RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019

CONFIDENTIAL - EMBARGOED UNTIL 3 MARCH 2020

John Laing Group plc

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019

John Laing Group plc (John Laing or the Company or the Group) announces its audited results for the year ended 31 December 2019.

Highlights: Strong performance in asset management and project delivery mitigates H1 write downs and lower power prices

· NAV per share 337p at 31 December 2019 (31 December 2018 - 323p)

o Strong project delivery and value enhancements offsetting H1 renewable energy write downs and lower power prices

o 4.3% increase since 31 December 2018; 7.2% increase before dividends paid

o 10.7% increase since 31 December 2018 at constant currency and before dividends paid1

· NAV of £1,658 million at 31 December 2019 (31 December 2018 - £1,586 million)

· Portfolio value £1,768 million at 31 December 2019, an 8.7% increase (or 12.2% at constant FX) on rebased portfolio value2 at 31 December 2018

· Profit before tax (PBT) £100 million (2018 - £296 million) and earnings per share (EPS) of 20p (2018 - 63p)3

o PBT lower than 2018 due to renewable energy write downs in 2019 and exceptional gain on IEP Phase 1 in 2018

· Dividend:

o Final dividend 7.66p per share including special dividend 3.98p per share

o Total 2019 dividend 9.5p (2018 - total dividend of 9.5p)

· Investment commitments £184 million (2018 - £302 million)4

· Realisations £143 million (2018 - £296 million)

· Wind & solar investments:

o Modest improvement to H1 write downs in second half of the year

o Following second half review, all new investments in standalone wind and solar generation to cease

· Record pipeline: £3.2 billion at 31 December 2019 (2018 - £2.4 billion)

o Significant growth in existing sectors, including transportation, telecoms and data, and geographies, particularly Latin America

o Additional opportunities in new sectors such as energy transition

Notes:  

(1) 10.7% increase calculated after adding back net FX loss of £55 million in 2019

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

(3) Basic EPS; see note 6 to the Group financial statements

(4) Based on new investment commitments secured in the year ended 31 December 2019; for further details see the Chief Executive Officer's Review section

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

'John Laing delivered a solid performance overall in 2019. We are pleased to report further value enhancements in the second half as expected, which, along with the significant progress made on our large PPP projects, have helped to mitigate the impact of the first half write downs in our renewable energy portfolio and the impact of falling power prices. This demonstrates the resilience of the John Laing business model. 

We re-assessed the risk/return profile of standalone wind and solar generation assets during the second half and have decided that we will make no further new investments in this area. In line with our business model, we are preparing our existing portfolio of wind and solar assets for sale in the short to medium term to take advantage of strong demand for operational renewable energy assets. We are instead focusing on the opportunities presented by the wider energy transition. 

As a new decade begins, the drivers for new infrastructure remain as strong as ever, with climate change and the increasing role of big data providing added impetus. Our model is flexible, and 2019 has been an important year for John Laing in terms of making inroads into new sectors and markets. This is reflected in a pipeline that stands at a record level. We enter 2020 confident in our ability to continue to generate value from our existing portfolio, to make the most of attractive secondary markets and to convert a growing and rapidly evolving pipeline, supported by substantial financial resources and partner relationships.'

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: 35 45 10

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

https://www.investis-live.com/john-laing/5e38331652202e0d0035563c/trdf

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

Investor/analyst enquiries:

Olivier Brousse, Chief Executive Officer +44 (0)20 7901 3200

Luciana Germinario, Chief Financial Officer +44 (0)20 7901 3200

Media enquiries:

Matthew Denham / Camilla Cunningham, Teneo +44 (0)20 7420 3186

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 2019 of £1,658 million divided by the number of shares in issue at 31 December 2019 of 491.8 million

(2) Basic EPS; see note 6 to the Group financial statements

(3) For further details, see the Chief Executive Officer's Review

Chairman's Statement

We delivered a solid performance in 2019, despite facing challenges principally in our renewable energy portfolio. This highlights the resilience of our business model and is testament to the strength of our regional structure, which was put in place two years ago to enable our regional teams to focus more effectively on value creation. This model has delivered tangible benefits in 2019, with strong project delivery and value enhancements across the business. In a global environment where the development of responsible and sustainable infrastructure is key to economic growth and success, John Laing remains ideally placed to leverage new market opportunities in all four of our geographic regions.

Our purpose is clear. It is to create value for all our stakeholders by investing in, developing and actively managing infrastructure which respond to public needs, foster sustainable growth and improve the lives of communities around the world. John Laing is clearly differentiated from other participants in the infrastructure sector, focusing solely on greenfield infrastructure investment and investing its own capital.

Following the write-down taken in the first half of the year, we announced that we would be reassessing our activities in wind and solar generation investment. Having completed the review, we have taken the decision to cease investing in standalone wind and solar generation projects across all our geographies. In our view, these asset classes have become commoditised and returns for John Laing are insufficient to cover the external risks. As with all of our projects, our wind and solar assets are available for sale once construction is complete and steady operational performance has been achieved. We anticipate that these divestments will take place over the next two years and believe the secondary market for these assets to be strong. 

Our business model is nimble and flexible, enabling us to respond to opportunities in new markets and geographies. This has helped to drive growth in our pipeline, which now stands at a record level despite the removal of standalone wind and solar generation investment . Alongside new opportunities in existing areas, such as transportation, the pipeline also includes new asset classes and new markets that fit our business model, which is centred on delivering innovative solutions for complex infrastructure problems. These new areas include digital infrastructure but currently do not include those related to the broader energy transition, such as the de-carbonisation of transport.

We also continued to expand our international footprint in 2019 and, following our investment in the Ruta del Cacao PPP road project in Colombia, we have established Latin America as our fourth region. In the year, we committed capital in each of our four regions, with the majority in North America and Latin America. Looking ahead, we expect this to continue as both regions have strong pipelines. Following a period of political uncertainty in Australia, we are seeing a pick-up in activities, while Europe is expected to remain relatively subdued, in-line with underlying markets. 

Since our IPO in 2015, we have grown NAV per share (including dividends paid) by 14% compound per annum (adjusted for the Rights Issue). Despite some challenging headwinds, the business delivered a solid financial performance in 2019:

· NAV grew to £1,658 million or 337p per share at 31 December 2019, from 323p per share at 31 December 2018, an increase of 7.2% including dividends (10.7% at constant currency);

· Investment commitments totalled £184 million, with a record pipeline of £3.2 billion supporting our three-year investment target of £1 billion; and.

· Realisations of investments were £143 million, with a great deal of activity in 2019 to prepare assets for sale in 2020 and 2021, supporting our three-year realisations target of £1 billion.

Turning to the Board, Luciana Germinario became Chief Financial Officer in May 2019 following the retirement of Patrick O'D Bourke, Group Finance Director. Luciana has quickly established herself in the business and in particular has strengthened the Group's divestment process.

Toby Hiscock is retiring as Non-Executive Director and Chair of the Audit & Risk Committee following the Annual General Meeting (AGM) on 7 May 2020, having joined John Laing in 2009. The Company owes much to Toby's diligence, experience and commitment for which I am most grateful. Philip Keller was appointed to the Board of Directors and became a member of the Audit & Risk Committee with effect from 1 January 2020. He will succeed Toby as the Chair of this Committee following Toby's retirement. Philip is also a member of the Nomination and Remuneration Committees with effect from 1 January 2020.

I am delighted to welcome Philip to the Board of John Laing. He brings considerable financial and operational experience, with a deep understanding of investment businesses and global organisations, which will further strengthen the diverse mix of skills and experience on the Board.

After the year end, we also announced that Olivier Brousse had resigned from his position of Chief Executive Officer. He will remain with the Company to ensure a smooth transition. The process is underway to recruit a new Chief Executive Officer and we will provide updates as appropriate in due course. On behalf of the Board, I would like to express our sincere thanks to Olivier for his valuable contribution over the past five years, delivering the successful IPO and evolving the Group's geographic footprint and the diversification of the portfolio. Olivier will leave behind a strong management team and a Group that is in good shape.

As well as our regular Board meeting schedule, we took time away from the business in June and in October 2019 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 in particular, our approach to responsible investment and plans to improve diversity and to reduce the gender pay gap within the organisation. The Board complied with all applicable provisions of the UK Corporate Governance Code 2018 (the "2018 Code"), which was published in July 2018 and applies for the first time this year.

On behalf of the Board, I would like to thank all employees for their dedication and commitment during a year of change. I would also like to extend the Board's thanks to all the Group's stakeholders for their continued support.

Our current dividend policy is unchanged and 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 2019 of 3.68p 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. Proceeds from sale of investments completed in the year were £143 million. We are also close to completing one further disposal and in advanced negotiations on another for aggregate proceeds of approximately £63 million. We also have other disposal processes underway for completion later in 2020. The Board is recommending a special dividend of 3.98p, by applying 9.5% to proceeds of £206 million, which includes the two disposals expected to complete soon.

The total final dividend for 2019 therefore amounts to 7.66p per share, which, together with the interim dividend of 1.84p per share paid in October 2019, makes a total dividend for 2019 of 9.5p per share, maintaining the 2018 level. The final dividend will be put to shareholders for their approval at the Company's AGM which will be held on 7 May 2020. At the Company's last AGM on 9 May 2019, all resolutions were approved by shareholders.

Despite the challenges we have faced this year, we have delivered a solid performance and I am confident that we are well positioned to benefit from the opportunities that lie ahead. 

Will Samuel

Chairman

Chief Executive Officer's Review

2019 was an important year for John Laing on a number of fronts:

· Strong year for asset management and project delivery: translating into a high level of value enhancements, starting in the first half of the year and sustained into the second half, which helped to offset the H1 wind and solar write downs, and the impact of falling power prices. This resulted in NAV per share growth, before dividends paid in the year, of 7.2%. Excluding the net adverse foreign exchange impact in the year of £55 million, the growth was 10.7%. With almost £1 billion of assets under construction, we see significant embedded value in our existing portfolio. However, the high level of value enhancements in 2019 reflects the initial impact of the move in 2018 to a regional model and an increased focus on asset management in the year. We therefore expect a more normalised level of value enhancements in 2020, in the region of 3% to 5% of the opening portfolio value.

· Wind and solar: with the issues we encountered in Australia and Europe in the first half contained and appropriately priced, we have carefully re-assessed the risk/return profile of the wind and solar generation sector. Having concluded that the returns no longer reflect the risks, we have decided to cease investment in standalone wind and solar generation assets across all geographies. John Laing has built an attractive portfolio of operational wind and solar assets which, in-line with our model, we will divest into strong secondary markets over the next 1-2 years. 

· Refocusing to capitalise on a rapidly changing energy landscape: wind and solar generation are only one part of the renewable energy industry, which itself represents only a portion of a wider the energy transition market that is rapidly gaining momentum. We believe John Laing is well positioned to provide solutions to some of the complex infrastructure requirements that energy transition will involve, particularly decarbonisation. We also remain active in renewable energy more generally, including in waste to energy where we made our first investment in Australia during the year, leveraging experience gained in the UK.

· Significant inroads into a new region: with higher complexity and higher returns, Latin America is a region with an attractive pipeline, and our successful entry into Colombia demonstrates that the PPP model continues to be embraced in many regions.

Outlook for our markets and sectors

We believe the biggest drivers for new infrastructure to be a combination of population growth, urbanisation, the increasing role of data in societies and economies and climate change. As we enter a new decade these drivers are as strong as they have ever been.

We set our purpose to create value for all our stakeholders by investing in, developing and managing infrastructure projects which respond to public needs, foster sustainable growth and improve the lives of communities around the world. We believe John Laing is well positioned with the right experience and expertise to help governments make the right decisions and to contribute to achievement of their goals.

We see three major sectors in which we believe John Laing has an important part to play that are key to meeting this purpose: energy transition, including de-carbonisation of transport, managed lanes and telecoms/broadband.

The global energy transition is gaining momentum and, as such, wind and solar generation will continue to play a key role as critical enablers of decarbonisation. John Laing was at the forefront of wind and solar investment through the 2010's, investing approximately £850 million in 38 projects across Europe and in Australia and the US. However, wind and solar generation are increasingly mature and commoditised sectors and today they offer limited value creation potential for an investor such as John Laing. We believe we can contribute more and create better value for our stakeholders by playing an active part in many of the other emerging infrastructure opportunities driven by the global energy transition. These include: i) technologies that enable high penetration of renewables; ii) decarbonisation of other sectors e.g. electrification of transport; iii) delivering increased energy efficiency. We are now actively reviewing opportunities across these themes.

As part of this effort, John Laing officially joined the Hydrogen Council, a global group of industry and financial players focused on fostering the contribution of hydrogen-based technologies and solutions to decarbonisation of energy usage. We were among the first investors to join the Council and will look to bring our experience of complex project design and project finance discipline to facilitate the transition to models that allow efficient deployment of capital at a large scale.

Population growth and ongoing urbanisation are continuing to make the largest cities around the word more and more congested, placing further strains on existing transportation systems. There is an urgent need for the redevelopment and decarbonisation of transport systems to ease congestion and at the same time improve air quality. John Laing has expertise in both investing in and managing transport systems that would meet these needs. We currently invest in light-rail projects in Australia and Canada and we have invested in both phases of the Intercity Express Programme in the UK, which has already delivered 104 electric or bi-mode trains. Our biggest investment to date is in the I-66 Managed Lanes project, the second managed lanes project that we have invested in alongside Cintra Ferrovial, which will help to ease congestion in urban areas expecting population growth and already experiencing high levels of traffic.

The increasing role of data in modern societies is driving the need for investment in communications infrastructure. Broadband fibre networks are seen as the essential digital backbone of economies. Governments globally are actively supporting the deployment of networks, either directly by procuring or subsidising projects in low-density areas, or indirectly by promoting network competition as in the UK. The Conservative Government has stated its aim to deliver high-speed fibre broadband to all communities in the UK. This will require different models for urban and low density rural areas and offer opportunities for the public and private sectors to work together in an efficient and focused manner. We are now actively engaged in this space in a number of countries.

There is an on-going need for new infrastructure around the world. Many countries are failing to keep pace with the changes brought about by these trends, with the infrastructure market as a whole historically under-invested.

There will always be pressures on public sector finances. This creates a strong incentive for the continued 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.

Objectives and outcomes

Consistent with our purpose, our strategy focuses on NAV per share growth and dividends as key measures for shareholders:

· In 2019, our NAV per share, before dividends paid in the year, increased from 323p per share at 31 December 2018 to 337p per share at 31 December 2019, representing growth of 7.2%. Excluding the net adverse impact from foreign exchange movements of £55 million, the growth was 10.7%.

· We are proposing total dividends of 9.50p per share for 2019, maintaining the 2018 level.

The two core objectives in delivering our strategy are:

· Growth in volume of primary investments in responsible and sustainable greenfield infrastructure projects over the medium term; and

· Management and enhancement of our investment portfolio, with a clear focus on active management during construction and operational phases, 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 volume of primary investments

We have a healthy pipeline of new investment opportunities. This has benefited from the continued strong infrastructure market in the US and Canada, a resurgence of the PPP market in Australia and new infrastructure opportunities in Europe and Israel. We have built on the success of our first investment in Colombia, and our growing Latin American pipeline reflects buoyant markets as well as a maintained focus on disciplined investing. We are also seeing a strong pipeline of exciting projects in new asset classes, which we believe are a good match with our business model and offer the potential for good investment returns. Many of these new opportunities have come from our ongoing work to foster strong relationships with our international partners who see John Laing as a trusted partner for delivering complex infrastructure projects. At the same time, our funding position means we are well positioned to make the most of these opportunities. We will continue to focus on investments in public private partnership (PPP) but our business model is nimble and flexible enough to enable us to respond to opportunities in other asset classes, providing a strong pipeline for future growth.

Our investment commitments for 2019 were £184m. While this was relatively low compared to previous years, this growing pipeline and a strong capital base underpins our guidance of £1 billion over the three-year period 2019 to 2021, although given the nature of PPP procurement and its potential for delays, this could be lumpy and back-ended.

Our new investment commitments for 2019 are summarised in the table below:

We entered 2020 with a strong pipeline of £3,172 million of investment opportunities expected to complete predominantly over the next three years. Within this pipeline, we have one preferred bidder position, seven shortlisted positions and one exclusive position representing a total potential investment of approximately £443 million.

· North America: we built strong momentum in the US through 2017 and 2018 and whilst this year was quieter for us, with some deals being delayed, we see a lot of opportunities for investment over the next few years including managed lanes deals. We have four shortlisted positions on PPP deals. In the US, public sector procurement for greenfield infrastructure, including PPP, takes place predominantly at state or city, rather than federal, level and we are seeing some form of PPP-enabling legislation across all states with major metropolitan areas.

· Asia Pacific: we remain very active in the Australian PPP market. We are working on a number of PPP bids in 2020 including three shortlisted positions which should reach financial close in 2020 and 2021. 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. We continue to explore new sectors, like waste to energy - completing the East Rockingham Resource Recovery Facility investment in 2019 - social housing and energy storage. We are also seeing infrastructure opportunities emerge in new countries in the region, with Vietnam of particular interest where there are strong infrastructure fundamentals supported by a need for major investment in sectors such as transport and healthcare.

· Europe and Middle East: the market for new infrastructure projects across Europe is relatively subdued but, despite this, we have a preferred bidder position on the Via15 PPP project in the Netherlands and we continue to look at opportunities across the region. Most notably, our team is looking at opportunities in Poland, where we have invested successfully in the past, and Israel, which has an active pipeline of transport and renewable energy projects and which 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.

· Latin America: our current pipeline in Latin America reflects the progress we have made in the region. We have long seen the attraction in investing in Colombia, a country that joined the OECD in 2018 and has a substantial PPP programme, particularly in the transportation sector. We secured our first investment in Colombia in 2019 and we now have a well-established team in our Bogota office. We continue to see a large pipeline of opportunities here and in other countries in Latin America such as Peru and Chile, which we continue to explore with our network of existing partners.

.

The total pipeline is broken down below according to the bidding stage of each project.

The preferred bidder position and the shortlisted positions are detailed in the table below:

1 Preferred bidder position

Management and enhancement of our investment portfolio

At 31 December 2019, our portfolio comprised investments in 48 infrastructure projects (31 December 2018 - 48 projects plus our shareholding in JLEN). Our year end portfolio value was £1,768 million (31 December 2018 - £1,560 million). The portfolio value increased by £267 million as a result of cash invested in projects, offset by proceeds from realisations of £143 million and cash yield received from project companies of £57 million. Fair value movements of £141 million - equivalent to 8.7% of the cash rebased portfolio value or 12.2% excluding foreign exchange losses - increased the portfolio value to £1,768 million at 31 December 2019.

As described earlier, we wrote down the value of our wind and solar projects during the first half of the year, principally as a result of market-driven and other external factors such as transmission issues in Australia, lower wind yield on our European wind assets and lower power price forecasts. Active asset management by our teams resulted in a significant level of value enhancements across all of our portfolio which, together with the embedded growth, more than offset these losses. 

The fair value movement is analysed further in the Portfolio Valuation section.

Elsewhere in the portfolio our teams were instrumental in the Sydney Light Rail project reaching agreement on a settlement in June 2019 following a prolonged period of disputes. Subsequently, first passenger service commenced on 14 December 2019 and full service for both stages is expected by Q1 2020.

We also played a leading role in the Denver Eagle P3 project reaching substantial completion for the final line in March 2019, leading to full revenue service being achieved in April 2019.

Both are examples of our active asset management, helping to resolve complex issues before delivering completed assets and creating value for our stakeholders. 

In 2019, we completed realisations totalling £143 million from the sale of two PPP and two renewable energy investments, as well as the sale of our remaining shares in JLEN Environmental Assets Group Limited ("JLEN" - previously John Laing Environmental Assets Group Limited). The disposal of our interest in Optus Stadium was our first sale of an operational asset in Australia and the disposal of the Rocksprings and Sterling wind farms in the US were our first sales in the US. Aggregate prices achieved were in line with valuation.

The cash yield in 2019 was £57 million (2018 - £34 million), including a large distribution from the Denver Eagle P3 project following the end of construction.

Overall our investment portfolio is well diversified in terms of geography, currency, revenue type and sector.

Further details on the investment portfolio in each of our regions is provided in the following Regional Review section.

External asset management

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

The IAA with Jura Limited (formerly JLIF) formally terminated on 31 December 2019.

Organisation and staff

Our staff numbers were 153 at 31 December 2019 compared to 169 at the end of 2018. 24 staff left the Group during the year as we exited from the fund management business. Staff numbers increased in Latin America, as we grew the local team in Bogota, and in the Central teams as we continue to reinforce the oversight function, in particular in respect of risk management for new investments and of the portfolio. We now have 55% of staff located outside the UK (31 December 2018 - 44%), consistent with our increasing internationalisation. We have a diverse workforce comprising around 25 nationalities.

Our high-quality individuals and experienced teams responded to the issues in our wind and solar portfolio by achieving a significant level of value enhancements, above our long term average, across all regions and across the entire portfolio. This is evidence that the reorganisation we put in place at the beginning of 2018 is working well, where the Primary Investment and Asset Management teams in each of our regions report to single regional heads, each of whom in turn reports to me. This structure allows 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. I would like to thank our employees for their continued contribution in what was a challenging year.

Principles, People and Performance.

We distinguish ourselves from other investors by our clear commitment to making investment decisions that not only benefit the client and other commercial stakeholders but deliver benefits to local communities. These benefits include cleaner air, reduced congestion, better rehabilitation, improved public facilities, cheaper public transport and better accessibility.

We have a clear set of values that drive our work internally and externally:

· Ownership

· Empowerment

· Growth mindset

· Shared prosperity

These values reflect our purpose, which is to invest in responsible infrastructure projects that respond to public needs, empower sustainable growth and improve the lives of the communities in which we work. Our investment decisions are a function of this purpose and our values, as well as of our commercial considerations.

Current trading and guidance

We have a strong investment pipeline which at 31 December 2019 totalled £3.2 billion, including one preferred bidder position and eight shortlisted or exclusive positions with a total investment opportunity of approximately £443 million. This supports our guidance of approximately £1 billion of new investment commitments over the three-year period 2019-2021. The growth in our pipeline during the year is especially pleasing given our decision to cease investment in standalone wind and solar generation. Investment activity over the next two years will therefore be concentrated on PPP opportunities where we see strong demand, albeit these are typically lumpier and their timing more reliant on public procurement processes. We expect investment activity to gain momentum during 2020, with this year's pipeline weighted to the second half.

With a large and diverse secondary portfolio and several sales processes already underway, divestment activity should ramp up through the second half of 2020, and we continue to expect realisations over the same period to be broadly in line with investment commitments.

As set out in more detail in the Portfolio Valuation and Financial Review sections, certain of the Group's income earned in 2019 will either cease, in the case of fund management income, or return to more normalised levels in respect of fair value movements from the portfolio. At the same time, certain of the losses on the portfolio experienced in the year are not expected to reoccur. Overall, we enter 2020 with a renewed focus and confidence in our business model and its ability to benefit from the opportunities that lie ahead.

Olivier Brousse

Chief Executive Officer

REGIONAL REVIEW

ASIA PACIFIC

At 31 December 2019, our portfolio of investments in the region comprised 15 assets (31 December 2018 - 15) including seven in the Primary portfolio (31 December 2018 - eight) and eight in the Secondary portfolio (31 December 2018 - seven) with a total value of £587 million (31 December 2018 - £505 million). The increase in portfolio value of £82 million is due to cash invested in projects of £110 million and a net overall fair value gain of £12 million for the year, offset by disposals and cash yields received from projects totalling £40 million.

With regards to new investments, during the year, we secured an investment of £27 million in the East Rockingham Resource Recovery facility, a waste to energy plant in Perth, Western Australia. The Primary Investment team has also been successful in achieving three shortlisted position at 31 December 2019 on PPP deals in Australia, which are expected to close over the next 18 months.

Our active asset management in the region saw significant progress made on the Sydney Light Rail, New Generation Rollingstock and New Royal Adelaide Hospital projects.

Sydney Light Rail

· Following a settlement agreed by all parties in June 2019, the first passenger service commenced on 14 December 2019 and full service for both stages is expected by the end of Q1 2020.

New Generation Rollingstock

· All 75 trains have now been accepted, in line with the re-based train delivery schedule agreed with the State of Queensland.

· The programme for undertaking various retrofitting and rectification issues is progressing well.

· This asset has moved into our Secondary portfolio at 31 December 2019.

New Royal Adelaide Hospital

· Settlement commercially agreed between project company and South Australian government including revised payment mechanism.

· Arbitration proceedings are ongoing with regard to legacy issues arising from the construction phase.

From a divestment standpoint, we were pleased to achieve our first realisation of an operational asset in Australia, the disposal of our 50% shareholding in Optus Stadium, which completed in March 2019. We have also started divestment processes for our interest in the Auckland South Corrections Facility and for our wind and solar assets. 

Continued active asset management in the second half of the year has resulted in total year value enhancements for the APAC region of £47 million (2018 - £16 million) of which £6 million (2018 - £5 million) related to PPP assets and £41 million (2018 - £11 million) to renewable energy assets. .

As was reported in our interim results, we, along with industry peers, experienced transmission issues relating to marginal loss factors ("MLFs") which negatively impacted three of our renewable energy assets. As a reminder, MLFs are defined as the portion of energy that is lost when electricity is transmitted across the transmission and distribution networks due to resistance. During the second half of the year, we have worked closely with external advisors to review their long-term MLF forecasts. These forecasts took into account the indicative MLFs for the July 2020 - June 2021 period that AEMO published in November 2019, which showed an improvement from the previous year on the three assets referred to above. Overall, the change in MLF forecasts led to net losses of £52million.

We have also seen some volatility in power price forecasts in the region during the year, particularly over the last two quarters, which resulted in a loss of £17m for 2019.

EUROPE AND MIDDLE EAST

At 31 December 2019, our portfolio of investments in the region comprised 18 assets (31 December 2018 - 19) including three in the Primary portfolio (31 December 2018 - three) and 15 in the Secondary portfolio (31 December 2018 - 16) with a total value of £599 million (31 December 2018 - £580 million). The increase in portfolio value of £19 million in 2019 is due to a positive fair value movement in the period of £20 million and cash invested into projects of £8 million offset by disposals and cash yields received from projects totalling £9 million.

With regards to new investments, we secured an investment of £7 million in a student accommodation project with the University of Brighton. The Primary Investment team had also secured one preferred bidder PPP position in the Netherlands at 31 December 2019 and one exclusive pump storage opportunity in Israel, both of which are expected to close in 2020.

On IEP Phase 2, our largest investment, 47 of the 65 trains for the East Coast main line had been accepted by 31 December 2019 with public train services commencing in May 2019. All trains are expected to have been delivered on schedule by mid-2020.

Continued active asset management in the second half of the year has resulted in total year value enhancements for the Europe and Middle East region of £43 million (2018 - £40 million) of which £18 million (2018 - £40 million) related to PPP assets and £25 million (2018 - £nil) to renewable energy assets.

As reported in our interim results, we experienced operational performance issues on our wind farm assets, mainly driven by low levels of wind, which have translated into lower long-term energy yield forecasts and resulted in write downs of £51 million.

We have also seen some volatility in power price forecasts in the region during the year, particularly over the last two quarters, which resulted in a loss of £15m for 2019.

NORTH AMERICA

At 31 December 2019, our portfolio of investments comprised 14 assets (31 December 2018 - 14) including five in the Primary portfolio (31 December 2018 - six) and nine in the Secondary portfolio (31 December 2018 - eight) with a total value of £514 million (31 December 2018 - £465 million). The increase in portfolio value of £49 million during the year is principally due to a positive fair value movement of £98 million and cash invested into projects of £92 million, offset by disposals and cash yields received from projects totalling £141 million.

With regards to new investments, we secured an investment of £75 million in Live Oak wind farm and later in the year we secured an investment of £13 million in the Hurontario light rail project in Ontario, Canada. The Primary Investment team had also secured four shortlisted PPP positions at 31 December 2019.

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

Denver Eagle P3

· Substantial completion of the third line, the G line, was achieved in March 2019.

· The A line and the B line have been operating successfully since 2016 and have achieved above 97% on-time performance.

· Full revenue service of the overall project was achieved in April 2019.

I-77 Managed Lanes

· The I-77 Managed Lanes was fully open by the end of the year with the opening of the southern section in November 2019 following that of the northern section earlier in the year.

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

Continued active asset management in the second half of the year has resulted in total year value enhancements of £65 million (2018 - £24 million) of which £37 million (2018 - £18 million) related to PPP assets and £28 million (2018 - £6 million) to renewable energy assets.

We have also seen some volatility in power price forecasts in the region during the year, particularly over the last two quarters, which resulted in a loss of £15m for 2019.

LATIN AMERICA

In October 2019, after almost three years of due diligence, we closed our first investment in the region. We committed £62 million for a 30% interest in the Ruta del Cacao PPP road project in Colombia. We have one of our key international partners working with us on this project together with other leading investors and contractors. The project is progressing well, with construction almost 50% complete. During delivery, the project is improving the lives of the local communities through the building of new water treatment plants, schools and commercial facilities. 

Meanwhile, our pipeline of investment opportunities in the region has increased to £615 million as at 31 December 2019. This has been the result of the efforts of our strong team, with seven employees in our Bogota office, complemented by senior executives in Madrid and London.

Portfolio Valuation

The portfolio valuation at 31 December 2019 was £1,768 million compared to £1,560 million at 31 December 2018. After adjusting for cash invested, cash yield and realisations, this represented a positive movement in fair value of £141 million (representing growth of 8.7% or 12.2% at constant FX).

Cash invested into three new assets during 2019 totalled £140 million. In addition, £127million was injected into existing projects in the portfolio as they progressed through, or completed, construction.

During 2019, the Group completed the realisation of four investments for a total consideration of £132 million and also sold its remaining shares in JLEN for £11 million.

Cash yield from the investment portfolio during the year totalled £57 million.

The movement in fair value of £141 million is analysed in the table below.

Unwinding of discounting and reduction of construction risk premia totalled £183 million for 2019 (2018 - £141 million). We expect further value uplift in the future from these factors currently embedded in the portfolio but at a lower level than 2019 given the profile of the portfolio.

Value uplift of £31 million was recognised on the financial close of new investments of £184 million in the year. We would expect higher value uplift on financial close next year if the level of new investments is increased.

We have recognised £157 million of value enhancements in the year representing a strong result of our ongoing active asset management capability. Having recognised value enhancements of £78 million in the first half of the year, work in this area continued and we were able to deliver further value enhancements of £79 million in the second half. These enhancements were achieved in all regions and across the entire portfolio from a number of areas, including extension of asset lives, savings on operating costs and refinancing of project finance. However, the high level of value enhancements in 2019 reflects the initial impact of the move in 2018 to a regional model as well as an increased focus on asset management in the year. We therefore expect a more normalised level of value enhancements in 2020, in the region of 3% to 5% of the opening portfolio value.

During the year, there were net losses from project performance of £23 million. This primarily reflects the impact of construction delays on certain of our projects, offset by a value uplift from reductions in project-specific risk premia, principally reflecting the good progress made in the year on certain PPP projects.

Losses of £51 million on the European wind assets and the £52 million of losses suffered on three of our Australian renewable energy asset projects as a result of adverse changes in MLFs are described further in the Regional Review section above.

Reduction in power and gas price forecasts, particularly in the second half of the year, resulted in losses of £48 million and strengthening of Sterling since 30 June 2019 has increase the adverse impact of foreign exchange movements to £57 million from just £2 million adverse in the first half.

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

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

Methodology

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

In arriving at the valuation as at 31 December 2019, we considered and reflected changes to the two principal inputs, (i) forecast cash flows from investments in projects and (ii) discount rates.

The Directors have obtained an independent opinion from a third party, which has considerable expertise in valuing the type of investments held by the Group, that the investment portfolio valuation as a whole represented a fair market value in the conditions prevailing at 31 December 2019.

Discount rates

For the 31 December 2019 valuation, the overall weighted average discount rate was 8.6% compared to the weighted average discount rate at 31 December 2018 of 8.6%. The weighted average discount rate at 31 December 2019 was made up of 9.1% (31 December 2018 - 8.8%) for the Primary Investment portfolio and 8.0% (31 December 2018 - 8.1%) for the Secondary Investment portfolio. The increase in the weighted average discount rate for primary investments was primarily the result of the investment in Ruta del Cacao. The small reduction in the weighted average discount rate for secondary investments was the result of reductions in project-specific risk premia on New Royal Adelaide Hospital and the A15 Netherlands investments, reflecting the progress made in the year, and reduction in the operational benchmark discount rates for select investments, offset by assets with higher discount rates transferring from the Primary portfolio.

The discount rate ranges used in the portfolio valuation at 31 December 2019 were as set out below:

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

Energy yields

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

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

The impact on the valuation at 31 December 2019 of a sample of renewable energy assets with total value of £293 million from changes in energy yield is shown below:

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

Macroeconomic assumptions

During 2019, updates for actual macroeconomic outcomes and assumptions had a net adverse impact of £11 million (2018 - £1 million net adverse impact) on the portfolio valuation. Movements of foreign currencies against Sterling over the year to 31 December 2019 resulted in net adverse foreign exchange movements of £57 million (2018 - £10 million net favourable foreign exchange movements). Additionally, a decrease in forecast power and gas prices resulted in a £48 million adverse fair value movement (2018 - adverse fair value movement of £12 million).

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

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

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

by geographical region

There continues to be good diversification of the portfolio across our regions. All regions saw an increase in their portfolio values including Latin America where we made our first investment during the year.

by time remaining on project concession/OPERATIONAL life

by revenue type

Availability-based investments made up the majority of the portfolio at 31 December 2019. Renewable energy investments comprise the majority of the volume-based investments. The increase in the value of availability-based investments primarily reflects the positive progress made on assets both in construction and operation, further investment in availability-based projects and value enhancements recognised in the year. The reduction in volume-based investments is primarily due to the disposal of two wind farms in the US as well as write downs on certain of the Australian and European renewable energy assets, offset by an investment in a wind farm in the US and value enhancements recognised. We expect to maintain balanced availability-based investments in the portfolio in the medium-term.

by sector

The disposal of two wind farms in the US in the first half of the year has contributed to the reduction in the value of wind & solar generation assets since 31 December 2018. Fair value losses in the year have resulted in a decrease in the value of waste and biomass assets. The listed investment was sold in the year. Cash injections and positive fair value movements have resulted in increases in value in other sectors.

by currency

by investment size

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

Primary

Secondary

At 31 December 2019, 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 2019

APAC - Asia Pacific

EME - Europe and Middle East

NA - North America

Latam - Latin America

*Cypress Creek projects

Financial Review

Basis of preparation

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

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

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

Re-presented financial RESULTS

As we have done in previous periods, we 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 fair value through profit or loss (FVTPL). The net gain on investments at FVTPL in the Group Income Statement includes income and costs that do not arise directly from investments in this portfolio, including investment fees earned from project companies by recourse subsidiaries that are held at FVTPL.

Notes:

a) Adjustment comprises £1 million of interest income reclassified from 'fair value movements - other' to 'finance costs'.

b) Under IAS 19 Employee Benefits, the costs of the pension schemes and the post-retirement medical benefits comprise a service cost of £2 million, included in administrative expenses in the Group Income Statement, and a finance charge of £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 million.

c) For a reconciliation between the Group Income Statement and re-presented income statement for the year ended 31 December 2018, refer to the 2018 Annual Report and Accounts.

Profit before tax for the year ended 31 December 2019 was £100 million (2018 - £296 million). The main reason for the lower PBT compared to last year was the reduction in fair value movement in the investment portfolio.

There were positive fair value movements on the portfolio for 2019 was £141 million (2018 - £354 million). An analysis of the fair value movement is provided in the Portfolio Valuation section. A significant contributor to the fair value movement in 2018 was the gain of £87 million on disposal of the interest in IEP Phase 1. In contrast, despite significant value enhancements of £157 million, the fair value movement for 2019 suffered from losses of £52 million on three of our Australian renewable energy assets, as a result of the impact of marginal loss factors (see the Asia Pacific section above), and from wind yield losses of £51 million on our European wind and solar assets (see the Europe section above). We also experienced losses from the impact of foreign exchange movements (£57 million loss compared to a £10 million gain in 2018) and power and gas price forecasts (£48 million loss compared to a £12 million loss in 2018).

The Group earned IMS revenue of £20 million (2018 - £20 million) from investment advisory and asset management services primarily to Jura and JLEN. The proceeds received in the year from the sale of the IAA with JLEN of £5 million offset the loss of revenue from the IAA with Jura which terminated in 2019. Going forward, the Group will only earn IMS revenue from the provision of directors to project company boards (2019 - c£1 million; 2018 - c£2 million).

The Group also earned PMS revenue of £7 million (2018 - £6 million) from the provision of services to project companies under management services agreements.

The Group achieved recoveries of bidding costs on financial closes of £5 million in 2019 (2018 - £4 million).  

Total staff costs for the year ended 31 December 2019 are broadly the same as last year due to the impact of pay increases in line with inflation (c£1 million), increase in average headcount for the period with new recruits at higher average salaries (c£2 million) and one-off staff costs incurred in the first half of 2019 in relation to the termination of the fund management business offsetting the reduction in staff costs from the transfer of staff with this business.

General overheads have increased from last year principally due to one-off project-related costs and development costs incurred in setting up in new regions and looking at new asset classes.

As the Group looks to grow the level of its activity, staff costs and overheads, which include third party bidding costs, will increase on a scalable basis.

Finance costs of £9 million (2018 - £11 million) include costs of the corporate banking facilities, net of any interest income, with the decrease from last year primarily due to lower investment activity in the year.

There was a tax credit for the year of £0.2 million (2018 - tax expense of £0.2 million) primarily as a result of the reversal of a tax provision held at 31 December 2018. The contributions made to one of the Group's defined benefit pension schemes are tax deductible when paid and, as a result, there is minimal tax payable by the UK holding and asset management activities of the Group. Capital gains from the realisation of investments in projects are generally exempt from tax under the UK's Substantial Shareholding Exemption for shares in trading companies or under the overseas equivalent. To the extent this exemption is not available, gains may be sheltered using current year losses or losses brought forward within the Group's holding companies. There are no losses in the Company but there are tax losses in recourse group subsidiary entities that are held at FVTPL (£177 million as at 31 December 2018).

The re-presented income statement for years ended 31 December 2019 and 2018 by reportable segment is shown in the tables below:

Asia Pacific - the lower profit in 2019 compared to 2018 was mainly due to write downs of £52 million in the portfolio from adverse changes in MLFs on three of our renewable energy investments. For further details, see the Asia Pacific section in the Regional Review above.

Europe and Middle East - the lower profit in 2019 compared to 2018 was mainly due to performance issues on wind assets, which resulted in write downs in the period of £51 million. In 2018, the Europe regional results benefited from a gain of £87 million on the disposal of our interest in the IEP Phase 1 project.

North America - good progress was made on the PPP assets in the US, which, together with value enhancements of £65 million, contributed to the marginally higher profit in 2019 compared to 2018. Increasing staff costs in North America reflect an increase in the headcount in that region, consistent with the increase in the level of activity.

Latin America - the first investment in Latin America was secured in 2019 and this has led to an increase in profit from 2018.

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

Central - the net gain on investments at FVTPL of £4 million in 2019 was primarily due to a gain on the JLEN shares as well as a foreign exchange gain outside of the portfolio (2018 - £1 million loss primarily due to foreign exchange losses outside of the portfolio). The overall loss for the Central segment reflects the costs of the Group's central support and overview functions, as well as the Group's finance costs and its post-retirement charges. The loss for 2019 of £29 million is lower than the loss for 2018 of £51 million primarily due to the one-off GMP equalisation charge of £21 million in 2018.

Re-presented balance sheet

The re-presented balance sheet is reconciled to the Group Balance Sheet at 31 December 2019 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 £129 million (31 December 2018 - £140 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 £1,897 million comprise: portfolio valuation of £1,768 million and other assets and liabilities within recourse investment entity subsidiaries of £129 million (see note 13 to the Group financial statements).

b) Other assets and liabilities within recourse investment entity subsidiaries of £129 million referred to in note (a) include: (i) cash and cash equivalents of £123 million, of which £118 million is held to collateralise future investment commitments and £5 million is other cash balances and (ii) net positive working capital and other balances of £6 million.

c) Trade and other receivables (£6 million), trade and other payables (£15 million), finance lease liabilities (£4 million) and provisions (£2 million) are combined in the re-presented balance sheet as working capital and other balances.

d) Borrowings of £236 million comprise cash borrowings of £232 million from the main facilities and £7 million of short-term bank overdraft from uncommitted facilities less unamortised financing costs of £3 million, which are re-presented as working capital and other balances.

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

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

Note:

(1) Comprising: short-term cash borrowings of £232 million (31 December 2018 - £55 million) and short-term bank overdraft of £7 million (31 December 2018 - £15 million) net of cash balances of £125 million (31 December 2018 £140 million)

Net assets increased from £1,586 million at 31 December 2018 to £1,658 million at 31 December 2019.

The Group's portfolio of investments was valued at £1,768 million at 31 December 2019 (31 December 2018 - £1,560 million). The valuation methodology and details of the portfolio value are provided in the Portfolio Valuation section.

The Group held cash balances of £125 million at 31 December 2019 (31 December 2018 - £140 million) of which £118 million (31 December 2018 - £132 million) was held to collateralise future investment commitments (see the Financial Resources section below for more details). Of the total Group cash balances of £125 million, £123 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 £2 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 - the John Laing Pension Plan (JLPF) and the John Laing Pension Plan (the Plan). Both schemes are closed to new members and future accrual.

The triennial actuarial valuation of JLPF as at 31 March 2019 is currently in process and is expected to be finalised by 30 June 2020. In December 2016, following a triennial actuarial valuation 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 million at 31 March 2016 as set out below:

The combined accounting surplus in the Group's defined benefit pension and post-retirement medical schemes at 31 December 2019 was £6 million (31 December 2018 - deficit of £40 million). Under IAS 19, at 31 December 2019, JLPF had a surplus of £12 million (31 December 2018 - deficit of £35 million) while the Plan had a surplus of £1 million (31 December 2018 - surplus of £2 million). The liability at 31 December 2019 under the post-retirement medical scheme was £7 million (31 December 2018 - £8 million).

The pension surplus in JLPF under IAS 19 is based on a discount rate applied to pension liabilities of 2.1% (31 December 2018 - 2.85%%) and long-term RPI of 3% (31 December 2018 - 3.20%). The amount of the surplus is dependent on key assumptions, principally: inflation rate, discount rate and life expectancy of members. The discount rate, as prescribed by IAS 19, is based on yields from high quality corporate bonds. The surplus as at 31 December 2019 has moved from a deficit at 31 December 2018 primarily as a result of the Group's cash contribution to JLPF of £29 million in March 2019 and gains in the value of scheme assets.

Re-presented cash flow statement

The 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 £57 million (2018 - £34 million) from the investment portfolio, including a large cash distribution from the Denver Eagle P3 project following construction completion in the first half of the year.

Operating cash flow in the year end 31 December 2019 was adverse compared to 2018 primarily due to higher payments for staff costs, partly due to payment of deferred bonuses from prior years for staff in the fund management business leaving the Group. There was also a small cash outflow in relation to tax in 2019 compared to cash inflows in 2018 from the surrender of tax losses to project companies.

Total operating cash flow was net of a favourable foreign exchange impact of £1 million (2018 - adverse impact of £1 million).

During the period, cash of £267 million (2018 - £342 million) was invested in project companies and our interests in four projects as well as the remaining investment in JLEN were sold for total proceeds of £143 million (2018 - £296 million from the realisation of three investments). Offsetting proceeds from realisations were disposal costs paid of £3 million (2018 - £5 million). .

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

Dividend payments of £47 million in the year ended 31 December 2019 (2018 - £44 million) comprised the final dividend for 2018 of £38 million (2018 - final dividend for 2017 of £35 million) and the interim dividend for 2019 of £9 million (2018 - interim dividend for 2018 of £9 million).

FINANCIAL RESOURCES

At 31 December 2019, the Group had principal committed revolving credit banking facilities of £650 million (31 December 2018 - £650 million), £500 million expiring in July 2023 and £150 million expiring in January 2022, which are primarily used to back investment commitments. Net available financial resources at 31 December 2019 were £314 million (31 December 2018 - £413 million).

Analysis of Group financial resources

1 Cash and bank deposits exclude cash collateral balances. Of the total cash and bank deposit balances of £7 million, £2 million was in the Company and recourse subsidiaries that are consolidated and therefore shown as cash and cash equivalents on the Group Balance Sheet, with the remaining £5 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 and cash collateral represent scheduled future injections of cash by the Group into projects in the Primary Investment portfolio.

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, Colombian Peso and Australian, US, Canadian and New Zealand dollars. As a result of foreign exchange movements in the year ended 31 December 2019, there was a net adverse fair value movement of £57 million in the portfolio valuation. Sterling strengthened against all relevant currencies between 31 December 2018 and 31 December 2019.

The Group does not typically hedge against foreign exchange movements in its portfolio value but may hedge for investments denominated in currencies that have been volatile in the past or expected to be so in the future. The Group may apply an appropriate hedge to a specific currency transaction exposure, which could include borrowing in that currency or entering into forward foreign exchange contracts. An analysis of the portfolio value by currency is set out in the Portfolio Valuation section.

Letters of credit in issue at 31 December 2019 of £101 million (31 December 2018 - £164 million) are analysed by currency as follows:

Cash collateral at 31 December 2019 of £118 million (2018 - £132 million) was all denominated in US dollar.

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 2019.

Luciana Germinario

Chief Financial Officer

PROSPECTS AND VIABILITY

The long term prospects and viability of the Group are a consistent focus of the Board when reviewing and determining the Group's strategy and business model.

The identification and mitigation of the Group's principal risks also form part of the Board's assessment of long term prospects and viability. The Directors have assessed the longer term prospects of the Group in accordance with provision 31 of the UK Corporate Governance Code 2018 ("the 2018 Code").

Assessing our prospects

John Laing has been successful in establishing itself as a valued and trusted partner for infrastructure investment. We have grown our investment portfolio over the last five years since IPO and expanded our footprint into new geographical markets and new asset classes. With this growth in footprint, together with the strengthening of both our partnerships with key players in the infrastructure sector and our capital base, we have also been able to grow our pipeline of future investment opportunities.

The key drivers for new infrastructure - population growth, urbanisation and climate change - are as strong now as they have ever been and we are confident that we are well placed to continue to see significant investment opportunities over the foreseeable future.

The Group adopts an annual business planning process which involves all of the Group's operating regions and senior management with review by the Board. The annual business plan looks out over the next three years with one budget year followed by two plan years. Detailed budgets for the coming financial year are established for both the Group and each of the regions, with performance targets set accordingly.

This planning process is a significant part of the Board's assessment of the Group's prospects and is complemented by separate strategic reviews by the Board during the year. The Group's current market position, its strategy and business model and the potential impact of the principal risks are all taken into account in the Board's assessment of the prospects of the Group. In assessing the risks facing our business, we have considered the implications of the UK's withdrawal from the European Union at the end of the transition period. We believe our business model is robust enough and adaptable to weather any potential short-term disruption which might arise.

Assessing our viability

In accordance with provision 31 of the 2018 Code, the Directors have assessed the viability of the Group over a three year period to 31 December 2022. The assessment carried out supports the Directors' statements both on viability, as set out below, and also in respect of going concern, as set out in the Financial Review section.

The use of a three year time horizon for the purpose of assessing the viability of the Group reflects the business model of the Group and the visibility the Group has over the future investment opportunities in its pipeline and is consistent with the period of the Group's business plan.

The Directors' assessment has been undertaken using projections from a detailed financial model which the Group uses continually and consistently both for forecasting purposes and to monitor compliance with the covenants in its corporate banking facilities. Key outputs from this model are reviewed at monthly treasury meetings as well as being used for monthly financial reporting and forecasting to the Executive Committee, the Board and in the annual business planning process. 

These projections include expected fair value movements from the existing portfolio and incorporate forecasts of the timing of new investment commitments and the disposal of investments as well as all cash flows of the Group and its working capital requirements.

The key assumptions the Directors have made in making their assessment were as follows:

· Stable government policy and macroeconomic factors and a continuing strong and liquid secondary market;

· Availability of debt finance continues at Group level through the corporate banking facilities. Currently, the Group has committed corporate banking facilities of £650 million, of which £500 million matures in July 2023, beyond the end of the viability assessment period, and £150 million matures in January 2022. Our projections assume the facilities of £150 million are extended beyond January 2022 before the total facilities are increased to £800 million in March 2022, consistent with the forecast growth of the business. The Directors do not see the increase in facilities as being critical to the Group's viability over the assessment period, especially after taking into account the mitigating factors available to it as described below;

· The remaining annual repayments to the John Laing Pension Fund under the existing seven-year deficit repayment plan, as detailed in the Financial Review section, do not significantly increase on the completion of the ongoing triennial actuarial valuation as at 31 March 2019; and

· The value of the Group's investment portfolio is not significantly adversely impacted by changes in a number of key assumptions including: discount rates derived from the secondary market; macroeconomic factors such as exchange rates, taxation rates, inflation and deposit rates; the construction stage and operational performance of underlying assets; forecast project cash flows; volumes (where project revenue is linked to project usage); and forward energy prices and energy yields.

The Directors have also carried out a robust assessment of the principal risks facing the Group and how the Group manages these risks, including those that would threaten its strategy, business model, future operational and financial performance, solvency and liquidity.

The Group has considered the potential impact of these risks on the viability of the business. The projections and the underlying assumptions have been subjected to robust sensitivity analysis to stress test the resilience of the Group's forecasts to severe but plausible scenarios, together with the likely effectiveness of mitigating actions that would be expected by the Directors. The particular focus of the stress testing was on the available headroom under the banking facilities and to compliance with the key covenants under these facilities, including the adjusted asset cover ratio ("AACR").

Similar stress testing is performed regularly throughout the year and reported to the Audit & Risk Committee.

For the viability assessment, the most severe scenarios tested are described below. This includes a description of the relevant principal risks from which an adverse impact is assumed under the scenario.

Scenario 1

Scenario - the Group is unable to make any further investment realisations over the assessment period and accordingly materially reduces new investment activity.

Principal risks tested - a weakness in the secondary market (risk - 'liquidity in the secondary market'), both in terms of liquidity and appetite for particular infrastructure investments; a lower level of investment activity (risk - 'future investment activity'); shortfall in financial resources (risk - 'financial resources').

Mitigation - given the cyclical nature of the Group's disposal and reinvestment activity, there is an intrinsic mitigation to a scenario of reduced realisation levels, by reducing new investment activity, and to a scenario of reduced future investment activity, by reducing disposal activity. In a scenario of being unable to make any further investment realisation, the Group can reduce its new investment activity which would also reduce its costs. The Group would also expect to receive a higher level of cash yield from its investment portfolio as it is maintaining a larger operational and yielding portfolio.

Result - under this scenario, with the likely mitigating actions available to the Directors, the projections show that the Group would be able to continue its operations and meet its liabilities as they fall due over the next three years to 31 December 2022 and to comply with the covenants in its banking facilities over this period.

Scenario 2

Scenario - the Group experiences a combination of a six month delay in forecast investment realisations and a significant write down, in one or more of its largest investments, to an amount of approximately 15% of the total portfolio value. This scenario demonstrates the downside that could be experienced without any mitigating actions before the minimum AACR under the Group's banking facilities was reached during the assessment period.

Principal risks tested - liquidity in the secondary market (risk - 'liquidity in the secondary market'); shortfall in financial resources (risk - 'financial resources'); adverse investment performance and valuation (risk - 'investment performance and valuation'); significant write down to the portfolio value (arising from one or more of the following risks - 'major incident', 'governmental policy', 'macroeconomic factors', 'counterparty risk').

Mitigation - this scenario assumes no mitigating action. The primary mitigating action available would be a reduction in investment activity, which the Group has the ability to manage and control.

Result - under this combined downside scenario, the minimum AACR was only reached in December 2022, but there remained headroom under the banking facilities. Given the severity of the downside and the fact that available mitigating actions would likely be effective, the Directors believe this scenario proves there is a satisfactory level of robustness.

Based on the above assessment, the Directors have formed a reasonable expectation that the Group will be able to continue its operations and meet its liabilities as they fall due over the next three years to 31 December 2022. 

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 Group uses the three lines of defence model of Risk Management:

· Executive - central functions and regional teams that take ownership and manage risks

· Management oversight - Executive Committee (EXCO), Management Risk Committee, Investment Committee, Divestment Committee and Project Review Committee that oversee and provide specialist risk management and compliance reviews

· Independent Assurance - Internal Audit function and independent portfolio valuation

The principal internal controls that operated within this system throughout 2019 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 existing and emerging risks through a Group-wide risk register, that is embedded in the regular management reporting 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 external 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; and

· advice on ongoing initiatives to strengthen internal control processes.

Internal Audit is independent of the business and reports functionally to the Chief Financial Officer 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 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 and approved 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 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. As part of this monitoring, the Group risk register is reviewed at every meeting of the Management Risk Committee and regularly by the Audit & Risk Committee and every six months by the Board.

With the Group facing a number of challenges with its renewable energy portfolio, resulting in significant losses in the year, the Directors have sought to re-affirm the effectiveness of the Group's risk management process. In conjunction with this, PwC has recently been engaged by the Group to perform a review of our governance of projects and is examining the role of the Investment Committee and the effectiveness of our project review process and wider risk management. We are committed to adopting all appropriate remedial actions to enhance our risk management approach and have started a process to enhance the internal audit function.

Overall, the Directors do not believe there are material weaknesses in the Group's internal control systems.

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 of the Group. 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 volume of primary investments in responsible and sustainable to greenfield infrastructure projects over the medium term; and

2. Management and enhancement of the Group's investment portfolio, with a clear focus on active management during the construction and operational phases, 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 2 March 2020 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

2 March 2020

Group Income Statement

for the year ended 31 December 2019

Group Statement of Comprehensive Income

for the year ended 31 December 2019

Actuarial gain/(loss) on retirement benefit obligations will not be subsequently reclassified to the Group Income Statement. 

Group Statement of Changes in Equity

for the year ended 31 December 2019

for the year ended 31 December 2018

1 Dividends paid:

a The final dividend for 2017 was originally reported in the 2017 Annual Report and Accounts as 8.70p 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 2020 in respect of the proposed final dividend for 2019 is £38 million based on the number of shares in issue as at 31 December 2019. The final dividend paid for 2019 will depend on the number of share-based incentives vesting before the final dividend is paid.

Group Balance Sheet