J O H N L A I N G p l c A N N UA L R E V I E W A N D S U M M A RY F I N A N C I A L S TAT E M E N T S 2 0 0 1 1 1 0 0 0 0 2 2
S S T T N N E E M M E E T T A A T T S S
L L A A I I C C N N A A N N I I F F
Y Y R R A A M M M M U U S S
D D N N A A
W W E E I I V V E E R R
L L A A U U N N N N A A c c l l p p
G JOHN LAING plc G N N I I A A L L Registered Office: N N H H O 133 PAGE STREET O J J MILL HILL, LONDON NW7 2ER ENGLAND Registered No. 1345670
Tel: +44 (0)20 8959 3636 Fax: +44 (0)20 8906 5297
Further copies of this statement are available from the above address or by visiting the Company’s website at www.laing.com innovation page. 08 customer focus page. 10 targeted growth page. 14 partnership page. 16 market focused page. 20 creative page. 22 CONTENTS
01 INTRODUCTION 02 CHAIRMAN’S STATEMENT 04 FINANCIAL HIGHLIGHTS 05 DIRECTORS 06 OPERATING REVIEW 24 FINANCIAL REVIEW 28 FIVE-YEAR REVIEW 29 DIRECTORS’ REPORT 36 INDEPENDENT AUDITORS’ STATEMENT TO THE MEMBERS OF JOHN LAING PLC 37 GROUP PROFIT AND LOSS ACCOUNT 38 GROUP BALANCE SHEET 39 SECTOR ANALYSIS 42 SUSTAINABLE DEVELOPMENT POLICY 43 FINANCIAL CALENDAR 44 ADVISORS
The Annual Review and Summary Financial Statements do not represent the full Directors’ Report and Financial Statements of the Company. A copy of the Directors’ Report and Financial Statements may be obtained from our Registered Office at 133 Page Street, London NW7 2ER, or viewed on our website at www.laing.com - JOHN LAING plc page. 01
W E A R E C O M M I T T E D TO C R E AT I N G GREATER SHAREHOLDER VALUE THROUGH INVESTMENT IN KEY AREAS OF OUR BUSINESS. THE GROWTH IN ASSET VALUE IN OUR RAPIDLY DEVELOPING INFRASTRUCTURE BUSINESS WILL BE THE MAIN DRIVER IN ACHIEVING BETTER AND SUSTAINABLE RETURNS TO SHAREHOLDERS IN THE YEAR AHEAD. “The prospects for the reshaped Group are good.”
Chairman’s Statement "I HAVE BEEN VERY IMPRESSED WITH THE QUALITY AND DEPTH OF MANAGEMENT SKILLS, AND THE ENTHUSIASM AND COMMITMENT OF OUR STAFF IN THE CONTINUING BUSINESSES. I AM CONFIDENT WE HAVE THE CAPACITY AND CAPABILITY TO DELIVER RESULTS WHICH ADD VALUE FOR OUR SHAREHOLDERS. THE CURRENT YEAR HAS STARTED WELL AND THIS GIVES THE BOARD CONFIDENCE IN THE OUTLOOK FOR 2002."
I N T RO D U C T IO N I am pleased to present my first statement having taken up the position of Executive Chairman from 1 February 2002. John Laing has undergone significant change since the last annual review. In September, Laing Construction was sold and the Group restructured its financing, including establishing new loan facilities and a £76.7 million rights issue carried out in November. Details of the sale of Laing Construction were set out in a circular to shareholders last September. The Group has initiated a £120 million asset disposal programme aimed at reducing overall debt levels. Realisations to date are ahead of book value and have amounted to £83.4 million, including the sale of the remaining 15% interest in Europistas, which generated a profit of £48.0 million (2000 – £17.3 million). The proposed sale of Laing Property, which we announced in November 2001, forms part of this asset realisation programme. I am pleased to report that the level of interest has been encouraging and a preferred bidder has been identified. An amount of £23.5 million has already been raised through selective property sales and we expect the sale of the remainder of the business to be completed in the coming months. As already reported in the trading update in January, the Group retains a limited number of specific liabilities related to the disposed Construction division. Since the interim statement, further progress has been made through renegotiation of agreements on the National Physical Laboratory contract, and this underlines the Board’s view that adequate provision has been made against all of these liabilities within the 2001 accounts. I am pleased to report that throughout the period when these events occurred, the continuing businesses of Laing Homes, Laing Investments and Laing Property all traded well and Hyder Investments, acquired early in the year, has been successfully integrated. Clearly my challenge is not one of turning around an ailing business since the underlying profitability of the Group’s continuing operations is sound. My task is to re-establish the confidence of our shareholders and our staff, and to develop a strategy that delivers sustainable profitable growth.
R E S U LT S The Group reported a loss before tax for the year ended 31 December 2001 of £24.7 million (2000 – profit £5.7 million).This resulted in a loss per share of 33.9 pence (2000 – earnings 0.4 pence). The disappointing trading performance of the Group was entirely attributable to operating losses in Laing Construction which amounted to £94.5 million prior to the sale of the business (2000 – losses £88.9 million). In addition, a loss of £33.6 million was incurred on the sale of Laing Construction. The continuing businesses, excluding the profit on sale of Europistas and other asset disposals, reported an operating profit of £84.5 million (2000 – £71.6 million). The refocusing of activities after the sale of Laing Construction has necessitated a significant reduction in the central overhead and head office costs.The Group has announced a number of redundancies at an estimated cost of £2.0 million, which has been fully provided within the 2001 accounts. - JOHN LAING plc page. 03
Chairman’s Statement (continued)
D I V I D E N D S As anticipated at the time of the rights issue, the Board is recommending a reduced final dividend of 4.3 pence (2000 – 8.5 pence), taking the full year dividend to 7.6 pence (2000 – 13.0 pence). If approved, the final dividend will be payable on 1 July 2002 to shareholders registered at the close of business on 2 April 2002.
D I R E C TO R S A N D E M P L OY E E S I have started the process of forming a Board, which will be more aligned to the current structure and strategy of the Group. I expect to appoint four new independent non-executive Directors by mid 2002. As previously announced, Sir Martin Laing has retired from his position as Chairman but he will remain on the Board as a non- executive Director.This will give a total of five non-executives, four of whom are independent, balancing the five executive Directors. On behalf of the Board, I would like to thank Sir Martin Laing and Robert Wood, who have both recently retired from executive duties and who have provided many years of valuable service to the Company. The Board has commenced a review of remuneration and reward for key members of staff with the aim of achieving closer alignment between their performance and the long-term interests of shareholders. I have been very impressed with the quality and depth of management skills, and the enthusiasm and commitment of our staff in the continuing businesses. I am confident we have the capacity and capability to deliver results, which add value for our shareholders. On behalf of the Board, I would like to thank all our employees for their dedication and hard work under the difficult circumstances that prevailed throughout 2001.
AC Q U I S I T I O N S Laing Investments achieved a step change in the scale of its operations through the purchase of Hyder Investments in January 2001.The purchase consideration was £92.5 million and the assets acquired included £33.1 million of net cash balances. Laing Investments also acquired a 50% interest in the project company behind the Queen Elizabeth II Hospital in Greenwich for a consideration of £12.8 million.The integration of the acquired businesses is now complete and the results are encouraging.The acquired companies contributed operating profits of £24.1 million in the year under review and significantly enhanced the Group’s position in the privately financed infrastructure markets. We have now invested a total of £129 million in infrastructure assets, which have a Directors’ value of £201 million.
R E V I E W O F O P E R AT I O N S Laing Homes had another sound year.The profit before interest of the UK business was £53.3 million (2000 – £53.0 million) on turnover of £381.3 million (2000 – £352.3 million).The events of 11 September did not result in any discernible long-term change to homebuyers’ confidence and the market has continued to hold up well. The business remains focused on product innovation and customer service and has further developed the Laing Homes brand which is well respected.This is complimented by the Beechcroft brand, for retirement homes, and by Octagon, the upmarket house builder in which Laing Homes increased its interest from 20% to 30% in July. In the year to 31 December 2001, the UK business sold 1,375 units (2000 – 1,235) at an average price of £227,000 (2000 – £238,000).The margin on sales in private housing was 15.6% (2000 – 16.4%) and in addition a £4.6 million profit on land sales was realised (2000 – nil). In the USA further action was taken towards the strategic exit on which Laing Homes has been working. In June 2001 the holding in WL Homes LLC was reduced from 50% to 22.5% following a financial restructuring which enabled the Group to repatriate £33.3 million of its investment.Transaction costs of £3.5 million depressed the first half result in the US business but the share of the strong second half performance generated a trading profit for the year of £6.3 million and an overall profit before interest from US operations of £2.8 million (2000 – £11.3 million). Laing Investments recorded a profit before interest for the year of £83.2 million (2000 – £27.4 million), including £48.0 million profits from the sale of Europistas (2000 – £17.3 million).The underlying growth reflects the fact that many of the Group’s PFI investments, including those acquired within the Hyder Investments portfolio, have now entered the operational phase when revenues start to flow.The interest charge on project debt, all of which is non-recourse to the Group, also commenced and against these operating profits there was a net financing cost of £17.4 million (2000 – £4.5 million). While the Group continues to expand its investment activity, the underlying profits are expected to rise with cash generated being reinvested. During 2001 Laing Investments achieved financial close on two PFI projects for the Metropolitan Police and were appointed preferred bidder to build and operate 17 police stations for the Greater Manchester Police Authority. In February 2002, M40 Trains Limited, an 85% owned Laing subsidiary, was awarded a 20-year extension on the Chiltern rail franchise, thereby creating additional value on our investment.This award was a first in the industry and was based upon Chiltern Railway’s excellent operating performance over the initial five-year period. Laing Investments has an exciting pipeline of bid opportunities that will enable the Group to further develop its strategic focus within this sector. Of increasing importance is the Group’s growing capability in facilities management and the delivery of quality services during the operational stage of PFI and PPP projects. Our wholly owned subsidiary, Equion FM, is already providing services management at Highlands School in Enfield, together with project asset management services in the health sector, and will provide an extensive range of support services on the police PFI projects. Equion FM is also bidding to potential third-party clients. Laing Property recorded a profit before interest of £9.7 million for the year.This was down on the £13.2 million profit before interest for the previous year, which included the one off £7.3 million on securitisation of the revenue stream at Ashford International Passenger Station. Property developments contributed significantly to the 2001 result including the sale of the 164,000 sq ft Crown Hill Retail Park at Plymouth and the letting of a 63,000 sq ft warehouse in Milton Keynes. Included in the result was a profit of £2.8 million on the sale for development of the Group’s headquarters at Mill Hill, which has been leased back short-term pending relocation to smaller premises in central London. - JOHN LAING plc page. 04
Chairman’s Statement (continued)
P RO S P E C T S Following the sale of Laing Construction the Group has a more predictable earnings profile from its remaining activities and the prospects for the re-shaped Group are good. The UK house building market remained strong throughout 2001 and the early indications are that this is continuing in 2002. Reservations in the early part of the current year are ahead of the corresponding period in 2001 and house price inflation is continuing. Several new sites will come to the market in the second half of the year and the timing of completions, and therefore the proportion of profitability, is expected to be greater in the second half than in 2001.The Board expects another good year from Laing Homes. In the infrastructure investment sector Laing Investments has a substantial pipeline of new opportunities, which will enable it to build on the recent success of winning the 20-year franchise extension on the Chiltern line and the two projects recently awarded by the Metropolitan Police. Further earnings growth is also expected from the expanding facilities management operation. When the sale of Laing Property is concluded, the Group will consist of a mix of current profitability and cash generation from the established and strongly performing Laing Homes business, together with asset value creation through the newer Laing Investments business. Laing Investments will be a net consumer of cash while we expand the business, with the exception of selective realisations of mature investments with lower potential for continuing capital growth. As mentioned in my introductory remarks, together with the Board, I am developing a strategy designed to achieve an appropriate balance between earnings and asset backing for the shares. It is clear that efficient use of capital and financial strength will be essential in order to maximise returns from the many opportunities available in both the strong housing market and the growing market for infrastructure investment. In the coming months the Board will consider refinancing options to reduce the Group’s borrowing costs. We are now in the process of simplifying the management structure and reducing the central overhead to a level more appropriate to the reduced scale of operations. The current year has started well.There is no reason to expect any significant change in the Group’s main markets and this gives the Board confidence in the outlook for 2002.
W W Forrester Executive Chairman Financial highlights
2001 2000
Turnover £1,389.2m £1,574.4m
(Loss)/profit before taxation (£24.7m) £5.7m
Shareholders’ funds £264.9m £240.7m
Net borrowings (£276.9m) (£30.0m)
Earnings per share (33.9p) 0.4p*
Dividends per share 7.6p 13.0p
Net assets per equity share 130p 196p*
* Restated for the Rights Issue of shares on 26 November 2001. from left to right. Stephen Lidgate, Bill Forrester, Derrick Arden, Andrew Friend, Adrian Ewer Directors
Bill Forrester M.Inst.M (61) – appointed 1 January 2002 Brian Chilver FCA, FCMA (68) John Laing plc, 2002 Senior non-executive Director Executive Chairman – appointed 1 February 2002 Director, John Laing plc, 1988 Chairman, Nominations Committee Chairman, Eskmuir Properties Plc, 1990 Chairman, Audit Committee Adrian Ewer FCA (48) Member, Nominations Committee Finance Director, John Laing plc, 1999 Member, Remuneration Committee Joined Laing 1991 Sir Martin Laing CBE, M A , FRICS, FICE (60) Stephen Lidgate FCIM (56) Non-executive Director Director, John Laing plc, 1995 Chairman, John Laing plc, 1985 – retired 31 January 2002 Chief Executive, Laing Homes Ltd, 1992 Chairman, Americas Advisers,Trade Partners UK Chairman, John Laing Homes plc, 1996 Director, NHP PLC, 1998 Director WL Homes LLC, 1998 Council Member, Confederation of British Industry Director Octagon Developments Ltd, 1999 Director RICS Foundation, March 2001 Director, House Builders Federation Board Member, Business in the Community Joined Laing 1992 Member, World Business Council for Sustainable Development Joined Laing 1966 Andrew Friend MA (49) – appointed 31 March 2001 Director, Laing Investments Ltd, 1999 Peter Harper FCA (66) Director, Hyder Investments Ltd, 2001 Non-executive Director Joined Laing 1999 John Laing plc, 1996 Deputy Chairman (non-executive), Lonmin Plc, 1993 Derrick A rdern FRICS (56) Member, Audit Committee Director, John Laing plc, 1998 Member, Nominations Committee Chairman, Laing Property plc, 1993 Chairman, Remuneration Committee Chairman, Holloway White Allom Ltd, 2000 Joined Laing 1993 The Rt. Hon Lord Howell of Guildford (66) Non-executive Director John Laing plc, 1999 Director (non-executive), Monks Investment Trust plc, 1993 European adviser, Japan Central Railway Company House of Lords Spokesman on Foreign Affairs Member, Audit Committee Member, Remuneration Committee Member, Nominations Committee - JOHN LAING plc page. 06 Award-winning Website Developed Land Winner of two Golds and four Visitor traffic during January 2002 90% of Laing Homes’ Silvers at the 2001 What House? was 240% higher than the same developments are built on awards, Laing Homes also won five period last year. previously developed land. Golds at the 2001 Evening Standard Operating Review New Homes Awards. Homes Laing Homes had another excellent year.
THE PROFIT BEFORE INTEREST OF THE UK BUSINESS WAS £53.3 MILLION (2000 – £53.0 MILLION) ON TURNOVER OF £381.3 MILLION (2000 – £352.3 MILLION). THE UK MARKET EXPERIENCED CONTINUING HOUSE PRICE INFLATION THAT WAS MOST NOTICEABLE IN THE SOUTH EAST OF ENGLAND, WHERE OUR OPERATIONS ARE CONCENTRATED. THE EVENTS OF 11 SEPTEMBER DID NOT RESULT IN ANY DISCERNABLE LONG-TERM CHANGE TO HOME BUYERS’ CONFIDENCE AND THE MARKET HAS CONTINUED TO HOLD UP WELL. THE BUSINESS REMAINS FOCUSED ON PRODUCT INNOVATION AND CUSTOMER SERVICE AND HAS DEVELOPED THE LAING HOMES BRAND WHICH IS WELL RESPECTED. THIS IS COMPLIMENTED BY THE BEECHCROFT BRAND, FOR RETIREMENT HOMES, AND BY OCTAGON, THE UPMARKET HOUSE BUILDER IN WHICH LAING HOMES INCREASED ITS INTEREST FROM 20% TO 30% IN JULY.
In the USA we took a further step towards the strategic exit on which Laing Homes has been working. In June 2001 the holding in WL Homes LLC was reduced from 50% to 22.5% following a financial restructuring which enabled the Group to repatriate £33.3 million of its investment.Transaction costs of £3.5 million depressed the first half result in the US business but the share of the strong second half performance generated a trading profit for the year of £6.3 million and an overall profit before interest from US operations of £2.8 million (2000 – £11.3 million).
IN NOVAT I O N In 2000, we introduced a number of technological innovations which are now widely established in our homes. In 2001, in line with our commitment to sustainability, we have introduced a new building system – the Jämerä System from Finland – which has tremendous energy saving potential. It is being used by Laing Partnership in the construction of new homes in Seabright Street, East London.
C U S TO M E R S E RV I C E Last year we were also particularly focused on improving our customer services. Our objective has always been to offer the best service in the market, from the quality of our homes, to the choice and the ease of buying, rounded off by our after-sales service. The impetus for further improvement comes from our day-to-day experience and from independent research carried out for us, in particular by the Henley Centre. The Henley Centre report shows that, in today’s pressurised world, people have much higher expectations of service in the housing market. So, if we are to succeed, we must deliver. Through our own internal monitoring systems and other independent surveys, we know that some 87% of our customers are currently satisfied with our service and that 90% of them would recommend Laing Homes to anyone they knew who was looking for a new home. Our objective is to improve on this.
S U P P O RT FO R OU R BR AND S AND T H E W E B We have long recognised the importance of our brands and have consistently supported them over the years. During the past year, we have rebranded Laing Partnership and Laing Training and given them identities which emphasise the concept of working together to achieve a common goal. The performance of Beechcroft was affected by the events of 11 September and a slowdown in their building programme due to delays in the planning process. Nevertheless, the brand has expanded into regional markets familiar to Laing Homes and opened a new office in Cobham which will become the hub of their operations in the South East. As one of the leading house builders engaged in internet marketing, we make it our business to continuously improve the design and broaden the features of our website as we move ever nearer to the day when customers will be able to choose and buy a new home online.
WE ARE COMMITTED TO BUILDING THE BEST HOMES IN THE BEST LOCATIONS, AND TO PROGRESS THROUGH GIVING OUR CUSTOMERS THE BEST SERVICE POSSIBLE. - JOHN LAING plc page. 07 Financial Highlights Financial Highlights United Kingdom United States 2001 2000 2001 2000 Turnover £m 381.3 352.3 Turnover £m 169.4 215.4 Profit on ordinary activities Profit on ordinary activities before interest £m 53.3 53.0 before interest £m 2.8 11.3 Net assets £m 272.9 232.0 Net assets £m 35.1 60.3 Employees average number 860 765 Unit sales number 1,375 1,235 Average selling price £ 227,000 238,000
B U I LD I N G TO E N A B L E A S U S TA I N A B L E TO M O R ROW We have continued to work within the framework of the Group’s environmental policies and have further developed our own Building to Enable a Sustainable Tomorrow (BEST) initiative. For example, well in excess of Government recommendations, over 90% of our new developments are now carried out on previously developed land. We are making water savings of up to 1.3 million litres a year Stephen Lidgate through rain water harvesting and other measures, and saving up to 20% of skip waste through plasterboard Chief Executive recycling. Moreover, many of our homes now achieve an energy rating of over 80 on the Government’s Standard Laing Homes Assessment Procedure measurement scale.
R E C O G N I T I O N F O R S U C C ES S We were several times honoured for the quality of our product during 2000, being twice voted Housebuilder of the Year. During 2001 we struck gold five times in the Evening Standard’s Housebuilder of the Year competition. We also won prizes for Best Energy Saving Development, Best Retirement Development, Best Future Home and Best Landscape Design at the What House? Awards. Just as importantly, our commitment to customer service was recognised when the South West Thames division’s Construction Director, Bruce Heffer, was named Customer Services Leader of the Year and their Customer Services Manager, Matthew Occomore was named Customer Services Professional of the Year in the National Customer Service Awards.
P RO S P E C T S F O R A S T E A DY M A R K E T With interest rates having been maintained at or near their present level for some time now, our business has been spared the debilitating peaks and troughs of the 1970s and 1980s. Provided the rates and the market remain stable, we can look forward to steady growth during the coming year. We are committed to building the best homes in the best locations. We know who our customers are. Our objective is to progress by giving them the best service possible.
“IN TODAY'S PRESSURISED WORLD, PEOPLE HAVE MUCH HIGHER EXPECTATIONS OF SERVICE IN THE HOUSING MARKET. SO, IF WE ARE TO SUCCEED, WE MUST DELIVER.”
BEST HOMES IN THE BEST LOCATIONS, AND CUSTOMERS THE BEST SERVICE POSSIBLE. - JOHN LAING plc page. 08 Innovation can make a massive difference to our customers and we seek to ensure all the latest technology is included in our homes. Opposite is one of the five-bedroomed homes at our Old Albanian Park development in St Albans. market opportunity…
While the national demand for new homes continues to put pressure on land usage, the Government’s PPG3 guidelines simultaneously call for a greater density on all new developments and an increase in the construction of social housing. Like any other constraints, conditions like these can always be seen as catalysts for creativity.
LAING HOMES’ COMMITMENT TO THEIR RESPONSIBILITIES AND OBLIGATIONS IN THE “ WIDER CONTEXT OF THEIR LOCAL REGION’S NEEDS IS CLEAR. IN A PROJECT THAT INVOLVED THE DEMOLITION OF SEVERELY CONTAMINATED BUILDINGS, THE COMPANY’S COMPLIANCE WITH ALL THE PLANNING REQUIREMENTS DURING THE DISMANTLING AND REMOVAL OF HAZARDOUS WASTE WAS VERY IMPRESSIVE. AS AN INDEPENDENT MONITOR FROM THE CONSIDERATE CONSTRUCTORS SCHEME, I AWARDED FULL MARKS IN FIVE OF THE EIGHT AREAS INVESTIGATED RANGING FROM ENVIRONMENTAL AWARENESS TO ACCOUNTABILITY AND GOOD NEIGHBOURLINESS. WITH A TOTAL SCORE OF 38 OUT OF A POSSIBLE 40, THIS CONTRACTOR IS ACTIVELY SEEKING TO BE THE BEST AND IS A SERIOUS CONTENDER FOR A CONSIDERATE CONSTRUCTOR SCHEME NATIONAL AWARD.“ D F Cole Construction Confederation Considerate Constructor Scheme
innovation
strategic response…
As an innovative company, Laing Homes has always perceived every difficulty as no more than a challenge to be overcome. In responding to today’s market conditions, we have become even more imaginative in how we use the land at our disposal and equally creative in designing new homes to suit the needs of today’s customers.
- JOHN LAING plc page. 10 Customer service is a top priority. Opposite, one of our luxury homes at Langley Park in Beckenham, Kent.
market opportunity…
In any walk of life, satisfied customers will always be valuable customers. They are the ones most likely to buy again, and the ones most likely to recommend a company’s products or services to other, like-minded people. Companies who put a high priority on customer service and product quality will always be market leaders.
LAING HOMES SURPRISED ME WITH THE EFFICIENCY AND QUALITY OF THEIR SERVICE. “ RIGHT FROM THE START THEY WERE HELPFUL. I WANTED TO CONSOLIDATE TWO PROPERTIES INTO ONE. AS ONE OF MY PROPERTIES WAS RENTED OUT, I THOUGHT IT MIGHT PROVE COMPLICATED, BUT THE LAING HOMES TEAM MADE IT REALLY SIMPLE. THEY ALSO OFFERED ME THE FULL MARKET VALUE FOR MY PROPERTIES IN PART- EXCHANGE, WHICH REALLY IMPRESSED ME. THERE WERE A COUPLE OF HICCUPS TO DO WITH LEGAL ISSUES, BUT I WAS KEPT INFORMED AT EVERY STAGE. AT COMPLETION THEY WERE REALLY ACCOMMODATING, LETTING ME STAY IN MY OLD HOUSE LATER THAN PLANNED AND ENSURING A SMOOTH MOVE. BUT WHAT'S MADE THE REAL DIFFERENCE IS HAVING A CUSTOMER SERVICE ADVISOR WHO'S DEALT WITH ANY QUERIES SINCE I MOVED IN. I GET AN EXCELLENT SERVICE, AND I'LL GET IT FOR THE NEXT TWO YEARS. I'D DEFINITELY RECOMMEND LAING HOMES TO FRIENDS OF MINE - JUST ON SERVICE ALONE!“ Tony Buck Customer customer focus
strategic response…
As a marketing-orientated company we have always had a strong commitment to sustainable customer service. Project Champion is a new customer service initiative, currently operating in two of our regions, which we will implement throughout our business, if it proves successful.
- JOHN LAING plc page. 12 I nvestment Awards Leading Police Contracts Hospital Achieve m e nt Laing Investments and Equion With contracts worth some The £180 million Norfolk and were named PPP Developer £230 million, Equion has already Norwich Hospital was handed of the Year in the Infrastructure established itself as the UK’s over in September – five months Journal Awards. largest provider of PFI Police ahead of schedule. Operating Review Facilities. Investments Additions to our portfolio have strengthened the business
LAING INVESTMENTS RECORDED A PROFIT BEFORE INTEREST FOR THE YEAR OF £83.2 MILLION, INCLUDING £48.0 MILLION PROFIT FROM THE SALE OF EUROPISTAS.THIS SPECTACULAR GROWTH REFLECTS THE FACT THAT MANY OF THE GROUP’S PFI INVESTMENTS, INCLUDING THOSE ACQUIRED WITHIN THE HYDER INVESTMENTS PORTFOLIO, HAVE NOW ENTERED THE OPERATIONAL PHASE WHEN REVENUES START TO FLOW. HOWEVER, IT SHOULD BE NOTED THAT THE INTEREST CHARGE ON PROJECT DEBT ALSO COMMENCES AND AGAINST THESE OPERATING PROFITS THERE WAS A NET FINANCING COST OF £17.4 MILLION (2000 – £4.5 MILLION).
Throughout 2001 a normal level of bidding activity was maintained on new project developments and substantial pre-contract effort was aimed at the achievement of commercial agreement on the Chiltern Line franchise extension, which subsequently reached financial close early in 2002.The Group’s policy is to write off all PFI bid costs to the profit and loss account until such time as the project reaches financial close when they are reinstated to the balance sheet.The Group did carry bid costs on the balance sheet in respect of the Chiltern Line franchise prior to financial close once it had become preferred bidder and it had signed a Deed of Amendment following which the new subsidy profile commenced. The investments business has an exciting pipeline of bid opportunities that will enable the Group to push forward its strategic focus within this sector. Of increasing importance is the Group’s growing capability in facilities management and the delivery of quality services during the operational stage of PFI and PPP projects. Our wholly owned subsidiary, Equion FM, is already providing services management at Highlands School in Enfield, project asset management services in the health sector, and will provide an extensive range of support services on police PFI projects. Equion FM is also bidding to potential third party clients.
A S S E T S AN D P RO F I T S I N CR EA S E D I N A Y E A R O F C O N S I D E R A B L E AC H I E V E M E N T 2001 was a remarkable year for Laing Investments. By its end, the Directors’ valuation of our portfolio of assets had risen from £148 million to £201 million.
£ million As at 31 December 2000* 148 Acquisitions and cash injections 56 Disposals and refinancing (21) Change in valuations 18
As at 31 December 2001 201
* Assets of £148 million, included investments acquired as part of the Hyder portfolio up to April 2001.
Profits before tax had increased from £22.9 million in 2000 to £65.8 million including £48 million from the sale of Europistas. Moreover, in a year of successful trading, we expanded our activities and formed new commercial partnerships which will give us a robust platform for further growth in the future. During the year, a number of key projects moved out of construction into the revenue-generating, service- delivery phase.This enabled us to launch a planned and successful expansion of our facilities management, asset maintenance and specialist service activities.
S U C C E S S F U L AC Q U I S I T I O N S During the year we successfully concluded the £92.5 million acquisition of the Hyder investments portfolio from Western Power Distribution. Hyder Investments’ assets and project interests are an excellent fit with our established holdings in road, rail infrastructure and accommodation investments, and fall well within our geographical markets.The critical mass secured by the acquisition also ensures a firm foundation for the growth of Equion plc, the Laing Investments subsidiary delivering serviced accommodation to the public sector.
HYDER INVESTMENTS’ ASSETS AND PROJECT INTERESTS ARE AN EXCELLENT FIT WITH OUR ESTABLISHED HOLDINGS. THE CRITICAL MASS SECURED BY THE ACQUISITION ENSURES A FIRM FOUNDATION FOR LAING INVESTMENTS’ FUTURE GROWTH. - JOHN LAING plc page. 13 Financial Highlights 2001 2000 £ million £ million Turnover 219.1 91.4
Profit on ordinary activities before interest 83.2 27.4
Interest on non-recourse project debt 17.4 4.5
Profit before tax 65.8 22.9
Net assets 266.4 45.1
In February, we bought Macquarie European Infrastructure Ltd and thus acquired a 50% interest in Meridian, the project company behind the Queen Elizabeth II Hospital in Greenwich.This substantially strengthened our engagement in the highly competitive health sector, where we also achieved a significant success by handing over the new Norfolk & Norwich Hospital some five months ahead of schedule.
Andrew Friend P O L I C E P RO J E C T S R E AC H C L O S E Managing Director Other key projects reaching financial close during the year included the £40 million Metropolitan Police Firearms Laing Investments & Public Order training facility being built at Gravesend and police stations in Lewisham, Bromley and Sutton.
N E W PA RT N E R S H I P S F O R M E D During the year we successfully cemented a broad range of new commercial partnerships through which we are pursuing new opportunities in our targeted sectors. The year ended with the formation of bespoke consortia which will bid for the Ministry of Defence’s Connaught & Allenby project – MoDernise – and the LIFT Primary Care programme being promoted by the National Health Service in association with Partnerships UK. In Australia, we have formed a joint venture which will enable us to capitalise on our European experience and pursue a range of social infrastructure activities.
R AI L R E C O R D R EWA R D E D In a troubled year for Britain’s rail network, it is pleasing to report that our major rail investment – Chiltern Railways – not only continued to deliver one of the best safety records in the UK but, at the beginning of 2002, was awarded the Strategic Rail Authority’s first-ever 20-year franchise.This is an exceptional achievement.
I N V E S T I N G I N S U S TA I N A B I L I T Y As a Laing company, we work well within the policies set out by the Sustainable Development Steering Group. Our involvement in low pollution projects such as Chiltern Railways reflects our concern for our investments’ impact on the environment. Similarly, our specifications for our recently completed police stations achieved an excellent standard in Building Research Establishment Environmental Assessment Method (BREAM) while, at the Fire Arms & Public Order training facility, our proposals reduced the noise impact to a minimum. During 2001 we began the process of securing ISO 9001 accreditation, which we hope to achieve in the second quarter of 2002, with environmental certification ISO 14001 following during 2003.
B U S I N E S S S T R E N G T H E N E D Following the substantial growth in our assets and projects under management at the beginning of the year, we took the opportunity to strengthen several aspects of our business. For example, all new and existing investments are now subject to a rigorous review and approval process overseen by our Investment Committee. We have also significantly broadened our skills base through training and development, and undertaken a recruitment programme which has attracted very high calibre people across a wide range of disciplines. With so many social infrastructure projects coming to successful fruition, our industry urgently needs to promote the real benefits of the PFI/PPP initiative. As one of the most experienced participants in this sector, we have all the skills and financial strength needed to deliver a competitive edge, both in the UK and overseas. It is these qualities, and our staff’s commitment, which will enable us to grow in the future.
INTERESTS ARE AN EXCELLENT FIT WITH OUR SECURED BY THE ACQUISITION ENSURES A FUTURE GROWTH. - JOHN LAING plc page. 14 Fulfilling our customers’ desires has been the key to our strategy of targetted growth. At London Marylebone Station (pictured) passengers have been keen to use facilities for locking their bikes up on the platform which were added in response to demand. market opportunity…
In recent years, the development and promotion of the Government’s programme of Private Finance Initiative projects has created many openings for qualified companies looking to contribute to the regeneration of Britain’s public sector accommodation portfolio. This has led to considerable private sector investment in the construction and management of schools, hospitals and – more recently – police stations and training facilities.
THE METROPOLITAN POLICE AUTHORITY’S ESTATE STRATEGY CALLS FOR THE MODERNISATION “ OF SEVERAL LONDON FACILITIES TO HELP MAINTAIN THEIR HIGH STANDARDS OF POLICING. FINANCE FOR THESE PROJECTS IS TO BE RAISED THROUGH THE PFI PROGRAMME. EQUION’S SUCCESSFUL BID FOR TWO PFI CONTRACTS IS GROUNDBREAKING ON TWO COUNTS. FIRST, THE POLICE CAN VACATE PART OF THE NEW FACILITIES AFTER TEN YEARS, IF THEY WISH. SECOND, EQUION’S TRAINED SUPPORT STAFF WILL HANDLE A VARIETY OF SUPPORT SERVICES, THUS RELEASING MORE OFFICERS FOR FRONT-LINE DUTIES. SPEAKING IN NEWCASTLE IN JANUARY 2002, PRIME MINISTER TONY BLAIR SAID: ‘POLICE OFFICERS SPEND FAR TOO MUCH TIME ON PAPERWORK WHICH COULD BE DONE BY ADMINISTRATIVE STAFF. ONE RECENT STUDY FOUND THAT POLICE OFFICERS WERE SPENDING ALMOST AS MUCH TIME IN THE STATION AS ON THE STREET. NEITHER THE POLICE NOR THE PUBLIC WANT THAT.’ EQUION’S INITIATIVE WILL MOVE THE METROPOLITAIN POLICE CLOSER TOWARDS OVERCOMING THIS OBJECTION.“ Richard Weston Managing Director, Equion targeted growth
strategic response…
The re-launch of Laing Hyder as Equion plc signalled Laing Investments’ commitment to maintaining its position as a leader in the PFI sector. Equion’s expertise lies in investing in, developing and managing teams of project companies. The Company also has highly developed skills in facilities management, particularly in the areas of administration, catering, cleaning and other support services, which can offer client organisations the opportunity to release key personnel from non-core activities.
- JOHN LAING plc page. 16 We operate successful partnerships to provide services people rely on everyday. Our PFI and PPP activities in the health sector are already providing facilities for thousands of people. Partnerships with police forces in London and Manchester will deliver 20 new police stations. market opportunity…
The privatisation of Britain’s national rail network created many fresh opportunities for organisations interested in investing in various combinations of infrastructure projects and passenger services previously owned and managed by the public sector. Following the offer for sale in 1996, the rail network became the property and responsibility of Railtrack as system providers while a number of companies took responsibility for providing passenger and freight services.
THE SUCCESS OF LAING INVESTMENTS’ MAJORITY SHAREHOLDING IN CHILTERN RAILWAYS “ IS DIRECTLY RELATED TO THE PRODUCTIVE PARTNERSHIPS THE COMPANY HAS DEVELOPED WITH SEVERAL KEY ORGANISATIONS. IN PARTICULAR, CHILTERN’S ABILITY TO WORK ALONGSIDE RAILTRACK HAS PLAYED A PIVOTAL ROLE IN ENABLING THE COMPANY TO EXPAND AND IMPROVE ITS SERVICE OVER THE PAST FIVE YEARS. SPEAKING AT THE TIME OF THE ANNOUNCEMENT OF CHILTERN RAILWAYS’ NEW FRANCHISE, DICK FEARN, RAILTRACK’S DIRECTOR FOR THE MIDLANDS ZONE, SAID: ‘OUR SUCCESS IN WORKING WITH CHILTERN RAILWAYS TO PROVIDE THE INFRASTRUCTURE THEY NEED HAS ALREADY RESULTED IN THIS BEING VOTED BRITAIN’S BEST RAIL ROUTE. THE ADDITIONAL INVESTMENTS ANNOUNCED TODAY WILL ENABLE THIS LINE TO GO FROM STRENGTH TO STRENGTH AND WE ARE DELIGHTED TO CONTINUE TO PLAY OUR PART.’ LAING INVESTMENTS WILL NOW BE FACILITATING FURTHER INVESTMENT OF £371 MILLION OVER THE 20 YEARS OF ITS NEWLY-AWARDED AND HIGHLY SUCCESSFUL FRANCHISE.“ Alan Chaney Director, Laing Rail partnership
strategic response…
As a leading investor in infrastructure programmes, with considerable experience of developing road and rail construction projects and their subsequent management, Laing immediately saw that a major investment in a train operating company would be a natural and valuable extension of its existing portfolio. Laing Investments is now the major shareholder in Chiltern Railways, widely recognised as Britain’s most successful train operator and the first-ever to be granted a 20-year franchise by the Strategic Rail Authority.
- JOHN LAING plc page. 18 S t rong Brands Development of the year Property has successfully Trade City Exeter won the South established four strong brands West Industrial Agents’ Society, covering office space, industrial Development of the year award 2001. warehousing, distribution and Operating Review mixed use developments. Property Our brand development strategy has been successful
LAING PROPERTY EXCEEDED ITS BUDGET IN RECORDING A PROFIT BEFORE INTEREST OF £9.7 MILLION FOR THE YEAR.THIS WAS DOWN ON THE £13.2 MILLION OPERATING PROFIT FOR THE PREVIOUS YEAR WHICH INCLUDED THE ONE OFF £7.3 MILLION ON SECURITISATION OF THE REVENUE STREAM AT ASHFORD INTERNATIONAL PASSENGER STATION.
28% RETURN ON A S S E T S M A I N TA I N S C O N S I S T E N T P E R F O R M A N C E Laing Property maintained its consistent performance during the 12 months ended 31 December 2001, recording a 28% return on assets and an improved performance against our budget. Significant contributions came from Crownhill Retail Park in Plymouth, where B&Q now occupy the largest retail warehouse in the South West and Pizza Hut have recently taken a 3,348 sq ft unit, and from the industrial letting of 63,000 sq ft of warehouse space to MacFarlane Group UK in Milton Keynes. A profit of £2.8 million was also realised on the sale for development of the Group’s headquarters at Mill Hill which have been leased back short-term pending relocation to smaller premises in central London.
N EW B R A N D S W E L L E S TA B L I S H E D As announced last year, our strategy is to develop a number of unique trading brands which identify our business focus and expertise. Our objective is to give each of our operations a prominent profile in their respective markets, to raise awareness amongst occupiers, landowners and investors. By the end of 2001 four brands – Absolute,Trade City,Transcend and XL – were established and are building market awareness.
A B S O L U T E S U C C E S S Absolute is committed to the development of modern, efficient, cost-effective office space in the M3 and M4 corridor. It currently has six developments in Frimley, Reading and Swindon and a portfolio which has grown threefold in two years – from 325,000 sq ft in December 1999 to 1,000,000 sq ft in December 2001. Absolute is now able to offer occupiers a variety of building sizes and specifications in a number of locations along the M3 and M4 corridors.
T R A D E C I T Y D E V E L O P M E N T S Trade City is focused on providing visible, accessible, flexible, high quality business units for trade, distribution and service based companies with a strong customer interface. We currently have schemes in development at Exeter, Bristol, Didcot and Enfield, each offering modern premises in a heavily landscaped, well managed environment. As a mark of Trade City’s success,Trade City Exeter won the South West Industrial Agents’ Society’s Development of the Year Award for 2001, beating off strong competition. Orange Personal Communications and Osma Underfloor Heating occupied units there during 2001, joining other trade occupiers and making the scheme over 75% occupied.
X L M A K E S I T S M A R K The XL brand, which delivers high bay warehouses with easy access to Britain’s motorway network, achieved its third major letting during 2001, when its 62,322 sq ft warehouse on Standing Way in Milton Keynes was let to the MacFarlane packaging and distribution group.
OUR STRATEGY IS TO DEVELOP UNIQUE BRANDS WHICH IDENTIFY OUR AREAS OF EXPERTISE AND BUILD AWARENESS AMONGST OUR TARGET AUDIENCES. - JOHN LAING plc page. 19 Financial Highlights 2001 2000 £ million £ million Profit on ordinary activities before interest 9.7 13.2 Net assets 39.9 26.5
T R A N S C E N D T R AC K S N E W P RO J E C T S Transcend specialises in mixed use development at or near railway stations and brings together train operating companies, Railtrack and local authorities, to work in partnership in bringing forward developments which will regenerate the areas around stations and improve facilities for rail users. During 2001,Transcend began work on proposals for the redevelopment of High Wycombe and Epsom Derrick A rdern stations and new developments adjacent to Aylesbury and West Hampstead stations. Chairman Laing Property D E V E L O P I N G S U S TA I N A B L E P O L I C I E S As part of the Laing Group, we believe successful sustainable development is achieved by striking the right balance between economic returns, shareholder value and the fulfilment of our environmental and social responsibilities. As participants in the Laing Environmental Steering Group, we are committed to Laing’s systematic approach towards this Group-wide objective. We seek to apply the Steering Group’s principles to our procurement and use of land, materials and resources, to the management of waste, and to the use and management of our own offices and our existing and proposed property developments. We also comply with all the relevant legislation and industry guidance and participate in a number of voluntary agreements associated with sustainable development. We have made satisfactory progress on all these fronts during the year.
P RO S P E C T S F O R T H E F U T U R E In addition to expanding our main brands, we have made further progress on the development of QWest, our business, research and development park in Bristol, which includes an Academic Innovation Centre to be operated by Bath and Bristol universities. We also obtained planning permission for a £50 million town centre development at Enfield, in partnership with ING. Partnership is key to our business, whether it be through our jointly owned companies – in particular Absolute with Bank of Scotland – or with our consultants, contractors and advisers. We value their support. During the final quarter of the year Laing Property was prepared for sale as part of the Laing Group refinancing.The underlying value of our assets, the potential strength of our brands and the skills and experience of our staff will be highly valued by the purchaser.
“THE UNDERLYING VALUE OF OUR ASSETS, THE POTENTIAL OF OUR BRANDS AND THE SKILLS AND EXPERIENCE OF OUR STAFF ARE OUR STRENGTHS.”
BRANDS WHICH IDENTIFY OUR AREAS AMONGST OUR TARGET AUDIENCES. - JOHN LAING plc page. 20 The high quality and specialist location office space provided through our Absolute brand has proved very popular with occupiers. Pictured are some of the office developments at Drake’s Meadow, Swindon within easy reach of the M3 and M4. market opportunity…
Many companies have a network of offices along the M4, all with differing accommodation and location requirements. These range from headquarters in Central and West London, to sales and marketing offices close to Heathrow Airport, and research and development establishments and regional offices towards Swindon and Bristol.
IN MARKETS SUCH AS THE M4 CORRIDOR, WHERE BRAND RECOGNITION AMONGST CUSTOMERS WITH WIDELY DIFFERING DEMANDS IS KEY TO BUILDING LASTING RELATIONSHIPS, ABSOLUTE HAS ALREADY MADE A NAME FOR ITSELF. ABSOLUTE IS RECOGNISED AS A MAJOR DEVELOPER IN THE M4 CORRIDOR AND HAS QUICKLY “ ESTABLISHED A REPUTATION FOR DEVELOPING HIGH QUALITY OFFICE ACCOMMODATION AND WORKING IN PARTNERSHIP WITH OCCUPIERS IN THE PRINCIPLE M4 TOWNS. SINCE ABSOLUTE WAS FORMED, IT HAS TREBLED THE SIZE OF ITS DEVELOPMENT PORTFOLIO EACH YEAR. THE COMPANY HAS OVER 1,000,000 SQ FT UNDER DEVELOPMENT, WHICH REINFORCES ITS POSITION AS A LEADING DEVELOPER ALONG THE M4 CORRIDOR.“ Andrew Tyldesley Partner, Allsop & Co
market focused
strategic response…
Laing Property has created a strong brand image for Absolute which is consistently applied to all M4 schemes and which is directly associated with high quality, modern, cost effective and professionally presented business space. The brand has enabled Laing Property to create awareness amongst occupiers, local authorities and landowners in order to expand its development portfolio.
- JOHN LAING plc page. 22 Our bespoke Trade City brand developments provide flexibility for our occupiers that they cannot find elsewhere. Pictured are details from our Trade City, Exeter development which provides specialised facilities for a wide range of complimentary businesses thus creating an environment market opportunity… that attracts customers.
No two businesses have identical accommodation needs and often require a high degree of flexibility, not usually found in smaller business units. They often want premises capable of serving more than one function. For example, they may need manufacturing space as well as showroom and office accommodation within the same building and easy access to main roads and other transport links.
WE WERE LOOKING FOR MORE THAN JUST A WAREHOUSE WHEN WE STARTED WORKING “ WITH TRADE CITY. WE WANTED SMART PREMISES WHICH WOULD GIVE US THE EXPOSURE YOU GET FROM A PRIME LOCATION, A SHOWROOM WHERE OUR CUSTOMERS COULD SEE OUR PRODUCTS ON DISPLAY AND A BOARDROOM WHERE WE COULD HOLD INTERNAL MEETINGS AND MAKE PRESENTATIONS TO CLIENTS. WE ALSO NEEDED A RESEARCH, DESIGN AND DEVELOPMENT FACILITY, PAINT SHOPS AND STORAGE SPACE. IT SEEMED A TALL ORDER TO BEGIN WITH, BUT THE FLEXIBILITY OF THE TRADE CITY TEAM AND THE BASIC SHELL THEY PROVIDED – TOGETHER WITH SOME STRAIGHTFORWARD ADDITIONS TO IT – MADE OUR REQUIREMENTS EASY TO MEET. THE ENTIRE SET-UP, TOGETHER WITH THE LANDSCAPED ENVIRONMENT AND THE PARKING FACILITIES, HAS RAISED OUR BUSINESS PROFILE AND ENHANCED OUR REPUTATION IN THE AREA.“ Nigel Beresford Stalite Signs, Exeter creative
strategic response…
Trade City’s strategy was to create developments that match occupier’s trade and warehouse requirements. By working closely with potential and existing occupiers, we can create premises which will fulfil both their present and future needs. We offer freehold or leasehold tenure, bespoke fit-outs, a range of unit sizes and excellent value for money. Our units are in convenient, prominent locations, offering a consistently high level of design, finish and an after sales services not usually provided by other developers. page. - JOHN LAING plc 24 Acquisitions S t rong continui ng The way forward The purchase of Hyder Investments business The Group successfully cleared portfolio at the beginning of the The Group’s continuing businesses the way for future profits through year strengthened the Group’s traded well throughout 2001 and its disposal of Construction and existing businesses in that sector. produced a profit of £84.5 million. by making provision for retained liabilities. Financial Review Continuing businesses traded well
THE GROUP REPORTED A LOSS BEFORE TAX FOR THE YEAR ENDED 31 DECEMBER 2001 OF £24.7 MILLION (2000 – PROFIT £5.7 MILLION).
2001 2000 Continuing Discontinued Total £ million £ million £ million £ million Turnover 842.4 546.8 1,389.2 1,574.4 Operating loss including joint ventures and associates 84.5 (94.5) (10.0) (17.6) Profit on disposal of and amounts written off investments and other fixed assets 51.2 – 51.2 29.3 Loss on disposal of operations – (33.6) (33.6) – Profit before interest 135.7 (128.1) 7.6 11.7 Net interest (32.3) (6.0) (Loss)/profit before tax (24.7) 5.7
D I S C O N T I N U E D BU S I N E S S On 22 October 2001 the Group sold its interest in Laing Construction plc for a consideration of £1. The accounts for the year ended 31 December 2001 include trading losses of £94.5 million in Laing Construction for the period prior to the sale of the business.The net assets of Laing Construction amounted to £26.8 million and the costs of the sale amounted to £4.7 million. Goodwill previously written off to reserves was £2.1 million, giving rise to a loss on sale of £33.6 million.The total Construction loss of £128.1 million is shown in the results of discontinued businesses. The trading loss in Laing Construction of £94.5 million is stated after making provision for the Directors’ assessment of likely costs associated with an indemnity provided to the purchaser on retained contract liabilities. At 31 December 2001 the provision in the accounts amounted to £57.0 million.
CO N T I NU I NG BU S I N E S S E S The continuing businesses at 31 December 2001 comprised Laing Homes, Laing Investments and Laing Property. The results of the continuing businesses are summarised in the table below.The comparatives for 2000 exclude the construction businesses.
C O NT I N UI N G BU S I N E S S E S AT 31 D ECEMBER 2001
2001 2000 £ million £ million Operating profit Homes 59.6 64.3 Investments 31.6 (0.5) Property 6.6 12.1 Group management/general (13.3) (4.3) 84.5 71.6 Profit on disposal of and amount written off investments and other fixed assets Homes (3.5) – Investments 51.6 27.9 Property 3.1 1.1 51.2 29.0 Profit before interest 135.7 100.6
During the second half of 2001 the Group sold its 15% interest in Europistas.The profit on sale amounted to £48.0 million (2000 - £17.3 million) and capital repayments received ahead of the sale amounted to £6.4 million (2000 - £10.5 million).The total profits from Europistas are included within Continuing Businesses under the heading of ‘Profit on disposal of and amounts written off investments and other fixed assets’. - JOHN LAING plc page. 25
C O NT I N U IN G BU S I N E S S E S AT 31 DECEMBER 2001 (continued) The results of companies acquired are included within continuing businesses. Acquisitions during the year to 31 December 2001 included the Hyder Investments portfolio in January and a 50% interest in the PFI project company for the Queen Elizabeth II Hospital, Greenwich. The acquired businesses contributed operating profits of £24.1 million to the 2001 result. The purchase consideration paid for the Hyder Investments portfolio was £92.5 million and the assets Adrian Ewer Finance Director acquired included cash balances of £33.1 million, resulting in a net expansion of the Group’s infrastructure John Laing plc portfolio of £59.4 million. As part of this purchase, the Group took on commitments to pay a further £43.7 million of deferred equity to project companies over a four year period to 2005. During the period to 31 December 2001 an amount of £10.1 million of this deferred equity was settled by the Group. Subsequent to the acquisition of Hyder Investments, the Group sold a 22.5% interest in the A55 PFI road project for £3.2 million and a 22.5% interest in the M40 PFI road project for £8.9 million, thereby reducing its interest to 50% in both projects. The purchase consideration paid for a 50% interest in the Queen Elizabeth II Hospital, Greenwich, amounted to £12.8 million. The Directors valuation of Hyder investments assets acquired including the deferred equity payments following the acquisition, was £92.5 million. Group management costs for the year ended 31 December 2001 included exceptional refinancing costs of £6.7 million for the restructuring of the Group’s debt facilities and £2.0 million provision for redundancies and other costs associated with reducing the scale of the head office function.
F I N A N C I N G C O S T S The Group’s net interest charge for the year ended 31 December 2001 was £32.3 million (2000 - £6.0 million) and consists of three elements: i) Group interest (net) 2001 – £16.5 million 2000 – £1.5 million Group interest includes charges on core bank facilities and US$110 million loan notes, and credits on sterling deposits. UK base rates fell during 2001 through successive rate reductions to 4.0%. Up until the restructuring of the Group’s finances which commenced in July 2001, the margin payable over LIBOR on all variable rate debt ranged from 60 to 80 basis points.The interest rate on the two tranches of the US$ Loan Notes was fixed at 9.19% to 9.34%. On 22 October the Group completed the rearrangement of its debt facilities. Following this the interest paid by the Group on variable rate debt and overdraft was 300 basis points over LIBOR base rate. The interest rates on the US$ loan notes were revised to 11.82% and 11.96%. Group interest includes net charges of £4.1 million (2000 – nil) on the non-recourse borrowings of PFI project companies where the Group’s investment represents more than 50% of the equity of the project company. Group interest also includes amortisation and the write-off of front-end fees incurred on arranging debt facilities and provision for ‘make whole’ interest charges on scheduled debt repayment dates.The charge for these items in 2001 was £0.8 million (2000 – £0.1 million) and it is anticipated that this will increase to £2.5 million in 2002 if the existing debt arrangements remain in place throughout the year. ii) Joint venture interest (net) 2001 – £13.3 million 2000 – £4.1 million The Group’s share of interest in joint ventures represents its proportionate share of project companies’ interest receivable and interest payable. Interest rates applicable to project companies vary from project to project and are partially fixed where the joint venture partners believe it is economically effective to do so. Joint ventures include the Group’s investment in a number of PFI project companies.The interest on non- recourse project debt is generally capitalised while the project remains under construction and is not charged to the profit and loss account until operations have commenced. During 2001, several projects commenced operations and further operational projects were added as a result of acquiring Hyder Investments.This gave rise to the substantial increase in both the joint venture operating profits and the interest charge. - JOHN LAING plc page. 26
Financial Review (continued)
F I N AN C I N G C O S T S (c onti nu e d ) iii) Associate interest (net) 2001 – £2.5 million 2000 – £0.4 million Associate interest represents the Group’s share of the interest charged to the profit and loss account of associated undertakings.Throughout 2001, and the previous year, the associate interest included that related to the Group’s investments in Octagon Group Limited and Gorodok Pty Limited. 2001 included an element of the interest related to WL Homes following the capital restructuring and its reclassification from a joint venture to an associate.
TA X AT I O N The tax charge for 2001 was £12.1 million (2000 – £2.8 million).The tax charge principally reflects tax on profits in the continuing businesses not able to be sheltered by the losses in the Construction Division due to its disposal.The potential capital gains on the profits resulting from the sale of Europistas have largely been sheltered by capital losses on the sale of Laing Construction and by indexation. Under the terms of the sale of Laing Construction the Group is entitled, through the operation of Group relief, to its time-apportioned share of taxable losses for the 15-month accounting period to 31 March 2002.This is unlikely to result in a significant amount of losses available for offset against the taxable profits of the continuing businesses. The Group has no unutilised Advance Corporation Tax.
F I N A N C E Following the acquisition of Hyder Investments Limited in January 2001, the Group held a controlling interest in a number of project subsidiaries.The assets and liabilities of those subsidiaries are consolidated for the purpose of the accounts. Group net debt includes £109.5 million of project specific debt that is secured solely on the assets of the project company and on which there is no further recourse to the Group’s other assets. Consolidated net debt at 31 December comprised the following:-
2001 Recourse Non-recourse Total 2000 £ million £ million £ million £ million
Cash at bank 25.0 8.8 33.8 80.7
Loans repayable within 1 year (8.5) – (8.5) (23.9)
Loans repayable after more than 1 year (183.9) (118.3) (302.2) (86.8)
Total (167.4) (109.5) (276.9) (30.0)
The poor trading of Laing Construction and the disappointing proceeds for the sale of that business caused a potential breach of the Group’s loan covenants in 2001. Following extensive negotiations with the Group’s lenders, the loan facilities were restructured on 22 October 2001 to provide committed funding for the Group to August 2004, incorporating a new covenant package and consequently a higher ongoing cost of borrowing. The sale of Laing Construction also resulted in the deconsolidation of £73.4 million of cash, this being the net cash balance held by that business in support of its trade liabilities at the date of sale.This depletion of the Group’s financial resources necessitated the refinancing by way of a Rights Issue of 76,756,488 new Ordinary Shares at 100 pence per share. The Rights Issue raised £73.9 million net of expenses. Underwriting commissions and other costs associated with the Rights Issue amounted to £2.8 million.These costs have been charged to the Share Premium Account. In June 2001 the Group reduced its interest in WL Homes LLC from 50% to 22.5%.The net cash proceeds, including a special dividend distribution, were £33.3 million. In addition to the cash consideration the Group received £20.5 million of interest bearing deferred equity.This is expected to be realised through cash payments to the Group over the next two to three years. - JOHN LAING plc page. 27
Financial Review (continued)
D E B T FAC I L I T I E S Group net debt rose from £30.0 million at the beginning of the year to £276.9 million, including non-recourse net debt of £109.5 million, by 31 December 2001.The non-recourse debt arose as a result of the purchase of Hyder Investments Limited and represents project specific debt that has to be consolidated on projects where the Group’s interest is in excess of 50%.The underlying recourse net debt at 31 December 2001 was £167.4 million (2000 - £30.0 million). The Group has core debt facilities of £257 million, including US$110 million of Loan Notes. Scheduled repayments are £10 million by 30 June 2002, or on completion of the sale of Laing Property Developments if earlier, followed by £25.0 million on each of 31 March 2003 and 30 September 2003.The bank facilities mature on 31 August 2004.The Loan Notes amortise over the period from 2004 to 2012, but become repayable on demand from 31 August 2004 and repayments made prior to the scheduled date would attract a substantial premium for prepayment, as set out in note 22 contained within the Directors’ Report and Financial Statements.
A S S E T R E A L I S AT I O N Details on the sale of Laing Construction and the Rights Issue were communicated in a circular to shareholders in September 2001.The circular explained that the Group was investigating the sale of up to £120 million of assets. Up to March 2002 the realisations against this target amounted to £83.4 million. Of the realisations achieved, £51.4 million relates to the sale of the Group’s 15% interest in Europistas. However, the final proceeds from the sale of £33.1 million were not received until early January 2002 and were, therefore, included in the Group’s consolidated balance sheet as a debtor at 31 December 2001. As part of the overall asset reduction programme, and as previously announced, the Group intends to sell Laing Property. Some individual property assets have already been sold, with the proceeds mainly received in 2002. Negotiations are well advanced for the sale of the remaining property portfolio and this is likely to result in further debt reduction during 2002.
GO ING CONCER N The Board has reviewed the working capital adequacy for the foreseeable future. A key feature of the cash flow projection for the current year is completion of the asset realisation programme.The Board has a high level of confidence that the programme will be completed in line with expectation and has therefore prepared the financial statements on a going concern basis.
F O R E I G N C U R R E N C Y The Group operates a policy of hedging against significant balance sheet exposures to foreign exchange fluctuations where appropriate. Currently the investments in the US housing business and Adelaide Airport are hedged using foreign currency loans and forward foreign exchange contracts. During the year the investment in the US housing business was partially disposed of and as a consequence total US denominated assets reduced to £32.4 million and as at 31 December these were £37.0 million. As the Group has US term loans totalling £85.6 million, the exposure was hedged by entering into forward foreign exchange contracts which had a notional value of £56.3 million at 31 December 2001. The Group seeks to cover significant transactional exposures arising from receipts and payments in foreign currency, where appropriate and cost effective. Contingent or uncertain exposures are hedged when, in the opinion of the Directors, the risk justifies doing so. The book value of overseas assets, excluding US housing assets and Adelaide Airport at 31 December 2001, was £12.9 million (2000 - £6.0 million).This includes the Group’s investment in Northern Territories Airports at £4.2 million, Gorodok at £4.1 million, Nelostie at £3.0 million and Horizon Energy at £1.3 million. These are offset by liabilities in Group overseas companies. When the Group invests in overseas developing markets, the required rate of return includes an appropriate risk premium to cover the risks inherent with the economy and business practices of that country. Group Treasury acts as a service centre to the Group and its divisions and is not a profit centre. - JOHN LAING plc page. 28
Five-Year Review
2001 2000 1999 1998 1997 —————————————————————————————————— Turnover £ million 1,389.2 1,574.4 1,791.7 1,606.6 1,461.4 —————————————————————————————————— (Loss)/profit before taxation £ million (24.7) 5.7 52.7 20.1 32.2 —————————————————————————————————— (Loss)/profit attributable to shareholders £ million (37.4) 2.9 43.4 15.5 26.1 —————————————————————————————————— Shareholders’ funds £ million 264.9 240.7 251.3 219.1 214.3 —————————————————————————————————— Net (borrowings)/cash £ million (276.9) (30.0) 37.9 43.8 19.7 —————————————————————————————————— Profit before taxation as a % of – turnover % (1.8) 0.4 2.9 1.3 2.2 – shareholders’ funds % (9.3) 2.4 21.0 9.2 15.0 —————————————————————————————————— Earnings per share pence (33.9) 0.4* 41.0* 13.0* 23.9* —————————————————————————————————— Dividends per share pence 7.6 13.0 12.25 10.75 10.5 —————————————————————————————————— Dividend cover times – – 3.6 1.3 2.4 —————————————————————————————————— Employees (average) number 5,656 7,729 9,443 10,146 9,291 ——————————————————————————————————
* Restated for the Rights Issue of shares on 26 November 2001. - JOHN LAING plc page. 29
Directors’ Report
The Directors submit their Report and Financial Statements for the year ended 31 December 2001 which they approved on 18 March 2002.
RESULT AND DIVIDENDS
The loss before taxation and minority interests for the year was £24.7 million. After taxation and minority interests the loss attributable to shareholders was £37.4 million.
The Directors recommend a final dividend of 4.3 pence per Ordinary Share to be paid on 1 July 2002 to shareholders whose names appear on the register at the close of business on 2 April 2002.
With the interim dividend of 3.3 pence per share paid on 2 November 2001 the total dividend for the year is 7.6 pence per share.
A commentary on events during the year and on the development of the business are given in the Chairman’s Statement and in the Operating and Financial Review contained within the Annual Review.
The Laing Environmental Steering Group promotes the principles of sustainable development throughout the Company.
GROUP ACTIVITIES
Following the sale of Laing Construction in October 2001, the activities of individual Group companies are mainly related to the building of homes for sale, property development, investment in infrastructure and facilities management. A list of principal subsidiaries, joint ventures, associated undertakings, joint arrangements and investments appears in the Directors’ Report and Financial Statements on pages 51 and 52.
RIGHTS ISSUE
On 27 September 2001 the Company announced its intention to make a fully underwritten Rights Issue of up to 76,756,488 Ordinary Shares of 25 pence each (“Ordinary Shares”) to those shareholders on the Register of Members on 17 October 2001. The Rights Issue was to be made at a price of £1 per share on the basis of 9 Ordinary Shares for every 13 held on 17 October 2001 and 23.3531 Ordinary Shares for every 100 6.4% Cumulative Convertible Preference Shares of £1 each held on such date, raising £73.9 million after expenses.
The Rights Issue was approved by the Company’s shareholders at an Extraordinary General Meeting held on 22 October 2001 and accordingly the interests of those Directors who held shares in the Company on 17 October 2001 and who took up all or part of their rights have been adjusted. Similarly where Directors had outstanding options over the Company’s Ordinary Shares on such date, the number of options outstanding and the related option price have been adjusted in accordance with Inland Revenue practice.
The Rights Issue was considered necessary due to the worse than expected cash cost of exiting from Laing Construction giving rise to a level of indebtedness which the Directors and the Company’s existing lenders believed would be excessive in relation to the debt servicing capacity of the Group’s continuing businesses. The Group therefore agreed a refinancing package the principal elements of which, in addition to the Rights Issue, were:
• renegotiated bank facilities aggregating £180 million maturing on 31 August 2004 on amended terms and covenants.
• renegotiated arrangements on amended terms and covenants with the holders of US$110 million (£75.3 million) of Loan Notes 2010/12 whereby following repayments in March and September 2003 approximately US$94 million of the notes will remain in place until at least 31 August 2004 and thereafter will be repayable on demand (including a premium for repayment, calculated by reference to US Treasury rates then prevailing, which formed part of the original issue terms of the notes).
• the issue by the Company to its lender banks, in consideration of their agreeing to renegotiated bank facilities, of warrants over 8,716,482 Ordinary Shares exercisable at £1 per share at any time until 31 August 2004. The warrants represent approximately 5% of the fully diluted share capital of the Company as enlarged by the Rights Issue.
In addition to the refinancing package, the Company undertook to investigate the sale of up to £120 million of its assets which were expected to come largely from the Group’s Property Development and Investments divisions. At 18 March 2002 £83.4 million had been raised from disposals. - JOHN LAING plc page. 30
Directors’ Report
DIRECTORS
The Directors during the year were: Sir Martin Laing R A Wood – retired 31 January 2002 D Ardern J Armstrong – retired 30 April 2001 A J H Ewer R S Lidgate D C Madden – retired 30 April 2001 A E Friend – appointed 31 March 2001 B O Chilver P J Harper The Rt. Hon Lord Howell
Sir Martin Laing retired as Chairman on 31 January 2002, but remains as a non-executive Director. R A Wood retired as a Director on 31 January 2002. W W Forrester was appointed a Director from 1 January 2002 and Executive Chairman from 1 February 2002.
The Directors retiring by rotation in accordance with the Articles of Association are Sir Martin Laing, Lord Howell and R S Lidgate and, being eligible, they offer themselves for re-election.
The service contracts of Sir Martin Laing and Lord Howell are terminable on one year’s notice from the Company. The service contract of R S Lidgate is terminable on two years’ notice from the Company.
W W Forrester, having been appointed subsequent to the last Annual General Meeting (“AGM”) retires in accordance with the Articles of Association and, being eligible, offers himself for election. His service contract is terminable on one year’s notice from the Company. At his date of appointment, Mr Forrester held 50,000 Ordinary Shares in the Company.
Biographical details of Directors offering themselves for election and re-election are shown on page 5.
REMUNERATION REPORT
REMUNERATION POLICY
Our policy is to set Directors’ overall remuneration and benefits at market levels comparable with companies of similar size and scope of activities in order to be able to attract, retain and motivate high calibre individuals.
The main components of our Directors’ remuneration package are basic salary, annual bonus, a long-term incentive scheme, membership of a pension scheme, car allowance, an executive share option scheme (no grants have been made since 1996) and provision of health insurance.
We operate a Directors’ bonus scheme related to pre-tax profit. The 2001 scheme provides for the payment of up to 60% of basic salary subject to the achievement of a pre-determined performance target set at Group level alone.
The long-term Performance Share Plan approved by shareholders at an Extraordinary General Meeting in October 1996 has now been wound up and there are no options outstanding under the plan.
At the AGM held on 20 June 2001, the Shareholders approved a new long-term incentive plan, called The John Laing Long-Term Incentive Plan, which provides for payment of up to and not normally beyond 100% of basic salary subject to the achievement of performance targets. The first grant under this new plan was made in 2001 using the measures and targets agreed by the shareholders; earnings per share (“EPS”) (40% weighting) and relative total shareholder return (“TSR”) (60% weighting). For Directors the maximum grant on achievement of maximum target was set at 75% of basic salary – the limit set by shareholders for the first grant.
The threshold for EPS is RPI + 3% per annum which would trigger an award of 10% of basic salary. The maximum performance for EPS is RPI + 15% per annum which would trigger an award of 30% of basic salary. For relative TSR the threshold for the minimum award of 15% of basic salary is median of the comparator group, and the maximum award of 45% of basic salary is for being at least 75th percentile in the comparator group.
The Group had a policy of granting share options selectively to Directors and Senior Executives under the terms of an Inland Revenue Approved Scheme within the provisions of the Finance Act 1984. The final allocations under that scheme were granted in 1996. - JOHN LAING plc page. 31
Directors’ Report
REMUNERATION REPORT (continued)
REMUNERATION POLICY (continued)
With the exception of R S Lidgate, whose contract terminates on two years’ notice, all other contracts for Directors provide for one year’s notice from the Company. Arrangements relating to early termination are dealt with on the merits of individual cases.
Directors participate in a defined benefit occupational pension scheme – The John Laing Pension Fund. The Fund provides pension benefits based on the relevant service, accrual rate and basic salary. All benefits payable from the Fund are subject to Inland Revenue limits and would be restricted as necessary. For the purposes of the Inland Revenue test, members’ total remuneration (and any previous pension benefits) are taken into account. The Inland Revenue pension cap is accommodated through the payment of a separate cash sum to individuals in appropriate cases to cover additional pension provision.
Membership of the Remuneration Committee is set out in the statement of Corporate Governance on page 14 of the Directors’ Report and Financial Statements.
Particulars of Directors’ emoluments, pension entitlements, share interests and share options are set out below:
Salary Tot a l Total P ens ions Pensions and fees Benefits 2001 2000 2001 2000 DIRECTORS’ EMOLUMENTS £££ £ £ £ —————————————————————————————————————————— EXECUTIVE Sir Martin Laing 365,000 11,180 376,180 402,626 32,850 31,500 R A Wood 390,585 5,121 395,706 415,145 33,750 31,950 D Ardern 216,119 2,012 218,131 213,778 37,462 33,015 J Armstrong (4) 95,000 5,314 100,314 318,229 – – A J H Ewer 255,208 15,583 270,791 261,429 53,503 44,215 R S Lidgate 286,458 10,897 297,355 301,543 62,253 55,415 A E Friend (3) 153,612 793 154,405 – 26,306 – D C Madden (5) 130,613 4,618 135,231 232,115 – 17,550
NON-EXECUTIVE B O Chilver 30,000 2,308 32,308 32,296 – – P J Harper 30,000 – 30,000 30,000 – – The Rt. Hon Lord Howell 30,000 – 30,000 30,271 – – ———–———————————————————————— TOTAL 2,040,421 2,237,432 246,124 213,645 ———–————————————————————————
NOTES
(1) The Directors’ annual bonus scheme for 2001 related solely to the Group’s pre-tax profit target. The threshold for triggering bonus payments was not met and therefore no annual bonus payments have been included within total Directors’ emoluments (2000 – £219,600). Annual bonuses are calculated by reference to achievement of pre-determined profit targets as measured by the Group’s management accounts. Such profit targets are approved by the Board and individual annual bonus arrangements are approved by the Remuneration Committee. (2) Pension contributions stated above include a notional charge of 9% (2000 – 9%) on pensionable salaries. This is shown in order to reflect the normal cost of providing accrued pension benefits. The balance reflects payments made to certain individuals, to accommodate the Inland Revenue pension cap. (3) A E Friend was appointed to the Board on 31 March 2001 and the 2001 emoluments shown above are stated for the nine months ending 31 December 2001. (4) The 2001 emoluments of J Armstrong are for the period 1 January 2001 to 30 April 2001, the date on which he retired as a Director. Remunerations received after 30 April 2001 were £215,231 for salary, fees and compensation to a former Director, and £1,400 for company car, fuel and BUPA benefits provided for the month of May. (5) The 2001 emoluments of D C Madden are for the period 1 January 2001 to 30 April 2001, the date on which he retired as a Director. Remunerations received after 30 April 2001 were £69,848 for salary and fees, plus £1,221 for company car, fuel and BUPA benefits provided for the month of May. (6) The only Director to exercise options during the year was Sir Martin Laing who made a gain of £153,425. (7) Sir Martin Laing retired from his position as an Executive Director on 31 January 2002 and received a payment of £50,000 in lieu of his entitlement to participate in the 2001 Long-Term Performance Share Plan. This amount is in addition to the sum disclosed above and gives a total remuneration in the year of £426,180. (8) R A Wood retired early as a Director on 31 January 2002 and received a payment of £317,524 in lieu of notice which represented his salary for his notice period and his entitlement to participate in the 2001 Long-Term Performance Share Plan. This amount is in addition to the sum disclosed above and gives a total remuneration in the year of £713,230. - JOHN LAING plc page. 32
Directors’ Report
DIRECTORS’ PENSION ENTITLEMENTS
A c c u mu l a t ed tota l a ccrued I n c rea se in a n nual pension accrued annua l A ge a t at 31 December pension during Tr an s fer value end of 2001 the year (2) of increase (3) EXECUTIVE DIRECTORS ye a r £ £ £000 ———————————————————————————— Sir Martin Laing 59 301,408 (128) (2.5) R A Wood 59 337,941 45,534 893.2 D Ardern 56 28,620 3,708 62.6 A J H Ewer 48 33,390 3,809 43.4 A E Friend 49 7,419 2,718 32.4 R S Lidgate 56 9,540 1,757 29.7 ————————————————————— 718,318 57,398 1,058.8 —————————————————————
NOTES
(1) The pension entitlement shown is that which would be paid annually on retirement based on service to 31 December 2001.
(2) The increase in accrued pension during the year excludes any increases on account of inflation.
(3) These transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11.
(4) Throughout 2001 all Executive Directors were members of The John Laing Pension Fund (the “Fund”). The Fund is a tax approved scheme.
(5) Members of the Fund have the option to pay Additional Voluntary Contributions; neither the contributions nor the resulting benefits are included in the above table.
(6) Whilst J Ar mstrong was a Director up to and including 30 April 2001, no pension was accruing through 2001 as he had reached 60 years of age in September 1999
(7) Whilst D C Madden was a Director up to and including 30 April 2001, no pension was accruing through 2001 as he had reached 60 years of age in December 2000.
(8) Membership of the Fund is non-contributory.
(9) The increase in accrued pension for R A Wood is calculated under the rules of the John Laing plc pension schemes and is based on the average of the last three years’ remuneration. - JOHN LAING plc page. 33
Directors’ Report
DIRECTORS’ INTERESTS
SHARES The number of shares of the Company in which each Director of the Company is deemed to hold an interest is shown below in accordance with the requirements of the Companies Act 1985, and includes family interests and holdings in which Directors are interested solely as Trustees.
At 31 December 2001 At 1 January 2001 —————————————— ————————————— 6.4% 6.4% C onve rt i bl e Convertible C u mu l a ti ve Cumulative O rdi n a ry P re fe re n c e Ordinary Preference S h a re s S h a re s Shares Shares 25 p ea ch £1 each 25p each £1 each ———–———————————————————————— BENEFICIAL Sir Martin Laing 1,224,533 154,067 1,149,449 154,067 R A Wood 90,012 – 43,415 – D Ardern 22,326 – 13,243 – A J H Ewer 46,711 – 8,987 – R S Lidgate 78,688 – 26,779 – A E Friend 6,786 – –– B O Chilver 1,919 – 1,134 – P J Harper 29,265 – 22,293 – The Rt. Hon Lord Howell 888 – 525 –
AS TRUSTEES (NON-BENEFICIAL) Sir Martin Laing 4,626,346 500,000 4,599,197 500,000 R A Wood – – 2,732,372 150,000 B O Chilver 11,245,089 400,000 10,805,361 400,000 P J Harper 3,934,479 – 8,113,759 – ———–————————————————————————
By reason of common interests some shares are included against the names of more than one Director. After eliminating such duplications the total number of shares in which the Directors are interested as Trustees are shown below.
At 31 December 2001 At 1 January 2001 —————————————— ————————————— 6.4% 6.4% C onve rt i bl e Convertible C u mu l a ti ve Cumulative O rdi n a ry P re fe re n c e Ordinary Preference S h a re s S h a re s Shares Shares 25 p ea ch £1 each 25p each £1 each ———–———————————————————————— Directors’ interests as Trustees 17,576,911 800,000 23,091,386 800,000 ———–————————————————————————
SHARE OPTIONS The Directors participated in the Senior Executive Share Option Scheme and the Savings Related Share Option Scheme and have options to subscribe for Ordinary Shares as follows:
At *Rights Exercised A t Date from 1 January issue during the 3 1 Decemb er Exercise which Expiry 2001 adjustment year 2001 price exercisable date —————————————————————————————— ———————————————————— Sir Martin Laing 85,000 – 85,000 – 346p 11/05/97 11/05/04 4,074 278 – 4,352 +196.588p 01/02/02 31/07/02 R A Wood 30,000 2,046 – 32,046 323.90p 11/05/97 11/05/04 D Ardern 4,074 278 – 4,352 +196.588p 01/02/02 31/07/02 R S Lidgate 4,074 278 – 4,352 +196.588p 01/02/02 31/07/02 —————————————————————————————— 127,222 2,880 85,000 45,102 ——————————————————————————————
+ Exercise price – Savings Related Share Option Scheme. * Following approval of the Rights Issue by the Company’s shareholders, the number of options outstanding and the related option price have been adjusted accordingly. - JOHN LAING plc page. 34
Directors’ Report
SHARE OPTIONS (continued)
1 The mid-market price of the Company’s Ordinary Shares on 31 December 2001 was 155 /2 pence. The range of share prices during 2001 1 1 was 102 /2 pence to 567 /2 pence.
1 During the year Sir Martin Laing exercised options over 85,000 shares. The market price on the date of exercise was 526 /2 pence.
The Register of Directors’ Interests contains full details of Directors’ shareholdings and options.
On 18 January 2002 W W Forrester was granted an option to acquire 379,746 Ordinary Shares at a price of 158 pence per share subject to a performance condition over the period 1 January 2002 to 31 December 2004. This performance condition is relative TSR, and the Company must rank in the top quartile of the comparator group for the grant to be exercised. The comparator group is the same as that used for the 2001 Long-Term Incentive Plan grant.
On 3 January 2002 P J Harper acquired 20,000 6.4% Convertible Cumulative Preference Shares of £1 each. On 17 January 2002 the interests of Lord Howell increased following the acquisition of 2,150 Ordinary Shares by his wife, Lady C D Howell, which are to be held in an Individual Savings Account.
There were no other movements in Directors’ interests in shares and share options prior to the date of this report.
LONG-TERM PERFORMANCE SHARE PLAN
Directors participate in a long-term Performance Share Plan based on Group performance over three-year cycles.
Following the fundamental change in the Group’s strategy it was decided that the long-term Performance Share Plan should be wound up and replaced with a new Long-Term Incentive Plan. Shareholders approved this new plan at the AGM in June 2001.
In order to compensate Directors for loss of future entitlements, and thus enable the Scheme to be wound up, the following awards were made to Directors on 9 February 2001 in respect of the Scheme years 1999 and 2000. The share price on the date of award was 519 pence.
Ord i n a ry shares 25p ea ch Va lue on —————————————— date of M a x i mu m aw a rd a w a rd A w a rd £ ————————————————————— Sir Martin Laing 155,520 72,706 377,344 R A Wood 157,810 73,790 382,970 D Ardern 78,605 36,474 189,300 J Armstrong 119,835 55,995 290,614 A J H Ewer 75,742 31,025 161,020 R S Lidgate 112,364 51,900 269,361 D C Madden 85,476 39,727 206,183 A E Friend 20,053 6,684 34,689 ————————————————————— 805,405 368,301 1,911,481 —————————————————————
A grant under the new Long-Term Incentive Plan was made on 24 October 2001. The total maximum conditional awards to Directors in respect of the scheme year commencing 1 January 2001 is set out below.The share price on the date of the award was 114 pence. Subsequent to the year end, all the Directors have waived their entitlements under the 2001 grant to maximise share capacity and to support the proposed new share incentive schemes with broader participation.
Ordinary shares 25p Value on each maximum date of award award —————————————— R S Lidgate 199,013 226,875 A J H Ewer 177,302 202,124 D Ardern 137,500 156,750 A E Friend 130,263 148,500 —————————————— - JOHN LAING plc page. 35
Directors’ Report
SUBSTANTIAL SHAREHOLDINGS
As at 18 March 2002, the Directors were aware of the following substantial interests in the shares of the Company.
Ord i n a ry s h a re s 25p each % —————————————— Amvescap plc 31,610,726 18.11 Schroder Investment Management Limited 19,676,499 11.23 Kirby Laing Principal Trust 9,139,744 5.24 ——————————————
EMPLOYEES
The Group seeks to ensure employee commitment to its objectives in a number of ways. It has adopted a system of twice-yearly presentations whereby the Company’s Directors visit Laing offices around the country to brief staff on the Group’s financial performance and strategic plans. In addition, regular team briefings at local level provide employees with information about the performance of their part of the business and about other topics of local interest. A wide range of information is also communicated across the Group’s Intranet, including the e-publication of the Group’s financial results.
The Staff Pension Fund Advisory Committee is a consultative group which draws its membership from different parts of the Group. It meets twice a year to discuss current matters concerning the Fund and also nominates three of its members to act as trustees of the Fund.
A Savings Related Share Option Scheme provides the opportunity for many employees to become shareholders. This scheme matured on 1 February 2002.
The framework within which decisions about people are made is set out in the Group’s personnel policy which is published in the staff handbook. It is part of that policy to employ and train disabled people whenever their skills and qualifications allow and when suitable vacancies are available. If existing employees become disabled, every effort is made to find them appropriate work and training is provided if necessary.
POLITIC AL AND CHARITABLE CONTRIBUTIONS
No contributions were made by the Group to any political party. Charitable contributions made during the year by the Company and its subsidiaries amounted to £6,670. In addition, contributions of £804,904 were made by Laing’s Charitable Trust. The Trust is funded separately and derives its income from investments which are held and managed independently from the Group.
PAYMENT POLICY
The Group is a registered supporter of the CBI Prompt Payers Code of Good Practice. Payment terms are clearly stated in contracts between Group companies and their suppliers or subcontractors from the outset. The Group has a consistent policy to pay in accordance with the contracted terms, provided the supplier is also complying with all the relevant terms of the contract. More information about the Code may be obtained from the CBI. The number of days’ billings from suppliers outstanding to the Group at 31 December 2001 was 57 days (2000 - 78 days). The Company does not carry on a trade.
AUDITOR
The Company’s auditor, KPMG Audit Plc, is willing to continue in office and a resolution concerning its reappointment in accordance with Section 385 of the Companies Act 1985 is to be proposed at the forthcoming AGM.
On behalf of the Board
W W Forrest er Executive Chairman 18 March 2002 - JOHN LAING plc page. 36
Independent Auditor’s Statement to the Members of John Laing plc
We have examined the summary financial statement set out on pages 38 to 41.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Directors are responsible for preparing the Annual Review and Summary Financial Statements in accordance with applicable UK law.
Our responsibility is to report to you our opinion on the consistency of the summary financial statement within the Annual Review and Summary Financial Statements with the full annual financial statements and Directors’ Report, and its compliance with the relevant requirements of section 251 of the Companies Act 1985 and the regulations made thereunder. We also read the other information contained in the Annual Review and Summary Financial Statements and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the summary financial statement.
BASIS OF OPINION
We conducted our work in accordance with Bulletin 1999/6 ‘The auditors’ statement on the summary financial statement’ issued by the Auditing Practices Board for use in the United Kingdom. Our report on the Group’s full annual financial statements describes the basis of our audit opinion on those financial statements.
OPINION
In our opinion the summary financial statement is consistent with the full annual financial statements and Directors’ report of John Laing plc for the year ended 31 December 2001 and complies with the applicable requirements of section 251 of the Companies Act 1985, and regulations made thereunder.
K P M G Au d it P l c Chartered Accountants 8 Salisbury Square Registered Auditor London EC4Y 8BB 18 March 2002 - JOHN LAING plc page. 37
Group Profit and Loss Account John Laing plc and subsidiary undertakings
2001 2001 2001 2000 Continuing Discontinued+ Total FOR THE YEAR ENDED 31 DECEMBER 2001 £ million £ million £ million £ million ———————————————————————————— TURNOVER 842.4 546.8 1,389.2 1,574.4
DEDUCT: Share of joint venture turnover (181.4) (1.2) (182.6) (249.9) Share of associate turnover (111.3) – (111.3) (12.8) ———————————————————————————— GROUP TURNOVER 549.7 545.6 1,095.3 1,311.7 Continuing 496.5 – 496.5 461.0 Acquisitions 53.2 – 53.2 – Discontinued – 545.6 545.6 850.7 Cost of sales (430.3) (596.3) (1,026.6) (1,237.1) ———————————————————————————— GROSS PROFIT 119.4 (50.7) 68.7 74.6 ———————————————————————————— Exceptional cost of restructuring (8.7) – (8.7) (15.1) Other operating and administrative expenses (62.4) (43.5) (105.9) (96.9) ———————————————————————————— Total operating and administrative expenses (71.1) (43.5) (114.6) (112.0) Other operating income 2.9 – 2.9 0.5 ———————————————————————————— GROUP OPERATING LOSS 51.2 (94.2) (43.0) (36.9) Share of operating profit/(loss) of: Joint ventures 25.3 (0.3) 25.0 17.1 Associates 8.0 – 8.0 2.2 ———————————————————————————— OPERATING LOSS INCLUDING JOINT VENTURES AND ASSOCIATES 84.5 (94.5) (10.0) (17.6) Continuing 60.4 – 60.4 71.6 Acquisitions 24.1 – 24.1 – Discontinued – (94.5) (94.5) (89.2) Profit on disposal of and amounts written off investments and other fixed assets 51.2 – 51.2 29.3 Loss on disposal of operations – (33.6) (33.6) – ———————————————————————————— PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST 135.7 (128.1) 7.6 11.7 ———————————————————————————— Interest receivable: Group 8.4 7.6 Joint ventures 9.8 1.9 Associates 0.1 – Total 18.3 9.5 Interest payable: Group (24.9) (9.1) Joint ventures (23.1) (6.0) Associates (2.6) (0.4) Total (50.6) (15.5) Net interest (32.3) (6.0) —————————————— (LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION (24.7) 5.7 Taxation (12.1) (2.8) —————————————— (LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION (36.8) 2.9 Minority interests (0.6) – —————————————— (LOSS)/PROFIT ATTRIBUTABLE TO SHAREHOLDERS (37.4) 2.9 Dividends on equity and non-equity shares (13.3) (15.1) —————————————— RETAINED LOSS FOR THE YEAR (50.7) (12.2) —————————————— Earnings per share – Basic (33.9)p 0.4p* – Diluted (33.9)p 0.4p*
* Restated for the Rights Issue of shares on 26 November 2001. + The results of discontinued businesses include the trading loss and loss on disposal of the Construction business on 22 October 2001. - JOHN LAING plc page. 38
Group Balance Sheet John Laing plc and subsidiary undertakings
2001 2000 AT 31 DECEMBER 2001 £ million £ million —————————————— ASSETS EMPLOYED
FIXED ASSETS Intangible assets 12.2 9.5 Tangible assets 83.1 41.5 Investments 22.7 28.0 Investments in joint ventures: Share of gross assets 676.5 458.2 Share of gross liabilities (578.5) (372.8) 98.0 85.4 Investments in associates 51.7 17.7 —————————————— 267.7 182.1 —————————————— CURRENT ASSETS Land and developments 402.2 314.3 Stocks and work in progress 2.6 2.8 Debtors – due within one year 81.7 167.7 – due after more than one year 94.3 34.8 176.0 202.5 Short-term investments 2.2 2.2 Cash at bank and in hand 33.8 80.7 —————————————— 616.8 602.5 —————————————— CREDITORS Amounts falling due within one year: Bank and other loans 8.5 23.9 Other creditors 193.8 377.5 —————————————— 202.3 401.4 —————————————— NET CURRENT ASSETS 414.5 201.1 —————————————— TOTAL ASSETS LESS CURRENT LIABILITIES 682.2 383.2
CREDITORS Amounts falling due after more than one year: Bank and other loans 302.2 86.8 Other creditors 19.5 23.6 —————————————— 321.7 110.4
PROVISIONS FOR LIABILITIES AND CHARGES 94.8 31.7 —————————————— 265.7 241.1 —————————————— FINANCED BY
CAPITAL AND RESERVES Called up share capital 83.1 64.1 Share premium account 81.2 23.7 Property revaluation reserve 3.6 4.7 Profit and loss account 94.8 146.6 Other reserves 2.2 1.6 —————————————— SHAREHOLDERS’ FUNDS: – equity 226.8 202.1 – non-equity 38.1 38.6 264.9 240.7 Minority interests – equity 0.8 0.4 —————————————— 265.7 241.1 —————————————— - JOHN LAING plc page. 39
Sector Analysis
P rofit on ordinary Turnover activities before interest Net assets*
2001 2000 2001 2000 2001 2000 £ million £ million £ million £ million £ million £ million ————————————————————————————————————————— ACTIVITY Homes 550.7 567.7 56.1 64.3 308.0 292.3 Investments 2 19.1 91.4 83.2 27.4 266.4 45.1 Property development 71.2 61.1 9 .7 13.2 39.9 26.5 Construction 548.2 854.2 (128.1) (88.9) (55.7) (73.2) Group management/general – – (13.3) (4.3) (16.0) (19.6) ————————————————————————————————————————— 1,389.2 1,574.4 7 .6 11.7 542.6 271.1 ————————————————————————————————————————— ACTIVITY Homes – Group 359.6 340.3 47.7 50.6 260.4 217.3 – Joint venture 81.4 215.4 0 .9 11.9 – 61.6 – Associates 109.7 12.0 7 .5 1.8 47.6 13.4 ————————————————————————————————————————— 550.7 567.7 56.1 64.3 308.0 292.3 ————————————————————————————————————————— Investments – Group 120.7 60.2 59.5 22.0 173.9 23.6 – Joint ventures 96.8 30.4 23.2 5.0 88.4 17.2 – Associate 1.6 0.8 0 .5 0.4 4.1 4.3 ————————————————————————————————————————— 2 19.1 91.4 83.2 27.4 266.4 45.1 ————————————————————————————————————————— Property – Group 68.0 60.5 8 .5 12.6 31.0 21.5 – Joint venture 3.2 0.6 1 .2 0.6 8.9 5.0 ————————————————————————————————————————— 71.2 61.1 9 .7 13.2 39.9 26.5 ————————————————————————————————————————— Construction – Group 547.0 850.7 (127.8) (88.5) (56.4) (74.8) – Joint ventures 1.2 3.5 (0.3) (0.4) 0.7 1.6 ————————————————————————————————————————— 548.2 854.2 (128.1) (88.9) (55.7) (73.2) ————————————————————————————————————————— Group management/general – – (13.3) (4.3) (16.0) (19.6) ————————————————————————————————————————— TOTAL – GROUP 1,095.3 1,311.7 (25.4) (7.6) 392.9 168.0
– JOINT VENTURES 182.6 249.9 25.0 17.1 98.0 85.4
– ASSOCIATES 111.3 12.8 8 .0 2.2 51.7 17.7 ————————————————————————————————————————— 1,389.2 1,574.4 7 .6 11.7 542.6 271.1 —————————————————————————————————————————
* Group assets exclude cash of £33.8 million (2000 – £80.7 million), net of total borrowings of £310.7 million (2000 – £110.7 million). - JOHN LAING plc page. 40
Sector Analysis
P rofit on ordinary activities Turnover before interest Net assets*
2001 2000 2001 2000 2001 2000 £ million £ million £ million £ million £ million £ million ————————————————————————————————————————— GEOGRAPHIC AREA United Kingdom – Group 1,059.1 1,221.4 (75.2) (34.5) 375.8 158.9 – Joint ventures 97.3 31.0 23.2 4.4 94.3 22.2 – Associate 21.7 12.0 2.5 1.8 14.8 13.4 ————————————————————————————————————————— 1,178.1 1,264.4 (49.5) (28.3) 484.9 194.5 ————————————————————————————————————————— Rest of Europe – Group 3.5 9.1 56.0 26.7 (0.5) 0.1 – Joint ventures 2.7 – 1.2 – 3.0 – ————————————————————————————————————————— 6.2 9.1 57.2 26.7 2.5 0.1 ————————————————————————————————————————— Middle East – Group 30.4 77.7 (3.4) 2.6 0.1 (5.1) – Joint ventures 1.2 3.5 (0.3) 0.8 0.7 1.6 ————————————————————————————————————————— 31.6 81.2 (3.7) 3.4 0.8 (3.5) ————————————————————————————————————————— America – Group – – (3.1) (0.6) 2.3 (1.3) – Joint venture 81.4 215.4 0.9 11.9 – 61.6 – Associate 88.0 – 5.0 – 32.8 – ————————————————————————————————————————— 169.4 215.4 2.8 11.3 35.1 60.3 ————————————————————————————————————————— S.E. Asia – Group 2.3 3.5 0.3 (1.8) 15.2 15.4 – Associate 1.6 0.8 0.5 0.4 4.1 4.3 ————————————————————————————————————————— 3.9 4.3 0.8 (1.4) 19.3 19.7 ————————————————————————————————————————— 1,389.2 1,574.4 7.6 11.7 542.6 271.1 —————————————————————————————————————————
* Group assets exclude cash of £33.8 million (2000 – £80.7 million), net of total borrowings of £310.7 million (2000 – £110.7 million).
Profit on ordinary activities before interest includes the following exceptional charges in respect of: 2001 2000 £ million £ million —————————————— GROUP MANAGEMENT Restructuring costs Head office reorganisation 2.0 – Debt restructuring costs 6.7 – —————————————— 8.7 – —————————————— CONSTRUCTION Loss on disposal of the Construction Division* 33.6 – Reorganisation – 15.1 —————————————— 33.6 15.1 ——————————————
* Loss on disposal of the Construction Division includes £2.1 million of goodwill which was previously taken to reserves. - JOHN LAING plc page. 41
Sector Analysis
2001 ————————————————————— Continu in g Discontinue d Total £ million £ million £ million ————————————————————— PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST
ACTIVITY: Homes 56.1 – 56.1 Investments 83.2 – 83.2 Property development 9 .7 – 9.7 Construction – (128.1) (128.1) Group management/general (13.3) – (13.3) ————————————————————— 135.7 (128.1) 7.6 ————————————————————— TURNOVER
ACTIVITY: Homes 550.7 – 550.7 Investments 2 19 .1 – 219.1 Property development 71.2 – 71.2 Construction 1 .4 546.8 548.2 ————————————————————— 842.4 546.8 1,389.2 ————————————————————— - JOHN LAING plc page. 42
Sustainable Development Policy
IN SEEKING TO GAIN A GREATER UNDERSTANDING OF SUSTAINABLE DEVELOPMENT, LAING HAS ESTABLISHED AN ENVIRONMENTAL STEERING GROUP TO PROMOTE A SYSTEMATIC APPROACH TOWARDS ACHIEVING THE GROUP’S ECONOMIC, ENVIRONMENTAL AND SOCIAL OBJECTIVES. THESE INCLUDE THE FOLLOWING ELEMENTS:
➔ Homes, Property and Investments divisions to fully integrate environmental and social factors at all levels into their activities, products and services.
➔ To develop a framework for continued environmental improvement through setting objectives and targets and through the progressive implementation of certified environmental management systems within each operating division of the Company.
➔ As a minimum to comply with all relevant legislation, industry guidance and voluntary agreements including that provided by the Construction Industry Research and Information Association, Green Futures Business Network and the World Business Council for Sustainable Development.
➔ To implement project specific environmental management plans, which minimise the effects of historical contamination, contaminated land, water, dust, noise, visual intrusion, disturbance and transport.
➔ Where economically feasible, to use efficiently resources such as energy, water, aggregates and other construction materials, and to minimise waste through reuse, reduction and recycling.
➔ To work with consultants, suppliers and subcontractors to establish partnerships, designed to develop and progress environmental best practice throughout the Laing Group of Companies.
➔ To provide appropriate and relevant training to employees to facilitate Group sustainable development objectives.
➔ To participate in open consultation with internal and external interested stakeholders, ensuring effective communication with the development of corporate sustainable development reporting and indicators.
➔ To adopt a focused approach to corporate social responsibility by developing partnerships with the community in the areas of youth, homelessness and education.
➔ For the Board of Directors to regularly review and update the Policy to ensure it clearly reflects Group sustainable development objectives. - JOHN LAING plc page. 43
Financial Calendar
ANNUAL GENERAL MEETING 15 May 2002
ANNOUNCEMENT OF RESULTS
Half year results – 2002 September 2002
Results for the year – 2002 March 2003
ISSUE OF REPORT AND ACCOUNTS April 2003
DIVIDEND PAYMENTS
Final – 2001 July 2002
Interim – 2002 November 2002
Final – 2002 July 2003 - JOHN LAING plc page. 44
Advisors
PRINCIPAL B ANKERS AUDITOR JOHN LAING plc
Royal Bank of Scotland plc KPMG Audit Plc Registered No. 1345670 135 Bishopsgate Chartered Accountants Registered Office London EC2M 3UR 8 Salisbury Square 133 Page Street London EC4Y 8BB London NW7 2ER National Australia Bank Limited Telephone: 020 8959 3636 88 Wood Street Fax: 020 8906 5297 London EC2V 7QQ email: [email protected] www.laing.com
REGISTRAR
Capita-IRG Plc Bourne House 34 Beckenham Road Beckenham Kent BR3 4TU Designed and produced by MAGEE Printed by First Impression This is a crop mark only. do not print these lines.
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G JOHN LAING plc G N N I I A A L L Registered Office: N N H H O 133 PAGE STREET O J J MILL HILL, LONDON NW7 2ER ENGLAND Registered No. 1345670
Tel: +44 (0)20 8959 3636 Fax: +44 (0)20 8906 5297
Further copies of this statement are available from the above address or by visiting the Company’s website at www.laing.com