section in the Regional Review above.

Europe - the main drivers of the loss in the six months ended 30 June 2019 were performance issues on wind assets, which resulted in write downs in the period of £55 million. Value enhancements recognised in the half of £16 million across the Europe portfolio helped to partially offset these write downs. In the same period in 2018, Europe benefited from a gain of £87 million on the disposal of our interest in the IEP Phase 1 project.

North America - good progress was made on the PPP assets in the US, which, together with value enhancements of £33 million, contributed to the higher profit in the first half of 2019 compared to 2018. Increasing staff costs in North America reflect an increase in the headcount in that region, consistent with the increase in the level of activity.

Fund management - fund management activities ceased in the first half of 2019 following the sale of the JLEN IAA at the end of June 2019 and the termination of the Jura IAA at the end of April 2019. The increase in profit from 2018 was primarily due to the proceeds from the sale of the JLEN agreement of £5 million and additional income of £4 million in the first half of 2019 from the Jura agreement when services were terminated. There will be no further income or costs from fund management activities beyond 30 June 2019.

Central - the net gain on investments at FVTPL of £3 million in the first half of 2019 was primarily due to a gain on the JLEN shares (2018 - £1 million loss primarily due to foreign exchange losses outside of the portfolio).

Re-presented balance sheet

The re-presented balance sheet is reconciled to the Condensed Group Balance Sheet at 30 June 2019 below. The re-presented balance sheet involves the reclassification of certain amounts within the Condensed Group Balance Sheet principally in relation to assets and liabilities of £135 million within certain of the Company's recourse subsidiaries. These subsidiaries are included in investments at FVTPL in the Condensed Group Balance Sheet as a result of the requirement under IFRS 10 to fair value investments in these subsidiaries.

Notes:

a) Investments at fair value through profit or loss (FVTPL) comprise: portfolio valuation of £1,535 million and other assets and liabilities within recourse investment entity subsidiaries of £135 million (see note 9 to the Condensed Group Financial Statements).

b) Other assets and liabilities within recourse investment entity subsidiaries of £135 million referred to in note (a) include (i) cash and cash equivalents of £134 million, of which £129 million is held to collateralise future investment commitments and (ii) positive working capital and other balances of £1 million.

c) Trade and other receivables (£14 million), trade and other payables (£18 million), finance lease liabilities (£4 million) and provisions (£2 million) are combined within working capital and other balances.

d) Borrowings of £74 million comprise cash borrowings of £73 million from the main facilities and £4 million of short-term bank overdraft from uncommitted facilities less unamortised financing costs of £3 million, re-presented in working capital and other balances.

e) For a reconciliation between the Group Balance Sheet and re-presented balance sheet as at 31 December 2018, refer to the 2018 Annual Report and Accounts.

Components of net assets, including reportable segments, are shown in the table below.

Note:

(1) Comprises cash balances of £136 million (31 December 2018 - £140 million) (see below for more details) net of short-term bank overdraft of £4 million (31 December 2018 - £15 million) and short-term cash borrowings of £73 million (31 December 2018 - £55 million).

Net assets increased from £1,586 million at 31 December 2018 to £1,599 million at 30 June 2019.

The Group's portfolio of investments in project companies and listed investments was valued at £1,535 million at 30 June 2019 (31 December 2018 - £1,560 million). Further details are provided in the Portfolio Valuation section.

The Group held cash balances of £136 million at 30 June 2019 (31 December 2018 - £140 million) of which £129 million (31 December 2018 - £132 million) was held to collateralise future investment commitments (see the Financial Resources section below for more details). Of the total Group cash balances of £136 million, £134 million was held in recourse subsidiaries held at FVTPL, including the cash collateral balances, that are included within investments at FVTPL in the Condensed Group Balance Sheet. The remaining £2 million was held in the Company and recourse subsidiaries that are consolidated and shown as cash and cash equivalents in the Condensed Group Balance Sheet (see the re-presented balance sheet for further details).

Working capital and other liabilities were higher primarily because of finance lease liabilities of £5 million at 30 June 2019 following adoption of IFRS 16 Leases from 1 January 2019.

The Group operates two defined benefit pension schemes in the UK - the John Laing Pension Fund (JLPF) and the John Laing Pension Plan (the Plan). Both schemes are closed to new members and future accrual.

In December 2016, following a triennial actuarial review of JLPF as at 31 March 2016, a seven-year deficit repayment plan was agreed with the JLPF Trustee to repay the actuarial deficit of £171 million at 31 March 2016 as set out below:

The combined net accounting surplus in the Group's defined benefit pension and post-retirement medical schemes at 30 June 2019 was £6 million (31 December 2018 - deficit £40 million). Under IAS 19, at 30 June 2019, JLPF recorded a surplus of £12 million (31 December 2018 - deficit of £35 million) and the Plan recorded a surplus of £2 million (31 December 2018 - surplus of £3 million). The liability at 30 June 2019 under the post-retirement medical scheme was £8 million (31 December 2018 - £8 million).

The pension liabilities in JLPF under IAS 19 were based on a discount rate of 2.3% (31 December 2018 - 2.85%) and long term RPI of 3.2% (31 December 2018 - 3.2%) at 30 June 2019. The amount of the liabilities is dependent on key assumptions, principally: inflation rate, discount rate and life expectancy of members. The discount rate, as prescribed by IAS 19, is based on yields from high quality corporate bonds. The surplus (under IAS 19) as at 30 June 2019 has moved from a deficit at 31 December 2018 primarily as a result of the Group's cash contribution to JLPF of £29 million in March 2019 and gains in the value of scheme assets.

Re-presented cash flow statement

The Condensed Group Cash Flow Statement includes the cash flows of the Company and certain recourse subsidiaries that are consolidated (Service Companies). The Group's recourse investment entity subsidiaries, through which the Company holds its investments in non-recourse project companies, are held at fair value in the financial statements and accordingly cash flows relating to investments in the portfolio are not included in the Condensed Group Cash Flow Statement. Investment-related cash flows are disclosed in note 9 to the Condensed Group Financial Statements.

The re-presented cash flow statement shows all recourse cash flows that arise in both the consolidated group (the Company and its consolidated subsidiaries) and in the recourse investment entity subsidiaries.

Cash yield comprised £35 million (2018 - £17 million) from the investment portfolio, including a large cash distribution from the Denver Eagle P3 project following construction completion in the first half of the year.

Operating cash flow in the six months ended 30 June 2019 was adverse compared to 2018 primarily due to higher staff costs in 2019 and small cash outflows in relation to tax in 2019 compared to cash inflows in 2018 from the surrender of tax losses to project companies.

Total operating cash flow was net of a favourable foreign exchange impact of £3 million (2018 - favourable impact of £3 million).

During the period, cash of £89 million (2018 - £131 million) was invested in project companies and investments in three projects were realised for total proceeds of £131 million (2018 - £242 million from the realisation of two investments), offset by disposal costs paid of £2 million (2018 - £5 million). A further £2 million of proceeds from realisations was received from the deferred consideration on the disposal of IEP Phase 1 in 2018.

In the period, the Group made a cash contribution to JLPF of £29 million (2018 - £27 million).

Dividend payments of £38 million in the six months ended 30 June 2019 comprised the final dividend for 2018 (2018 - final dividend for 2017 of £35 million).

FINANCIAL RESOURCES

At 30 June 2019, the Group held principal committed revolving credit banking facilities of £650 million (31 December 2018 - £650 million), £500 million expiring in July 2023 and £150 million expiring in January 2021, which are primarily used to back investment commitments. Net available financial resources at 30 June 2019 were £458 million (31 December 2018 - £413 million).

Analysis of Group financial resources

1 Cash and bank deposits exclude cash collateral balances. Of the total cash and bank deposit balances of £7 million, £2 million was in the Company and recourse subsidiaries that are consolidated and therefore shown as cash and cash equivalents on the Condensed Group Balance Sheet, with the remaining £5 million in recourse subsidiaries held at FVTPL which are included within investments at FVTPL on the Condensed Group Balance Sheet (see the re-presented balance sheet).

Letters of credit and cash collateral represent future cash investment by the Group into underlying projects in the Primary Investment portfolio.

1 A letter of credit issued under the committed facilities at 30 June 2019 of £22 million was cancelled in July 2019 after cash was invested into the project in June 2019

Cash collateral is included within 'investments at fair value through profit or loss' in the Condensed Group Balance Sheet.

FOREIGN CURRENCY EXPOSURE

The Group regularly reviews the sensitivity of its balance sheet to changes in exchange rates relative to Sterling and to the timing and amount of forecast foreign currency denominated cash flows. As set out in the Portfolio Valuation section, the Group's portfolio comprises investments denominated in Sterling, Euro, and Australian, US and New Zealand dollars. As a result of foreign exchange movements in the six months ended 30 June 2019, there was a net adverse fair value movement of £2 million in the portfolio valuation. Sterling strengthened against the Australian dollar and the Euro between 31 December 2018 and 30 June 2019, but weakened against the US and New Zealand dollars.

The Group may apply an appropriate hedge to a specific currency transaction exposure, which could include borrowing in that currency or entering into forward foreign exchange contracts. An analysis of the portfolio value by currency is set out in the Portfolio Valuation section.

Letters of credit in issue at 30 June 2019 of £121 million (31 December 2018 - £164 million) are analysed by currency as follows:

Cash collateral at 30 June 2019 of £129 million (31 December 2018 - £132 million) is analysed by currency as follows:

PRINCIPAL Risks AND GOING CONCERN

The Group's principal risks at 31 December 2018 were as follows:

·; Governmental policy (incl. Brexit)

·; Macroeconomic factors

·; Liquidity in the secondary market

·; Financial resources

·; Pensions

·; Future investment activity

·; Valuation

·; Counterparty risk

·; Major incident

·; Investment Advisory Agreement (IAA) with JLEN and Jura

·; Future returns from investments

·; Taxation

·; Personnel

More detail on these risks can be found on pages 41 to 46 of the 2018 Annual Report & Accounts.

With the exception of the 'IAA with JLEN and Jura' risk, which is no longer applicable following the termination of the Jura IAA and the sale of the JLEN IAA, the Group does not believe there has been a material change in the Group's principal risks in the first six months of 2019, nor does it expect a material change in the remaining six months of the year.

The Group has committed corporate banking facilities which mature in July 2023 and has sufficient resources available to meet its committed capital requirements, investment commitments and operating costs for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the Condensed Group Financial Statements.

Related party transactions

Related party transactions are disclosed in note 16 to the Condensed Group Financial Statements. There have been no other related party transactions in the first six months of the financial year or the comparative period in 2018 that have had a material effect on the financial position or performance of the Group.

Signed on behalf of the Directors

Responsibility statement

We confirm that to the best of our knowledge:

·; The Condensed Group Financial Statements have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting'; and

·; The Business Review includes a fair review of the information required by:

a) the Disclosure and Transparency Rules (DTR) rule 4.2.7R, being an indication of important events during the first six months and a description of principal risks and uncertainties for the remaining six months of the year; and

b) DTR rule 4.2.8R, being the disclosure of related party transactions and changes therein.

By order of the Board

INDEPENDENT REVIEW REPORT TO JOHN LAING GROUP PLC

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 2019 which comprise the Condensed Group Income Statement, the Condensed Group Statement of Comprehensive Income, the Condensed Group Statement of Changes in Equity, the Condensed Group Balance Sheet, the Condensed Group Cash Flow Statement and the related notes 1 to 17. 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 1, the annual financial statements of the Group 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 2019 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

London, United Kingdom

21 August 2019

Condensed Group Income Statement

for the six months ended 30 June 2019

Condensed Group Statement of Comprehensive Income

for the six months ended 30 June 2019

Condensed Group Statement of Changes in Equity

for the six months ended 30 June 2019

for the six months ended 30 June 2018

for the year ended 31 December 2018

1 Dividends paid:

a The final dividend for 2017 was originally reported in the 2017 Annual Report and Accounts as 8.70p. This was adjusted for the Rights Issue to 7.17p and paid in May 2018.

The total estimated amount to be paid in October 2019 in respect of the proposed interim dividend for 2019 is £9 million.

Condensed Group Balance Sheet

as at 30 June 2019