The head of John Laing is unapologetic over the success of the much derided PFI projects
“So it is back to follow the money,” he says. “It is now being spent in transport and so we are in rail. And it is being spent — through subsidy, not PFI — in renewable energy, so we are in onshore wind and solar. It is also being spent overseas in PPP [public-private partnership] schemes, so we are there, too.”
John Laing is a different beast from the company born in the Victorian industrial boom which became one of Britain’s best-known construction names internationally. Its reputation was so assured that it got the contract to build one of the marquee turn-of-the-century projects, the Millennium Stadium in Cardiff. Over budget, it was to be old John Laing’s nemesis, brought it to its knees and led to its sharp exit from the construction industry. The civil engineering business was sold for a quid in 2001 to become Laing O’Rourke. A year later the group quit housebuilding.
What was left was a pure infrastructure investment play, funding and managing projects. It was a reinvention promulgated by Mr Ewer, its finance director at the time. He subsequently became chief executive and it became part of the Henderson global investment group.
It is an outturn that would have baffled the younger Ewer, not least because PFI had yet to be invented when he was an articled clerk. He had come from a commercial background. His father ran the venerable George Ewer Group, which had spent much of the 20th century building a car dealership and bus and coach empire in London and East Anglia, the latter under the Grey-Green banner.
On his father’s advice he trained as a chartered accountant. By the time he was ready to return to the family business, it had fallen to an unpleasant hostile takeover by the company that used to be called Tom Cowie, the first move into the bus market for a business that would later become Arriva.
Mr Ewer spent a decade in increasingly senior finance jobs and joined John Laing during the recession of the early 1990s. “We’d done bits and pieces of infrastructure investment like the Severn River Crossing,” he says. “The returns on the investment rather than the margins on the construction — which, in some cases, were negative — were far more attractive. And then the Government picked up PFI. It was for us a very easy move. We had had an infrastructure investment arm with just three people. After we got rid of the construction businesses, PFI took off.”
The business employs 220 people, a mix of project financiers and bankers, quantity surveyors and engineers. It has more than £1 billion of assets under management on which it made profits of £65 million last year. It is involved, for instance, with Hitachi delivering the next generation of intercity express trains for Great Western and the East Coast Main Line.
Just these past few weeks it has acquired, refinanced or brought to financial close wind farm projects in Yorkshire, Scotland and Northamptonshire. It is also in the great English-speaking outposts of PPP — Canada, Australia and New Zealand — in hospitals, prisons, roads and railways. “We only do projects for public sector clients or projects which are subsidised by the public sector, like renewable energy,” he says. “The focus is public infrastructure. But we are not simply an investment company that puts in its money and waits for the returns like some of our peer group. We are savvy money, money that comes with a depth of knowledge and experience in project management, in procuring in the supply chain that is needed to get infrastructure up and running. We talk the language of the client.”
The model means that John Laing continually has to recycle capital for the next deal. It has a listed asset management division, the John Laing Infrastructure Fund, in which many of its maturing developments are parked.
This, he says, has created a virtuous circle. His business invests in mainly greenfield opportunities, getting the assets created, the place where the bigger returns are — on internal rates of return of between 11 per cent and 13 per cent — because they have taken the development risk. In time the project gets sold on to a more boring class of infrastructure investor looking for steady multi-year yields of, say, between 6 and 8 per cent. The plan is that the institutional investor pays Laing more for the yield-bearing asset than Laing paid the contractor to build it. “The bit in the middle is ours,” he says.
Of course, it is this money-making bit in the middle that has got PFI a bad name and affronted so many MPs. Mr Ewer says it is a system that has provided 700 badly needed state-of-the-art projects.
Mr Ewer’s take is this: “The public sector is paying for the asset exactly what the public sector was always paying for the asset. When we are wearing our development hat, it is we who are taking the risk. We make a developer’s return. Nobody moans about that in the housing market. Developers have to make money because they are taking risk. You get one wrong, you make nothing. Zero. That’s the risk.”
The British infrastructure scene looks tough. Notwithstanding a few schools and hospitals, there is a new “PF2” model for the Treasury to share private finance profit, and subsidies to onshore wind farms are being cut.
The Laing response is that it will adapt to new business models as they develop. As for wind farms, site values and investor appetite may be hit but, Mr Ewer says, politicians have made their long-term commitments to increasing renewable energy generation. In any case, John Laing will follow the money.
“The investment model doesn’t matter,” Mr Ewer says. “Where the infrastructure is doesn’t matter. We’d prefer most of it to be in the UK, but we will go where the action is.”
However, it may be coming home at some time after all, he predicts. “Actually, I am quite cynical about all this. All the buzz at the moment is economic infrastructure [rail, runways, roads] because it boosts the economy. But it boosts the economy in ten or 20 years’ time. Economic infrastructure is not a vote winner. But if you are on the hustings and can say ‘I have got you a new school or a new hospital’, well, that matters. It won’t be this general election but the one after when investment in social infrastructure will be right back again.”
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