Results for the Year Ended 31 December 2018

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

John Laing Group Plc

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018

John Laing Group plc (John Laing or the Company or the Group) announces its audited results for the year ended 31 December 2018.

Highlights

· Strong value creation: net asset value (NAV) per share at 31 December 2018 of 323p (31 December 2017 - 281p1)

- 15.0% increase since 31 December 2017

- 18.2% increase including dividends paid in 2018

· NAV of £1,586.5 million at 31 December 2018 (31 December 2017 - £1,123.9 million)

· £302.0 million in investment commitments (2017 - £382.9 million)2

· Strong pipeline of £2.4 billion of investment opportunities

· Realisations of £296.1 million from the sale of investments in project companies (2017 - £289.0 million)

· Profit before tax of £296.6 million (2017 - £126.0 million) and earnings per share (EPS) of 63.1p (2017 - 31.9p)3

· Portfolio value at 31 December 2018 of £1,560.2 million representing 29.4% increase on rebased portfolio value4 at 31 December 2017

· Final dividend of 7.7p per share in line with policy (including a special dividend of 4.1p per share), giving a total 2018 dividend of 9.5p (2017 - total dividend of 8.92p5), an increase of 6.5% from 2017

· 1 for 3 rights issue in March 2018 raising £210.5 million, net of costs (the Rights Issue)

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

"We are pleased with the net asset value we generated in 2018. Our diversified portfolio of projects has once again proved resilient and our teams have actively managed our projects both under construction and operation. Since the rights issue in March 2018, we have continued to grow our pipeline of investment opportunities whilst looking to reduce our exposure to local political and macroeconomic uncertainties through a more diversified portfolio. We are carefully expanding our model into new sectors and new countries, on the back of strong relationships with international partners and with the benefit of our expanded capital base. Looking forward, we are confident in our ability to continue to generate value from our existing portfolio and to take advantage of both an active secondary market to recycle our capital and a strong pipeline of opportunities in order to invest in existing and new markets. The successful completion of our projects makes a positive impact on the communities we serve, proving time and again the benefits of private investment in new infrastructure."

Notes:  

(1) NAV per share at 31 December 2017 of 281p is the previously reported NAV per share of 306p multiplied by the Rights Issue bonus factor6

(2) Based on new investment commitments secured in the year ended 31 December 2018; for further details see the Primary Investment section of the Strategic Report

(3) Basic EPS (adjusted for the Rights Issue; see note 6 to the Group financial statements)

(4) Rebased portfolio value is described in the Portfolio Valuation section

(5) Total dividend per share for the year ended 31 December 2017 of 8.92p is after adjustment for the Rights Issue

(6) For details of the Rights Issue bonus factor, see note 6 to the Group financial statements.

A presentation for investors and analysts will be held at 9:00am (London time) today at The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED. A conference call facility will also be available using the dial-in details below.

Conference call dial-in details:

UK: 020 3936 2999

Other locations: +44 (0) 20 3936 2999

Participant access code: 59 93 22

Participant URL for live access to the on-line presentation:

https://www.investis-live.com/john-laing/5c58542d186fe71000436b1d/lijh

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

Investor/analyst enquiries:

Media 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.

Summary financial information

Notes:

(1) Calculated as NAV at 31 December 2018 of £1,586.5 million divided by the number of shares in issue at 31 December 2018 of 490.78 million

(2) NAV per share at 31 December 2017 of 281p is the previously reported NAV per share of 306p multiplied by the Rights Issue bonus factor6

(3) Basic EPS (adjusted for the Rights Issue; see note 6 to the Group financial statements)

(4) Total dividend per share for the year ended 31 December 2017 of 8.92p is after adjustment for the Rights Issue

(5) For further details, see the Primary Investment section of the Strategic Review

(6) For details of the Rights Issue bonus factor, see note 6 to the Group financial statements

Chairman's Statement

2018 was a significant year for John Laing. As well as undertaking a successful rights issue in March, we continued to increase our international footprint. Consistent with this expansion, we moved to a regional management structure to enable us to focus more effectively on value creation in each region; and we are already seeing some benefits of this. Through our regional teams, we work hard on developing our key relationships with international partners, the results of which can be seen in our strong pipeline of investment opportunities. And because of the rights issue, we are well positioned to bid for a higher proportion of these opportunities.

John Laing is clearly differentiated from other participants in the infrastructure sector; we focus on greenfield infrastructure and we invest our own capital. Our purpose is to create value for all our stakeholders by investing in, developing and managing infrastructure projects, including renewable energy, which respond to public needs, foster sustainable growth and improve the lives of communities around the world.

To achieve our purpose, we continued to operate our tried and tested business model during 2018, namely: origination of greenfield investments; active management of construction and operational risk; and either hold to maturity or if appropriate divest in order to realise the value of our investments and redeploy the proceeds in new investment. Our focus remains on investments in public private partnership (PPP) and renewable energy projects, but our business model is nimble and flexible enough to respond to opportunities in other sectors and geographies, as and when they arise.

While we committed capital in each of our three core regions - Asia Pacific, Europe and North America - the lion's share of investment commitment took place in Australia and the US. Looking forward, we expect this to continue, as markets in Europe remain relatively subdued.

Since our IPO in early 2015, we have grown NAV per share (including dividends paid) by 15.8% compound per annum (adjusted for the Rights Issue). The business delivered another strong financial performance in 2018:

· NAV grew to £1,586.5 million or 323p per share at 31 December 2018, from 281p per share at 31 December 2017 (as adjusted for the Rights Issue), an increase of 15.0%;

· Investment commitments reached £302.0 million, ahead of our guidance for 2018 of approximately £250 million;

· Realisations of investments were £296.1 million, again ahead of our guidance of approximately £250 million; and

· We are proposing a final dividend for 2018 of 7.7p per share made up of a final base dividend of 3.6p per share and a special dividend of 4.1p per share.

In May 2018, we welcomed Andrea Abt to the Board as a Non-executive Director. Her skills in finance, logistics and procurement fit well with those of other Board members and she has contributed actively and positively to the Board's deliberations. The Board needs a good balance of skills, diversity and experience in order to perform most effectively and maintaining this will guide any new appointment.

In May 2018, I took over from Phil Nolan as Chairman and I would like to take this opportunity to thank Phil for his strong contribution and leadership during the eight years he served as chairman of the Company. There were no other Board changes during the year.

On 23 January 2019, we announced the appointment of Luciana Germinario as Chief Financial Officer designate with effect from 25 April 2019. This follows the decision of Patrick O'D Bourke, Group Finance Director, to retire after the Annual General Meeting (AGM) in May 2019. We are delighted that Luciana will soon be joining us. John Laing has a strong track record of identifying investment opportunities in the infrastructure and renewable energy sectors. Demand for both is increasing and Luciana will bring strong operational capability with a real focus on driving investment performance. On behalf of the Board, I would also like to express our particular appreciation to Patrick for his invaluable contribution to the business and wise counsel to the Board. We wish him well for the future.

During the year under review, the Board complied with all applicable provisions of the UK Corporate Governance Code (the 2016 Code). We have also been preparing ourselves for the updated version of the Code issued in July 2018 (the 2018 Code) and, in anticipation of this, David Rough, our Senior Independent Director, took over from me as Chairman of the Nomination Committee in December 2018.

As well as our regular Board meeting schedule, we took time away from the business in June and in October 2018 to address its future strategy and direction. In these reviews, we confirmed our commitment to the existing business model and to creating further shareholder value from growth in NAV; and we tested the resilience of our existing portfolio against a backdrop of political and economic uncertainty. We also reviewed our ESG approach and our plans to improve diversity among our employees as well as endorsed the Principles, People and Performance focus described in the Chief Executive Officer's Review.

On behalf of the Board, I would like to thank all employees for their dedication and commitment during the year. I would also like to extend the Board's thanks to all the Group's stakeholders for their continued support, in particular to our shareholders for making our Rights Issue such a success.

Our dividend policy remains unchanged. It has two parts:

· an annual base dividend of £20 million (starting from 2015) growing at least in line with inflation; the Board is recommending a final base dividend for 2018 of 3.6p per share; and

· a special dividend of approximately 5% - 10% of gross proceeds from the sale of investments on an annual basis, subject to specific investment requirements in any one year. The Board is recommending a special dividend for 2018 of 4.1p per share. This reflects 6.8% of 2018 realisations of £296.1 million.

The total final dividend for 2018 therefore amounts to 7.7p per share, which, together with the interim dividend of 1.8p per share paid in October 2018, makes a total dividend for 2018 of 9.5p per share, an increase of 6.5% over 2017 (as adjusted for the Rights Issue). The final dividend will be put to shareholders for their approval at the Company's AGM which will be held on 9 May 2019. At the Company's last AGM on 10 May 2018, all resolutions were approved by shareholders.

Our business is in good shape and we are well prepared for both the opportunities and challenges ahead.

Will Samuel

Chairman

Chief Executive Officer's Review

I am pleased to report that in 2018 we maintained our track record of strong results. Our NAV per share (including dividends paid) grew by 18.2% and, since our IPO in early 2015, has grown by 15.8% compound per annum.

In March 2018, we launched a 1 for 3 Rights Issue raising £210.5 million, net of costs. The purpose of the Rights Issue was to enable the Group to take advantage of a higher number of the opportunities available to it, consistent with the Board's intention to increase the scale of the business over the medium term.

In the Rights Issue prospectus, the Directors stated their belief, subject to the specific investment commitments entered into with the proceeds of the Rights Issue and the timing thereof, that the Rights Issue should be accretive to NAV per share (adjusted accordingly) within two years, compared to the position without it. Our NAV per share performance for the year ended 31 December 2018 is consistent with this statement.

The Rights Issue has given us the expanded capital base we needed to continue our international growth. In addition, the management reorganisation around our three core regions - North America, Asia Pacific and Europe - has allowed us to continue to scale up our business model through a transfer of responsibility for value creation to each regional team, while all the time retaining reinforced oversight at Group level for investment and divestment decisions and risk management.

The financial highlights of the year included:

· Strong value creation: NAV per share of 323p per share at 31 December 2018, a 15.0% increase since 31 December 2017 (281p per share as adjusted for the Rights Issue);

· 18.2% increase in NAV per share, including dividends paid in 2018;

· New investment commitments of £302.0 million (2017 - £382.9 million);

· Realisations of £296.1 million from the sale of three investments (2017 - £289.0 million);

· Profit before tax of £296.6 million compared to £126.0 million in 2017;

· Cash yield from investment portfolio of £33.8 million (2017 - £40.2 million); and

· Final dividend of 7.7p per share, giving a total 2018 dividend of 9.5p per share (2017 - total dividend of 8.92p per share - as adjusted for the Rights Issue), an increase of 6.5% from 2017.

Outlook for our markets

The overall outlook for private investment into new public infrastructure markets remains strong even if political and regulatory landscapes mean that some of the best opportunities will not necessarily come from our existing markets or sectors. We are taking advantage of our flexible investment model to focus on new countries and sectors and in so doing reduce our exposure to local public policy uncertainty.

As we have said before, our view is that, while the need for new infrastructure is affected by many factors and trends including GDP, the biggest driver comes from a combination of population growth, urbanisation and climate change. Other contributory factors include governmental policy towards regulation and investment, the demand for energy and the availability of capital, both private and public sector. And a trend common to all these factors is a strong push for new infrastructure to be sustainable, not just from an environmental and financial perspective, but also in terms of future resilience.

These factors and trends apply to each of the infrastructure sectors in which we invest:

· transport and transport-related infrastructure, such as roads, tunnels, bridges and rail assets (including rolling stock);

· environmental infrastructure, such as renewable energy (including wind and solar), biomass, water treatment and waste management; and

· social infrastructure, such as schools, hospitals, university accommodation, stadiums, social housing and justice and other public sector buildings.

The need for new infrastructure is evident in many parts of the world, both because existing infrastructure is not keeping pace with the changes brought about by the above trends, but also because the infrastructure market as a whole has historically seen under-investment. Infrastructure matters to people and businesses everywhere.

Coupled with the pressures on public sector finances, this background provides a strong incentive for the growing use of PPPs for greenfield infrastructure. As well as access to private capital, PPPs enable governmental and other public sector bodies to benefit from fixed price arrangements which transfer very significant risks to the private sector, especially design, construction and operational delivery risks.

In each of the three regions where we currently operate, our teams benefit from a healthy pipeline of future opportunities. For the first time, our pipeline also includes a small number of opportunities in Latin America and we are also looking at some potential projects in South East Asia.

Many of these opportunities arise through our strong relationships with international partners, including construction companies, rolling stock manufacturers and renewable energy developers. These partners see the benefits of working with John Laing because of our track record, our credentials, our construction heritage and, in particular, our ability to devote experienced asset management resource to projects, especially where not everything is going according to plan. On several occasions, we have invested alongside the same international partner in more than one project across different jurisdictions and in different sectors - this is an endorsement of the strength of our relationships.

We entered 2019 with a strong pipeline of £1,543 million of PPP opportunities looking out three years as well as nearer term renewable energy opportunities of £830 million. Within the PPP pipeline, we have positions in 10 shortlisted PPP consortiums, representing a total potential investment of approximately £320 million.

· North America: seven of the 10 shortlisted PPP positions are for potential investments in North America. We have maintained strong momentum following our breakthrough year in the US in 2017 and invested further in 2018 in PPP projects in Massachusetts and Michigan as well as in five solar farms in North Carolina. In the US, public sector procurement for greenfield infrastructure, including PPP, takes place predominantly at state or city, rather than federal, level. Consistent with the above drivers of population growth and urbanisation, all the states containing major metropolitan areas have some form of PPP-enabling legislation. State policy is also a key driver for the US renewable energy market. A majority of states have adopted renewable energy targets and, in addition, many states maintain a commitment to the Paris Climate Accord.

· Asia Pacific: we remain very active in the Australian PPP market. We expect to be working on a number of PPP projects in 2019 which should reach financial close in 2020. The longer term pipeline also looks promising, particularly in the transportation sector, driven by the significant growth predicted in the populations of both Melbourne and Sydney. In renewable energy, we have continued to benefit from the impetus given to the market by the Federal Renewable Energy Target and we made several investments in 2018 in both wind and solar farms.

· Europe: three of the 10 shortlisted PPP positions are for potential investments in Europe. The market for new infrastructure projects is currently subdued especially in some of the larger countries, including the UK. Even if the need for new investment is clear, it will probably take some time for a new sizeable pipeline to develop. Nonetheless, we are currently bidding for road projects in the Netherlands and for the Silvertown Tunnel project in the UK, a planned additional crossing under the Thames near London City Airport. Our European team is also looking at opportunities in Poland, where we have invested successfully in the past, and in Israel, which has an active pipeline of transport and renewable energy projects. The latter would be a new country for us; as part of our assessment of Israeli opportunities, we have taken a decision not to invest in any projects located in disputed territory.

Our pipeline also includes two potential projects in Colombia, which has recently joined the OECD, and where there is a substantial PPP programme, particularly in the transportation sector. We are looking at these opportunities in conjunction with partners we have worked with before and we are confident that a secondary market for operational infrastructure assets in Colombia will develop in the coming years.

We also continually assess other infrastructure asset classes that might fit our business model. Among the most promising is broadband, as governments in both Europe and North America seek to make high speed networks accessible to wider populations.

Business model

Our business model has two key areas of activity:

· Primary Investment: we source, originate, bid for and win greenfield infrastructure projects, typically as part of a consortium in the case of PPP projects. Our Primary Investment portfolio comprises interests in infrastructure projects which are in the construction phase. Once the projects reach the end of construction and move into the operational phase, the investments become part of our Secondary Investment portfolio.

· Asset Management: we actively manage our own Primary and Secondary Investment portfolios and provide investment advice and asset management services, including to John Laing Environmental Assets Group (JLEN), through John Laing Capital Management Limited (JLCM), which is regulated by the Financial Conduct Authority (FCA).

We aim to invest in new greenfield infrastructure projects which, post-construction, produce long-term predictable cash flows that meet our rate of return targets. The projects we invest in are held within Special Purpose Vehicles (SPVs) which we (often in conjunction with other investors) fund with equity, and which are structured so that providers of third party debt finance have no contractual recourse to equity investors beyond their commitment.

The principal value creation mechanism inherent in our business model is the difference between the hold-to-maturity Internal Rate of Return (IRR) at the financial close of a greenfield investment and the discount rate applied to that investment once the underlying project has reached the operational stage. Although we have in recent years experienced pressure on hold-to-maturity IRRs as our Primary Investment teams bid for new greenfield projects, this has typically been accompanied by a reduction in secondary discount rates. This has allowed the Group to maintain attractive "yield shifts" which drive one of the principal measures applied to the Group's investments, namely the annualised rate of return.

The value of investments in our Primary Investment portfolio should grow progressively with a reasonable degree of predictability as the underlying assets move through the construction phase and their risk correspondingly reduces. Once the projects reach the operational stage, investments move from our Primary to our Secondary Investment portfolio where they can be held to maturity or sold to secondary market investors, who are targeting a lower rate of return consistent with the reduction in risk. We continue to see strong demand for operational infrastructure assets, as evidenced by the number of infrastructure funds recently raised by international investors.

Our asset management activities focus on management and reduction of project risks, especially during the construction phase, together with enhancement of project cash flows. The latter involves identifying and implementing value enhancement initiatives that can increase future cash flows to project investors compared to the cash flows originally forecast at the start of the project. We look at a wide range of such value enhancements, for example:

· Optimisation of SPV management costs and project insurance premiums through bulk purchasing or efficiency gains;

· Optimisation of major maintenance and asset renewal costs over the life of an infrastructure project; and

· Maximisation of working capital efficiency within projects.

Opportunities for value enhancements may arise at any time during a project's life and may vary significantly from one investment to another.

Objectives and outcomes

Consistent with our purpose, which is to create value for all stakeholders, our strategy focuses on NAV per share growth and dividends as key measures for shareholders:

· In 2018, our NAV per share grew by 15.0% from 281p per share at 31 December 2017 (adjusted for the Rights Issue) to 323p per share at 31 December 2018, or 18.2% if we add back the dividends paid in 2018.

· We are proposing total dividends of 9.5p per share for 2018 compared to 8.92p per share for 2017 (adjusted for the Rights Issue). This represents growth of 6.5% over 2017.

To deliver our strategy, we have set ourselves the two core objectives below, while maintaining the discipline and analysis required to mitigate and manage the delivery, revenue and operational risks associated with investments in greenfield infrastructure projects:

· growth in primary investment volumes (new investment capital committed to greenfield infrastructure projects) over the medium term; and

· management and enhancement of our investment portfolio, with a clear focus on active management during construction, accompanied by realisations of investments which, combined with our corporate banking facilities and operational cash flows, enable us to finance new investment commitments.

Growth in primary investment volumes over the medium term

We operate in a broad market for new infrastructure with a strong pipeline of future opportunities.

Through the strong partner relationships referred to earlier, we enter into consortiums to bid for PPP projects, sometimes following a competitive selection process. Once part of a consortium, we compete with other shortlisted consortiums to bid for and win PPP projects in accordance with public procurement timetables. In renewable energy, through negotiations with developers, we compete with other investors to secure greenfield projects.

Throughout the year, we maintained a disciplined approach to making new investments. Using detailed financial analysis and investment appraisal processes, we assess the specific risk profiles for each prospective investment with the aim of optimising risk-adjusted returns and securing only those new investments which are likely to meet the investment appetites of secondary market investors when the underlying assets become operational.

Our resources are concentrated on countries or geographical regions carefully selected against five key criteria:

· a stable political, legal, regulatory and taxation framework;

· a commitment to the development of privately-financed infrastructure;

· the ability to form relationships with strong supply chain partners, preferably those we have worked with before;

· the likelihood of target financial returns, on a risk-adjusted basis, being realised; and

· the existence of a market for operational investments or a strong expectation that such a market will develop.

Our total commitment to new investments in 2018 was £302.0 million, made up of £247.5 million in renewable energy and £54.5 million in PPP assets. This was ahead of our guidance of approximately £250 million. Our international growth continued with all our investment commitments being made outside the UK:

· MBTA Automated Fare Collection System in Boston (US) - £17.5 million

· A16 road (Netherlands) - £21.7 million

· I-75 road in Michigan (US) - £15.3 million

· Five solar farms in North Carolina (US) - £72.2 million

· Sunraysia & Finley solar farms (Australia) - £100.0 million

· Granville & Cherry Tree wind farms (Australia) - £75.3 million.

Management and enhancement of our investment portfolio

For John Laing, being an active investor means not only participating actively in consortiums at the bidding stage, but also being actively involved in a project during its construction phase in order to protect the value of our investment and provide advice and/or assistance when delays occur or problems arise.

We regularly apply our active management skills when issues arise. Wherever we operate, we believe our investing, contracting and banking partners appreciate and value the investment experience and active management we provide. We continue to make good use of this expertise to monitor and guide our investments through construction while protecting investment base cases and, where appropriate, seeking to find additional value. In the Asset Management section of this report, we provide more detail on some of the situations where our active management approach has been most relevant.

We are proud of the fact that many of the projects we invest in, or have invested in, have a positive environmental, economic or social impact. These include: renewable energy projects which help to reduce CO2 emissions; waste processing plants which divert waste away from landfill; and electric rolling stock and light rail systems which improve mobility, and help to reduce inner city congestion and pollution. And of course we are very proud of our prison investments in Auckland and under construction in New South Wales which incentivise the operator to reduce recidivism. More information is set out in the Corporate Responsibility section.

At 31 December 2018, our portfolio comprised investments in 48 infrastructure projects plus our shareholding in JLEN (31 December 2017 - 41 projects plus shareholding in JLEN). Our year end portfolio value, including the shareholding in JLEN, was £1,560.2 million (31 December 2017 - £1,193.8 million). The portfolio value increased by £342.1 million as a result of cash invested in projects, offset by proceeds from realisations and cash yield received from project companies. Fair value movements of £354.2 million, or 29.4% of the cash rebased portfolio value, increased the portfolio value to £1,560.2 million at 31 December 2018. This growth is analysed further in the Portfolio Valuation section.

The portfolio valuation represents our assessment of the fair value of investments in projects on a discounted cash flow basis assuming that forecast cash flows from investments are received until maturity, other than shares in JLEN which are held at market value.

The shape of our portfolio has evolved over the last few years:

· In percentage terms, our European assets have reduced as the underlying projects have reached the operational stage and our investments have been realised;

· As part of this, we have reduced the percentage of our portfolio attributable to UK investments, to 24% at 31 December 2018 from 58% at 31 December 2014;

· Correspondingly, we have increased our investment in the North American and Asia Pacific regions;

· In particular, we have successfully transitioned, from our first renewable energy investments in relatively small UK windfarms, to investing in utility-scale wind and solar farms in the US and Australia;

· Investments in wind and solar farms made up 42% of our portfolio valuation at 31 December 2018 (31 December 2017 - 31%). We believe these larger renewable energy assets are attractive to infrastructure investors and we have already agreed our first major disposal in the US (see below);

· As the result of this increased investment in renewable energy assets (the revenue of which varies according to energy yield), as well as realisations of PPP investments in 2018, the percentage of our portfolio attributable to availability-based projects fell to 49% at 31 December 2018 (31 December 2017 - 59%). While this percentage is hard to predict with precision going forward (partly because it depends on procurement timetables beyond our control), we want to maintain a significant percentage of availability-based investments in the portfolio for the foreseeable future.

Overall, as set out in the Portfolio Valuation section, our investment portfolio, including our increased renewable energy portfolio, is well-diversified in terms of geography, currency, revenue type and sector.

During the year, we completed realisations totalling £296.1 million from the sale of three PPP investments. This was ahead of our guidance for 2018 of approximately £250 million. In late December 2018, we also agreed the sales of our shareholdings in both the Rocksprings wind farm in Texas and the Sterling wind farm in New Mexico. Once completed, these will represent our first disposals of investments in the US. We are actively considering a number of other realisations.

The cash yield in 2018 was £33.8 million (2017 - £40.2 million), a yield of 5.2% (2017 - 7.4%) on the average Secondary Investment portfolio. Cash yield represents cash receipts in the form of dividends, interest and shareholder loan repayments from project companies and listed investments.

External asset management

In August 2018, a consortium comprising funds managed by Dalmore Capital Limited and Equitix Investment Management Limited made a cash offer to buy the share capital of John Laing Infrastructure Fund Limited (JLIF). This offer was subsequently recommended by JLIF's Board and completed in October 2018. Shortly afterwards, the consortium gave 12 months' notice to terminate the Investment Advisory Agreement (IAA) between JLIF (now renamed Jura Infrastructure Fund Limited (Jura)) and JLCM. While we are disappointed to lose the net fee income from this agreement, it is important to note that it makes a relatively small contribution to our profits compared to the fair value movement from our investing activities.

We remain committed to our IAA with JLEN. JLCM not only advises and provides management services to JLEN's portfolio, but also sources new investments on its behalf. During the year, JLEN successfully undertook secondary equity issues and made several acquisitions.

Fee income from external Assets Under Management (AuM) was £18.2 million for 2018, up from £16.7 million in 2017. As outlined above, this fee income will reduce from mid-October 2019 onwards, together with certain related costs.

Profit before tax

Our profit before tax was £296.6 million in 2018, compared to £126.0 million in 2017. Profit before tax is primarily driven by the fair value movement on our investment portfolio. The increase was principally due to:

· the gain on disposal of our remaining 15% interest in Intercity Express Programme (IEP) (Phase 1) and a consequential impact on the valuation of our investment in IEP (Phase 2);

· a more favourable impact from power price forecasts and foreign exchange movements, offset by a one-off Guaranteed Minimum Pension (GMP) equalisation charge.

UK withdrawal from the European Union

In assessing the risks facing our business, we have considered the implications of the manner in which the UK could withdraw from the European Union (Brexit). We believe our business model to be robust enough to weather any potential short-term disruption which might arise.

Sterling's net weakness in 2018 against the other currencies we invest in contributed £9.7 million to the fair value movement for the year (2017 - £11.0 million adverse). We continue to monitor the impact of foreign exchange movements on our portfolio, recognising that if Sterling were to strengthen during 2019 as a result of Brexit or otherwise this would reduce the Sterling value of our investments denominated in overseas currencies.

Funding

In July 2018, the Group's corporate banking facilities were increased to £650 million. The new facilities comprise £500 million of five-year committed revolving credit banking and associated ancillary facilities which expire in July 2023, and £150 million of 18 month committed revolving credit facilities which were initially due to expire in January 2020, but have since been extended to January 2021.

The Group's banking facilities enable us to issue letters of credit and/or put up cash collateral to back investment commitments. We finance our new investments through a combination of cash flow from existing assets, our corporate banking facilities and realisations of investments in operational projects.

Organisation and staff

Our staff numbers were 169 at 31 December 2018 compared to 158 at the end of 2017. We now have 44% of staff located outside the UK (31 December 2017 - 39%), consistent with our increasing internationalisation. We have a diverse workforce comprising around 25 nationalities.

As set out in the Chairman's statement, we have appointed Luciana Germinario as Chief Financial Officer designate with effect from 25 April 2019. This follows the decision of Patrick O'D Bourke, Group Finance Director, to retire following the AGM on 9 May 2019. Patrick has been a crucial member of the team and has been instrumental in our successful IPO in 2015 and our move to a more internationally focused business. I have thoroughly enjoyed working with him and we will be sorry to see him retire. The Board and I are very pleased to welcome Luciana to the team. Her previous international, financial and investment experience will be an excellent addition to John Laing's executive team. I am looking forward to working with her as we continue to grow the business.

Since the beginning of 2018, the Primary Investment and Asset Management teams in each of our three main geographical regions have been reporting to single regional heads, each of whom in turn reports to me. This reorganisation has enabled the teams to focus more effectively on growth and value creation across all stages of the investment and asset management cycle in their individual regions. At the same time, oversight has been reinforced at Group level in respect of investment, divestment and capital allocation decisions.

In October 2018, we initiated an internal project to prepare the business for the next phase in its growth. Under the headings - Principles, People and Performance - we have launched a number of workstreams which focus not just on how to sustain financial growth, but also on how to improve employee engagement and diversity while maintaining a background of strong values and corporate responsibility. We are also taking this opportunity to refresh our values.

We depend on high quality individuals and experienced teams across our business. Once again, they have been instrumental in making projects happen, whether in Adelaide, Amsterdam, Sydney, Denver or Brisbane. I would like to thank each and every one of our employees for their contribution to our success this year.

Current trading and guidance

Our total investment pipeline at 31 December 2018 was £2,373 million and included £1,543 million of PPP opportunities looking out three years as well as nearer term renewable energy opportunities of £830 million. Within this pipeline, there were 10 shortlisted PPP positions with an investment opportunity of approximately £320 million. These do not include any late entry investment opportunities which may arise.

Our aim is to keep growing investment commitments in line with the medium to long term nature of our business. Consistent with this, we are extending the timeframe for both investment commitments and realisations to a three-year period. Accordingly, our guidance is for investment commitments of approximately £1.0 billion over the three year period 2019 - 2021, with realisations expected to be broadly in line with investment commitments.

We continue to have confidence in our business model and its ability to respond to a changing environment, both political and macroeconomic, and we look forward to the future.

Olivier Brousse

Chief Executive Officer

Primary Investment

Primary Investment teams operate in each of our core regions, sourcing, originating, bidding for and winning greenfield infrastructure projects.

Our new investment commitments for 2018 are summarised in the table below:

*RE = renewable energy

In February 2019, the Group committed £7.3 million to a PPP social infrastructure project comprising new student accommodation for the University of Brighton in the UK.

Pipeline

At 31 December 2018, our overall investment pipeline of £2,373 million was higher than the pipeline of £2,150 million at 31 December 2017. The pipeline comprises opportunities to invest in PPP projects with the potential to reach financial close over the next three years, while the renewable energy pipeline relates to the next two years. The growth compared to 2017 reflects an increase in the pipelines in Asia Pacific and North America offset by a reduction of opportunities in Europe, together with a new pipeline of opportunities in Colombia in the Latin American market, a region which we have been monitoring for the last two years.

Our overall pipeline is constantly evolving as new opportunities are added and other opportunities drop out.

Our total pipeline broken down by bidding stage is as follows:

* includes exclusive position on one renewable energy project.

As at 31 December 2018, we were part of 10 shortlisted PPP bids as summarised in the table below:

In terms of geography, our pipeline is well spread across our target markets:

In North America (the US and Canada), which makes up 45% of the pipeline, our focus is on what is becoming a very substantial US PPP market, whilst continuing to progress our presence in the renewable energy market, where we made five further investments during 2018. We continue to explore PPP opportunities primarily in the transportation sector and social infrastructure sectors. The Canadian market also continues to demonstrate strong PPP deal flow, which we are actively pursuing.

Some 30% of our pipeline relates to the Asia Pacific region which continues to offer substantial opportunities. In this region, the Group's current bidding activities are focused on Australia and New Zealand, where the Group has built up a strong base. Our strengthened presence in the renewable energy sector in Australia offers continued potential in the coming years.

18% of our pipeline is in Europe, where PPP activity remains at a satisfactory level in countries such as the Netherlands. The focus is on those countries which have, or will be, initiating active PPP programmes such as the Netherlands and Poland.

The PPP pipeline also includes two opportunities in Colombia. For some time, we have been tracking opportunities in both Chile and Colombia, working alongside partners we already know.

Our overall renewable energy pipeline was £830 million at 31 December 2018, higher than at 31 December 2017. Of this, short-term opportunities account for more than £400 million. Selected countries in Europe, Asia Pacific and North America will provide our main focus in 2018. The pipeline includes potential wind and solar projects as well as some investment opportunities in biomass.

In addition to the above, the Group continues to monitor new geographic markets (including South East Asia) which offer the potential to invest alongside established partners.

Asset Management

Asset Management teams operate in each of our core regions, working alongside their Primary Investment colleagues. Asset Management activities comprise Investment Management Services (IMS) and Project Management Services (PMS).

Investment Management Services (IMS)

Our Asset Management teams actively manage each asset in the Group's investment portfolio from the time we first secure the investment, through the construction stage and in the operational stage. Our objective is to deliver the base case returns on our investments as a minimum and additionally to enhance those returns through active asset management.

An important part of achieving this objective is managing each asset through the construction stage, de-risking the investment and increasing its value. John Laing employs certain staff who are solely dedicated to projects in construction, as well as provides directors to the boards of project companies, allowing us to make an active contribution.

Since the projects we invest in are principally large and sophisticated infrastructure assets, issues and delays can occur. Our position as a purely equity investor enables us to be well placed to manage the various parties when issues arise and help achieve a resolution.

An update on significant projects, primarily those under construction, or in the early stages of operation, that our teams have been closely involved in during the year is set out below:

IEP (Phase 2) (valuation > £275 million)

· The first trains for the East Coast mainline, which have a similar design to the trains for IEP (Phase 1), are scheduled to be accepted into service in Q1 2019. This follows certain system modifications to be addressed by both the contractor and Network Rail.

Denver Eagle P3 (valuation £75 million - £100 million)

· As previously reported, both the A line and the B line have been operating successfully since 2016 and are achieving 97% on-time performance. Final certification of the overall project is subject to approvals from both state and federal transport regulators for the third line, the G line. Delays associated with the legal and regulatory regime have led to certain claims by the project company and these are currently the subject of discussion or dispute between the parties involved, including the public sector client. In trying to resolve these issues, the project company's focus is on achieving regulatory approval for the G line, which would then lead to final certification and trigger commencement of full service revenue.

Sydney Light Rail (valuation £50 million - £75 million)

· As stated in our June 2018 results announcement, the contract programme is running behind schedule (c.15 months), though remains within the overall long-stop date. The delay is principally attributable to below ground utility equipment not identified before construction commenced and a number of modifications to the project scope. Negotiations are well progressed between the public sector client, the principal contractor and the project company with a view to resolving various commercial claims and disputes between the parties.

New Royal Adelaide Hospital (valuation £50 million - £75 million)

· The hospital has been successfully treating patients since it opened in September 2017. As previously reported, the project company and the South Australian government are in discussions about the application of the abatement regime resulting from under-performance of the facilities management services provider. In addition, arbitration proceedings are ongoing with regard to legacy issues arising from the construction phase. The project company is working with all other parties to achieve negotiated commercial settlements.

I-4 Ultimate, Florida (valuation £25m - £50m)

· As previously reported, this availability-based road project is approximately eight months behind the contract schedule. Settlement negotiations are currently taking place between the Florida Department of Transport, the project company and the construction joint venture to address, inter alia, claims submitted by the construction joint venture in respect of the delays.

New Generation Rollingstock, Queensland (valuation £25m - £50m)

· The number of accepted trains is now 46, out of a total of 75, with the final train due for delivery in Q4 2019. The project company has recently agreed an amendment deed with the State of Queensland which, inter alia, provides for a re-baselined train delivery schedule as well as for the cost and programme for undertaking various retrofitting and rectification issues required on the trains.

In all instances, the impact of construction delays and a judgement as to the potential outcome of ongoing issues are taken into account when the portfolio valuation is prepared. 

Transfers from the Primary Investment portfolio

During the year, seven investments completed construction and transferred from the Primary Investment portfolio to the Secondary Investment portfolio as the underlying projects moved into the operational stage.

Cramlington Biomass, UK (44.7% interest)

This 28 MW Combined Heat and Power biomass plant in Cramlington, England, generates enough electricity to power 52,000 homes for a year. It is also expected to reduce greenhouse gas emissions by approximately 56,000 CO2 equivalent tonnes annually, the equivalent of taking 25,000 cars off the road during its lifetime.

St Martin Wind Farm, France (100% interest)

Located in St-Martin-L'Ars, in Western France, this project comprises five Senvion MM92 turbines and has a total capacity of 10.25 MW. Operations commenced in June 2018 and the wind farm benefits from a 15 year feed-in-tariff arrangement.

Cypress Creek solar farms (100% interest)

The five US solar farms in which the Group invested in 2018 - Fox Creek, Brantley, IS54, IS67 and Buckleberry - all commenced operations in Q4 2018. The solar farms have a total capacity of 258.5 MW.

Investment realisations

During the year, three realisations were agreed and completed for gross proceeds of £296.1 million.

· Our remaining 15% investment in IEP (Phase 1) was sold to a third party in May 2018 for £232.0 million, in excess of the valuation at 31 December 2017;

· Our investment in Lambeth Social Housing was sold to JLIF in May 2018 for £9.5 million; and

· The sale of our investment in Manchester Waste TPS Co to an existing co-shareholder was agreed in November 2018 and completed in late December 2018 for proceeds of £54.6 million.

With regard to the sales of our investments in Lambeth Social Housing and Manchester Waste TPS Co, prices were in line with the most recent portfolio valuation.

During 2018, the Company also sold its investment in A mobil Services GmbH, a small joint venture services company associated with the A1 Germany road project, for proceeds of £0.1 million.

In late December 2018, we agreed the sales of both our 95.3% shareholding in the Rocksprings wind farm in Texas and our 92.5% shareholding in the Sterling wind farm in New Mexico. The sales are also subject to governmental and financing partner consents and is expected to complete in the first half of 2019.

External IMS

Our IMS also include advisory services provided by JLCM to JLEN and Jura under IAAs. JLCM has two separate dedicated fund management teams whose senior staff are authorised and regulated by the FCA.

As reported in the Chief Executive Officer's Review, the IAA between Jura and JLCM is due to terminate in mid-October 2019. Following that, one of the two First Offer Agreements between Jura and JLCM, which covers certain rail assets, will remain in place.

JLCM remains committed to the ongoing services provided to JLEN. The JLCM team provides management services to JLEN's portfolio as well as sources new investments for and arranges capital raisings by the fund. It operates behind information barriers in view of the market sensitive nature of its activities and to ensure the separation of "buy-side" and "sell-side" teams if John Laing is selling investments to the fund. The fund has a right of first offer over certain investments should they be offered for sale by the Group. The fund maintains an independent board of directors and is independently owned.

Fee income from external IMS grew from £16.7 million in 2017 to £18.2 million in 2018, but will reduce from mid-October 2019 onwards, together with certain related costs.

Project Management Services (PMS)

The Group's asset management teams also provide PMS, largely of a financial or administrative nature, to project companies in which John Laing, Jura or JLEN are investors. These services are provided under Management Services Agreements (MSAs).

The Group earned revenues of £6.0 million from the provision of PMS during 2018 (2017 - £6.1 million).

The Group's PMS activities are principally focused on MSAs relating to projects outside the UK. At 31 December 2018, the Group held 24 MSAs (31 December 2017 - 24 MSAs).

Portfolio Valuation

The portfolio valuation at 31 December 2018 was £1,560.2 million compared to £1,193.8 million at 31 December 2017. After adjusting for realisations, cash yield and cash invested, this represented a positive movement in fair value of £354.2 million (29.4%).

Cash investment in respect of nine new renewable energy assets and two new PPP assets entered into during 2018 totalled £229.5 million. In addition, equity and loan note subscriptions of £112.6 million were injected into existing projects in the portfolio as they progressed through, or completed, construction.

During 2018, the Group completed the realisation of three investments for a total consideration of £296.1 million.

Cash yield from the investment portfolio during the year totalled £33.8 million.

The movement in fair value of £354.2 million is analysed in the table below.

The net movement in fair value comprised unwinding of discounting (£98.0 million), the reduction of construction risk premia (£42.8 million), the change in operational benchmark discount rates (£43.4 million), uplift on financial closes (£43.6 million), foreign exchange movements (£9.7 million) and a net movement from value enhancements and other changes (£130.1 million), offset by adverse movements from lower power and gas price forecasts (£12.1 million) and adverse movements in macroeconomic forecasts (£1.3 million). Foreign exchange movements are addressed further in the Financial Review section. The net benefit of £43.4 million from the amendment of benchmark discount rates for a number of investments is in response to our understanding and experience of the secondary market.

There was a net increase of £115.0 million in value enhancements and other changes from 2017 to 2018. This was principally due to a large increase in value from the sale of IEP (Phase 1) (£86.6 million) and changes in assumptions for IEP (Phase 2) (£29.0 million).

The split between primary and secondary investments is shown in the table below:

The increase in the Primary Investment portfolio is due to investments in the year of £318.5 million and positive movement in fair value of £298.9 million, offset by investment realisations of £232.0 million, and transfers to the Secondary Investment portfolio of £97.1 million as certain projects became operational.

The increase in the Secondary Investment portfolio is due to transfers from the Primary Investment portfolio of £97.1 million, positive movement in fair value of £55.3 million and a cash investment of £23.6 million, offset by investment realisations during the year of £64.1 million and cash yield of £33.8 million.

Methodology

A full valuation of the investment portfolio is prepared every six months, at 30 June and 31 December, with a review at 31 March and 30 September, principally using a discounted cash flow methodology. The two principal inputs are (i) forecast cash flows from investments and (ii) discount rate. The valuation is carried out on a fair value basis assuming that forecast cash flows from investments are received until maturity of the underlying assets.

Under the Group's valuation methodology, a base case discount rate for an operational project is derived from secondary market information and other available data points. The base case discount rate is then adjusted to reflect additional project-specific risks. In addition, risk premium is added to reflect the additional risk during the construction phase. The construction risk premium reduces over time as the project progresses through its construction programme, reflecting the significant reduction in risk once the project reaches the operational stage.

The discounted cash flow valuation is based on future cash distributions from projects forecast as at 31 December 2018, derived from detailed financial models for each underlying project. These incorporate the Group's expectations of likely future cash flows, which are stated net of project tax and therefore reflect changes in tax legislation as at 31 December 2018 in the jurisdictions in which the Group operates, including recent changes in the Netherlands and France. Expectations of future cash flows also include expected value enhancements and the Group's expectations of future macroeconomic factors such as inflation and, for renewable energy projects, power and gas prices.

For the 31 December 2018 valuation, the overall weighted average discount rate was 8.6% compared to the weighted average discount rate at 31 December 2017 of 8.8%. The decrease was primarily due to reductions in operational discount rates for certain investments and progress in construction, partially offset by the impact of new investments. The weighted average discount rate at 31 December 2018 was made up of 8.8% (31 December 2017 - 9.3%) for the Primary Investment portfolio and 8.1% (31 December 2017 - 7.9%) for the Secondary Investment portfolio.

The discount rate ranges used in the portfolio valuation at 31 December 2018 were as set out below:

The shareholding in JLEN was valued at its closing market price on 31 December 2018 of 105.00p per share (31 December 2017 - 109.25p per share).

The Directors have obtained an independent opinion from a third party, which has considerable expertise in valuing the type of investments held by the Group, that the investment portfolio valuation represented a fair market value in the market conditions prevailing at 31 December 2018.

Macroeconomic assumptions

During 2018, changes in macroeconomic assumptions had a net negative impact of £1.3 million. Deposit rates are anticipated to remain at low levels in the short-term. As mentioned above, movements of foreign currencies against Sterling over the year to 31 December 2018 resulted in net positive foreign exchange movements of £9.7 million (2017 - £11.0 million net adverse foreign exchange movements).

Investments in overseas projects are fair valued based on the spot exchange rate on the balance sheet date. As at 31 December 2018, a 5% movement of each relevant currency against Sterling would decrease or increase the value of investments in overseas projects by c.£59.4 million.

At 31 December 2018, based on a sample of five of the larger PPP investments by value, a 0.25% increase in inflation is estimated to increase the value of PPP investments by c.£14 million and a 0.25% decrease in inflation is estimated to decrease the value of PPP investments by c.£13 million. Certain of the underlying project companies incorporate some inflation hedging.

On each valuation and review of the portfolio, the Group updates the detailed financial model of each renewable energy project to reflect the impact of the latest forecast power and gas prices on the project's revenue to the extent that prices are not fixed by governmental support mechanisms and/or offtake arrangements. The Group obtains forecasts for power and gas prices from external parties who are recognised as experts in the market in the relevant region, including by potential secondary market buyers. During 2018, a net reduction in forecast power and gas prices resulted in a £12.1 million adverse fair value movement (2017 - adverse fair value movement of £54.8 million). At 31 December 2018, based on a sample of seven of the larger renewable energy investments by value, a 5% increase in power price forecasts is estimated to increase the value of renewable energy investments by £17.6 million and a 5% decrease in power price forecasts is estimated to decrease the value of renewable energy investments by £17.7 million.

The table below summarises the main macroeconomic assumptions used in the portfolio valuation:

Discount rate sensitivity

The weighted average discount rate applied at 31 December 2018 was 8.6% (31 December 2017 - 8.8%). The table below shows the sensitivity of a 0.25% change in this rate.

Further analysis of the portfolio valuation is shown in the following tables:

by time remaining on project concession/OPERATIONAL life

PPP projects are based on long-term concessions and renewable energy assets have long-term useful economic lives. As demonstrated in the table above, 71.4% of the portfolio by value had a greater than 25-year unexpired concession term or useful economic life remaining at 31 December 2018, compared to 62.0% at 31 December 2017.

split between PPP and renewable energy

Primary PPP investments made up the largest part of the portfolio, representing 44.0% of the portfolio value at 31 December 2018, with Secondary renewable energy investments representing a further 33.0%.

by revenue type

Availability-based investments made up 49.2% of the portfolio value at 31 December 2018. Renewable energy investments comprised the majority of the volume-based investments. The investment in JLEN, which holds investments in PPP and renewable energy projects, is shown separately.

by sector

Wind and solar farm investments represented 42.0% of the portfolio value at 31 December 2018, with other transport investments (excluding rail rolling stock) accounting for a further 24.1%. Rail rolling stock investments made up 20.9% of the portfolio by value, while social infrastructure investments and waste and biomass investments made up 9.8% and 2.6% respectively. The portfolio underlying the JLEN shareholding consists of investments in a mix of renewable energy and environmental projects.

by currency

The percentage of investments denominated in foreign currencies increased from 65.2% to 76.2%. This is consistent with our pipeline and the overseas jurisdictions we target.

by geographical region

Investments in the UK decreased to 23.2% of the portfolio value at 31 December 2018. Asia Pacific was the largest category at 32.4%. Investments in projects located in North America made up 29.8% and investments in Continental Europe made up 14.0%. A substantial majority of the JLEN portfolio consists of investments in UK-based projects.

by investment size

The top five investments in the portfolio made up 38.4% of the portfolio at 31 December 2018, a decline from 39.3% at 31 December 2017. The next five largest investments made up a further 17.7%.

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

Primary

Secondary

At 31 December 2018, the Group's largest investment was its shareholding in IEP (Phase 2). Nine out of its ten largest investments were outside the UK.

 Investment portfolio as at 31 DECEMBER 2018

Financial Review

Basis of preparation

The financial information has been prepared on the historical cost basis except for the revaluation of the Group's investment in John Laing Holdco Limited, through which the Group indirectly holds its investment portfolio, and financial instruments that are measured at fair value at the end of each reporting period. The Company meets the definition of an investment entity set out in IFRS 10 Consolidated Financial Statements. Investment entities are required to account for all investments in controlled entities, as well as investments in associates and joint ventures, at fair value through profit or loss (FVTPL), except for those directly-owned subsidiaries that provide investment-related services or engage in permitted investment related activities with investees (Service Companies). Service Companies are consolidated rather than recorded at FVTPL.

Project companies in which the Group invests are described as "non-recourse", which means that providers of debt to such project companies do not have recourse to John Laing beyond its equity commitments in the underlying projects. Subsidiaries through which the Company holds its investments in project companies, which are held at FVTPL, and subsidiaries that are Service Companies, which are consolidated, are described as "recourse".

Re-presented financial RESULTS

As described above, the Company meets the criteria for being an investment entity under IFRS 10 and accordingly the Company is required to fair value its investments in its subsidiaries, joint ventures and associates except for those directly-owned subsidiaries that provide investment-related services, and do not themselves qualify as investment entities; it consolidates such subsidiaries on a line by line basis.

Included within the subsidiaries that the Company fair values in its financial statements are recourse subsidiaries through which the Company holds its investments in non-recourse project companies. These recourse subsidiaries have, in addition to investments in non-recourse project companies, other assets and liabilities, including recourse cash balances, which are included within the Company's investments at FVTPL. For management reporting purposes, these other assets and liabilities are reported separately from the investments in non-recourse project companies as are certain income and costs that do not arise directly from these investments. Under management reporting, it is the investments in non-recourse project companies that are considered as investments of the Group.

The Directors of the Company use the management reporting basis when making business decisions, including when reviewing the level of financial resources and deciding where these resources should be utilised. Therefore, the Directors believe it is helpful to readers of these financial statements to set out in this Financial Review the Group Income Statement, the Group Balance Sheet and the Group Cash Flow Statement on the management reporting basis. When set out on the management reporting basis, these statements are described as "re-presented".

Re-presented income statement

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

Notes:

a) Adjustment comprises £1.7 million of interest income reclassified from 'fair value movements - other to 'finance costs'.

b) Adjustment comprises £0.6 million of other income reclassified from 'other income' to 'disposal costs'.

c) Under IAS 19 Employee Benefits, the costs of the pension schemes, including the post-retirement medical benefits, comprise a service cost of £1.6 million, included in administrative expenses in the Group Income Statement and a finance charge of £1.1 million, included in finance costs in the Group Income Statement. These amounts are combined together as post-retirement charges under management reporting. The cost for 2018 also includes a one-off GMP equalisation charge of £21.3 million.

d) For a reconciliation between the Group Income Statement and re-presented income statement for the year ended 31 December 2017, refer to the 2017 Annual Report and Accounts.

The results for the year are also shown by reportable segment in the table below.

Profit before tax for the year ended 31 December 2018 was £296.6 million (2017 - £126.0 million). The increase from 2017 was principally due to:

· the gain on disposal of the interest in IEP (Phase 1) and a consequential impact on the valuation of the Group's investment in IEP (Phase 2); and

· a more favourable impact from power price forecasts and foreign exchange movements, offset by a one-off GMP equalisation charge.

The main profit contributor in 2018 was the Primary Investment division principally due to the value uplift on the investments in IEP (Phase 1) and IEP (Phase 2). The higher contribution in 2018 from the Secondary Investment division was primarily due to the reduction in value of the two Manchester Waste investments of £25.5 million in 2017, together with a less adverse impact from changes in power and gas price forecasts in 2018.

The movement in fair value on the portfolio for the year ended 31 December 2018, after adjusting for investments, cash yield and realisations, was a £354.2 million gain (2017 - £160.7 million gain). The higher value uplift is primarily due to the gain on disposal of the interest in IEP (Phase 1), the consequential impact on IEP (Phase 2) and the more favourable impact from power price forecasts and foreign exchange movements, as mentioned above. For further details of the movement in fair value on the portfolio, see the Portfolio Valuation section.

Other fair value movements for the year ended 31 December 2018 comprised a £1.9 million gain, which included tax income of £2.6 million in the recourse entities held at FVTPL (for further details see the paragraph below on tax in this section of the Financial Review).

The Group earned IMS revenue of £20.0 million (2017 - £19.0 million) principally from investment advisory and asset management services primarily to the external funds, Jura and JLEN, with the small increase from last year due to higher external Assets under Management. Of the total IMS revenue, £18.2 million (2017 - £16.7 million) related to investment advisory services to the external funds.

The Group also earned PMS revenue of £6.0 million (2017 - £6.1 million).

The Group recovered bidding costs of £4.0 million in 2018 (2017 - £3.7 million).

Staff costs by operating division are shown below:

Included within Asset Management staff costs are costs relating to:

Higher total staff costs are due to pay increases in line with inflation as well as an increase in the average number of staff, consistent with the growth of the business.

Finance costs of £11.2 million in 2018 (2017 - £10.1 million) include costs arising on the corporate banking facilities net of any interest income, with the increase from last year primarily due to the write off in 2018 of £2.1 million of unamortised upfront fees relating to the previous corporate banking facilities.

The Group's tax charge for the year ended 31 December 2018 of £0.3 million (2017 - £1.5 million credit) is shown in the 'Tax credit/(charge)' line of the Group Income Statement and reconciled in note 12 to the Group financial statements. An additional £2.6 million credit (2017 - £4.7 million credit) is included within the 'net gain on investments at fair value through profit or loss' line in the Group Income Statement. This additional credit is primarily in relation to consortium relief received from project companies.

The contributions made to the John Laing Pension Fund (JLPF) are tax deductible when paid and, as a result, there is minimal tax payable by the UK holding and asset management activities of the Group. Capital gains from the realisation of investments in projects are generally exempt from tax under the UK's Substantial Shareholding Exemption for shares in trading companies or the overseas equivalent. To the extent this exemption is not available, gains may be sheltered using current year losses or losses brought forward within the Group's holding companies. There are no tax losses in the Company but there are tax losses in recourse group subsidiary entities that are held at FVTPL.

In January 2018, the Group initiated an internal reorganisation under which the Primary Investment and Asset Management teams in each of the three core geographical regions now report to a single regional head. The principal objective behind this revised structure was to enable the Group to focus more effectively on value creation in each region. Accordingly, certain regional performance targets for 2018 were set, principally in relation to the investment portfolio in each region, including fair value movements thereon.

The fair value movements on the investment portfolio by geographical region are shown in the table below:

An analysis of the total fair value movement of £354.2 million is provided in the Portfolio Valuation section. The higher fair value movement in Europe is primarily due to the gain on disposal of the interest in IEP (Phase 1) referred to earlier. The increase in the fair value movements in North America and Asia Pacific from the previous year is principally due to new investments in 2018 and higher value enhancements.

Re-presented balance sheet

The re-presented balance sheet is reconciled to the Group Balance Sheet at 31 December 2018 below. The re-presented balance sheet involves the reclassification of certain amounts within the Group Balance Sheet principally in relation to assets and liabilities of £140.3 million (31 December 2017 - £152.6 million) within the Company's recourse subsidiaries that are included in investments at FVTPL in the Group Balance Sheet as a result of the requirement under IFRS 10 to fair value investments in these subsidiaries.

Notes:

a) Investments at FVTPL of £1,700.5 million comprise: portfolio valuation of £1,560.2 million and other assets and liabilities within recourse investment entity subsidiaries of £140.3 million (see note 13 to the Group financial statements).

b) Other assets and liabilities within recourse investment entity subsidiaries of £140.3 million referred to in note (a) include: (i) cash and cash equivalents of £133.9 million, of which £131.7 million is held to collateralise future investment commitments and £2.2 million is other cash balances, (ii) net positive working capital and other balances of £6.3 million and (iii) non-portfolio investments of £0.1 million.

c) Trade and other receivables (£7.9 million), current tax liabilities (£0.4 million), trade and other payables (£20.0 million) and provisions (£1.5 million) are combined in the re-presented balance sheet as working capital and other balances.

d) Borrowings of £65.7 million comprise cash borrowings of £55.0 million from the main facilities and £14.5 million of short-term bank overdraft from uncommitted facilities less unamortised financing costs of £3.8 million, which are re-presented as working capital and other balances.

e) Total retirement benefit obligations are shown in their separate components as in note 20 to the Group financial statements.

f) For a reconciliation between the Group Balance Sheet and re-presented balance sheet as at 31 December 2017, refer to the 2017 Annual Report and Accounts.

 Net assets are also shown by reportable segment in the table below.

Note:

(1) Comprising: cash balances of £139.6 million (31 December 2017 - £147.7 million), of which £131.7 million was held to collateralise future investment commitments (31 December 2017 - £133.1 million), net of short-term bank overdraft of £14.5 million (31 December 2017 - £nil) and short-term cash borrowings of £55.0 million (31 December 2017 - £176.0 million).

The portfolio valuation by geographical region is shown in the table below.

Net assets increased from £1,123.9 million at 31 December 2017 to £1,586.5 million at 31 December 2018.

The Group's portfolio of investments in project companies and listed investments was valued at £1,560.2 million at 31 December 2018 (31 December 2017 - £1,193.8 million). The valuation methodology and details of the portfolio value are provided in the Portfolio Valuation section.

The Group held cash balances of £139.6 million at 31 December 2018 (31 December 2017 - £147.7 million) of which £131.7 million (31 December 2017 - £133.1 million) was held to collateralise future investment commitments (see the Financial Resources section below for more details). Of the total Group cash balances of £139.6 million, £133.9 million was in recourse subsidiaries held at FVTPL, including the cash collateral balances, that are included within investments at FVTPL on the Group Balance Sheet. The remaining £5.7 million of cash was in the Company and recourse subsidiaries that are consolidated and shown as cash and cash equivalents on the Group Balance Sheet (see the re-presented balance sheet for further details).

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

In December 2016, following a triennial actuarial review of JLPF as at 31 March 2016, a seven-year deficit repayment plan was agreed with the JLPF Trustee. It was agreed to repay the actuarial deficit of £171.0 million at 31 March 2016 as set out below. The discount rate used for the actuarial deficit is lower than the IAS 19 discount rate (see below).

The combined accounting deficit in the Group's defined benefit pension and post-retirement medical schemes at 31 December 2018 was £40.1 million (31 December 2017 - £40.3 million). Under IAS 19, at 31 December 2018, JLPF had a deficit of £34.5 million (31 December 2017 - £35.2 million) whilst the Plan had a surplus of £1.9 million (31 December 2017 - £2.9 million). The liability at 31 December 2018 under the post-retirement medical scheme was £7.5 million (31 December 2017 - £8.0 million).

The pension deficit in JLPF under IAS 19 is based on a discount rate applied to pension liabilities of 2.85% (31 December 2017 - 2.50%) and long-term RPI of 3.20% (31 December 2017 - 3.10%). The amount of the deficit is dependent on key assumptions, principally: inflation rate, discount rate and life expectancy of members. The discount rate, as prescribed by IAS 19, is based on yields from high quality corporate bonds. The deficit (under IAS 19) is broadly unchanged since 31 December 2017 with the benefit of the Group's cash contribution to JLPF of £26.5 million in March 2018 being offset by the GMP equalisation charge of £21.3 million.

Re-presented cash flow statement

The Group Cash Flow Statement includes the cash flows of the Company and those recourse subsidiaries that are consolidated (Service Companies). The Group's recourse investment entity subsidiaries, through which the Company holds its investments in non-recourse project companies, are held at fair value in the financial statements and accordingly cash flows relating to investments in the portfolio are not included in the Group Cash Flow Statement. Investment-related cash flows are disclosed in note 13 to the Group financial statements.

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

1 For reconciliation of these amounts to the Group Balance Sheet see the re-presented balance sheet above.

Cash yield comprised £33.8 million (2017 - £40.2 million) from the investment portfolio (see the Portfolio Valuation section for further details) and £0.3 million (2017 - £0.7 million) from non-portfolio investments.

Re-presented operating cash outflow in the year ended 31 December 2018 of £9.9 million was lower than the outflow in 2017 principally due to lower bid costs net of recoveries, higher cash inflow from asset management services and higher investment fees from projects.

Total re-presented operating cash flow in the year ended 31 December 2018 was lower than in 2017 primarily due to lower cash yield from the investment portfolio offset by lower net operating cash outflow as described above.

In the year, in addition to the payment of the PPF levy of £0.1 million (2017 - £0.2 million), the Group made a cash contribution to JLPF of £26.5 million (2017 - £24.5 million).

During the year, cash of £342.1 million (2017 - £209.9 million) was invested in project companies. In the same period, investments in three projects were realised for total proceeds of £296.1 million (2017 - £289.0 million from the realisation of eight investments of which £1.9 million was deferred consideration, which was received in January 2019). The proceeds received in 2017 were in addition to the cash received on the acquisition of the Group's shareholding in Manchester Waste VL Co by the GMWDA of £23.5 million.

Finance charges paid were higher in 2018 due to refinancing fees on the new facilities, as well as an increase in fees from larger facilities.

Dividend payments of £44.0 million in the year ended 31 December 2018 comprised the final dividend for 2017 of £35.2 million and the interim dividend for 2018 of £8.8 million (2017 - total dividend of £30.1 million comprising the final dividend for 2016 of £23.1 million and the interim dividend for 2017 of £7.0 million).

FINANCIAL RESOURCES

At 31 December 2018, the Group had principal committed revolving credit banking facilities of £650 million (31 December 2017 - £525 million), £500 million expiring in July 2023 and £150 million expiring in January 2020 (since extended to January 2021), which are primarily used to back investment commitments. Net available financial resources at 31 December 2018 were £413.4 million (31 December 2017 - £153.1 million).

Analysis of Group financial resources

1 Cash and bank deposits exclude cash collateral balances. Of the total cash and bank deposit balances of £7.9 million, £5.7 million was in the Company and recourse subsidiaries that are consolidated and therefore shown as cash and cash equivalents on the Group Balance Sheet, with the remaining £2.2 million in recourse subsidiaries held at FVTPL which are included within investments at FVTPL on the Group Balance Sheet (see the re-presented balance sheet).

Letters of credit issued under the committed corporate banking facilities of £139.0 million (31 December 2017 - £152.3 million) and under additional uncommitted surety facilities of £24.9 million (31 December 2017 - £50.0 million), together with cash collateral, represent future cash investment by the Group into underlying projects in the Primary Investment portfolio.

The table below shows the letters of credit issued analysed by investment and the date or dates when cash is expected to be invested into the underlying project at which point the letter of credit would expire:

The table below shows the cash collateral balance at 31 December 2018 analysed by investment and the dates when the cash collateral is expected to be invested into the underlying project:

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

FOREIGN CURRENCY EXPOSURE

The Group regularly reviews the sensitivity of its balance sheet to changes in exchange rates relative to Sterling and to the timing and amount of forecast foreign currency denominated cash flows. As set out in the Portfolio Valuation section, the Group's portfolio comprises investments denominated in Sterling, Euro, and Australian, US and New Zealand dollars. As a result of foreign exchange movements in the year ended 31 December 2018, there was a net favourable fair value movement of £9.7 million in the portfolio valuation. Sterling strengthened against the Australian dollar between 31 December 2017 and 31 December 2018, but weakened against the Euro and the US and New Zealand dollars.

The Group may apply an appropriate hedge to a specific currency transaction exposure, which could include borrowing in that currency or entering into forward foreign exchange contracts. An analysis of the portfolio value by currency is set out in the Portfolio Valuation section. In the year, there was a net loss of £2.0 million from foreign exchange movements outside the portfolio.

Letters of credit in issue at 31 December 2018 of £163.9 million (31 December 2017 - £202.3 million) are analysed by currency as follows:

Cash collateral at 31 December 2018 of £131.7 million (31 December 2017 - £133.1 million) is analysed by currency as follows:

GOING CONCERN

The Group has committed corporate banking facilities until July 2023 and has sufficient resources available to meet its committed capital requirements, investments and operating costs for the foreseeable future. Accordingly, the Group has adopted the going concern basis in the preparation of its financial statements for the year ended 31 December 2018.

Patrick O'D Bourke

Group Finance Director

PRINCIPAL Risks AND RISK MANAGEMENT

The effective management of risks within the Group is essential to the successful delivery of the Group's objectives. The Board is responsible for ensuring that risks are identified and appropriately managed across the Group and has delegated to the Audit & Risk Committee responsibility for reviewing the effectiveness of the Group's internal controls, including the systems established to identify, assess, manage and monitor risks. The Group's risk appetite when making decisions on investment commitments or potential realisations is assessed by reference to the expected impact on NAV.

The principal internal controls that operated throughout 2018 and up to the date of this Annual Report include:

· an organisational structure which provides adequate segregation of responsibilities, clearly defined lines of accountability, delegated authority to trained and experienced staff and extensive reporting;

· clear business objectives aligned with the Group's risk appetite;

· risk reporting, including identification of risks through Group-wide risk registers, that is embedded in the regular management reporting of business units and is communicated to the Board; and

· an independent Internal Audit function, which reports to the Audit & Risk Committee. The External Auditor also reports to the Audit & Risk Committee on the effectiveness of financial controls relevant to the audit.

The Group's Internal Audit function's objectives are, inter alia, to provide:

· independent assurance to the Board, through the Audit & Risk Committee, that internal control processes, including those related to risk management, are relevant, fit for purpose, effective and operating throughout the business;

· a deterrent to fraud;

· another layer of assurance that the Group is meeting its FCA regulatory requirements; and

· advice on efficiency improvements to internal control processes.

Internal Audit is independent of the business and reports functionally to the Group Finance Director and directly to the Chairman of the Audit & Risk Committee. The Head of Internal Audit meets regularly with senior management and the Audit & Risk Committee to discuss key findings and management actions undertaken. The Head of Internal Audit can call a meeting with the Chairman of the Audit & Risk Committee at any time and meets privately with the Audit & Risk Committee, without senior management present, as and when required, but at least annually. 

A Management Risk Committee, comprising senior members of management and chaired by the Chief Risk Officer, assists the Board, Audit & Risk Committee and Executive Committee in formulating and enforcing the Group's risk management policy. The Head of Internal Audit attends each meeting of the Management Risk Committee, which reports formally to the Audit & Risk Committee.

The Directors confirm that they have monitored throughout the year and carried out (i) a review of the effectiveness of the Group's risk management and internal control systems and (ii) a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity. No material weaknesses were identified from the review of the Group's risk management and internal control systems.

The Group risk register is reviewed at every meeting of the Audit & Risk Committee and Management Risk Committee and every six months by the Board.

The above controls and procedures are underpinned by a culture of openness of communication between operational and executive management. All investment decisions are scrutinised in detail by the Investment Committee and, if outside the Investment Committee's terms of reference, also by the Board. All divestment decisions are scrutinised by the Divestment Committee and approved by the Board.

The Directors' assessment of the principal risks applying to the Group is set out below, including the way in which risks are linked to the strategic objectives set out in the Chief Executive Officer's Review. Additional risks and uncertainties not presently known to the Directors, or which they currently consider not to be material, may also have an adverse effect on the Group.

The Group's two strategic objectives are:

1. Growth in primary investment volumes (new investment capital committed to greenfield infrastructure projects) over the medium term.

2. Management and enhancement of the Group's investment portfolio, with a clear focus on active management during construction, accompanied by realisations of investments which, combined with the Group's corporate banking facilities and operational cash flows, enable it to finance new investment commitments.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and Article 4 of the IAS Regulation and have also chosen to prepare the parent company financial statements under IFRS as adopted by the EU. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, International Accounting Standard 1 requires that the Directors:

• properly select and apply accounting policies;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

• provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

• make an assessment of the Company's ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

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

Responsibility statement

We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

• the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that it faces; and

• the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

This responsibility statement was approved by the Board of Directors on 4 March 2019 and is signed on its behalf by:

Independent Auditor's Report to the Shareholders of John Laing Group plc on the Audited Financial Results of John Laing Group plc

We confirm that we have issued an unqualified opinion on the full financial statements of John Laing Group plc.

Our audit report on the full financial statements sets out the following risks of material misstatement which had the greatest effect on our audit strategy; the allocation of resources in our audit; and directing the efforts of the engagement team, together with how our audit responded to those risks:

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we did not provide a separate opinion on these matters.

Our liability for this report and for our full audit report on the financial statements is to the Company's members as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for our audit report or this report, or for the opinions we have formed.

Deloitte LLPChartered Accountants and Statutory Auditor

4 March 2019

Group Income Statement

for the year ended 31 December 2018

1 Earnings per share for the year ended 31 December 2017 have been restated from those previously reported; see note 6 for details.

Group Statement of Comprehensive Income

for the year ended 31 December 2018

The only movement which could subsequently be recycled to the Group Income Statement is the exchange difference on translation of overseas operations.

Group Statement of Changes in Equity

for the year ended 31 December 2018

for the year ended 31 December 2017

1 Dividends paid:

a The interim dividend for 2017 of 1.91p per share paid in October 2017 became 1.75p per share after adjustment for the Rights Issue.

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

The total estimated amount to be paid in May 2019 in respect of the proposed final dividend for 2018 is £37.8 million based on the number of shares in issue as at 31 December 2018. The final dividend paid for 2018 will depend on the number of share-based incentives vesting before the final dividend is paid.

Group Balance Sheet

as at 31 December 2018