10 August 2010
INTERSERVE
HALF-YEAR RESULTS
* Trading in line with expectations
* Confident of strong second-half performance
* Interim dividend up 1.8%
Interserve, the international services, maintenance and building group,
announces its half-year results for the six months ended 30 June 2010.
H1 2010 H1 2009
Revenue £944.5m £951.2m
Headline profit (1) £30.0m £39.3m
Profit before tax £27.3m £40.0m
Headline earnings per share (2) 17.5p 23.1p
Basic earnings per share 15.9p 24.2p
Net debt £53.1m £85.1m
Interim dividend 5.6p 5.5p
(1) Headline profit comprises profit before taxation of £27.3m (H1 2009: £
40.0m) adjusted for the impact of (£2.5m) amortisation of intangible assets
(H1 2009: (£2.5m)); (£0.2m) amortisation of intangible assets (associates)
(H1 2009: £0.2m); and £nil exceptional items (H1 2009: £3.4m)).
(2) Headline earnings per share are based on Headline profit as defined in note
1 above (see also note 6 to the unaudited condensed financial statements).
Chief Executive Adrian Ringrose commented,
"Trading in the half-year was in line with the Board's expectations. Project
Services delivered an excellent result, Support Services is making good
progress based on moving performance in several key public sector contracts to
planned levels of profitability and Equipment Services, after an exceptional
2009, performed creditably in a challenging environment.
Uncertainties persist in our markets, but we remain confident that the second
half will show a significant uplift on the first half and that we have a strong
international platform from which to sustain long-term growth at attractive
margins. Consequently, the Board is continuing with its progressive dividend
policy."
- Ends -
For further information please contact:
Adrian Ringrose, Chief Executive 0118 932 0123
Tim Jones, Group Finance Director 0118 932 0123
Matt Jones, Head of Investor Relations 0118 960 2280
Neil Bennett, Maitland 020 7379 5151
Interim management report
Chairman's statement
Headline profits of £30.0 million in the first half were in line with our
expectations but some 24 per cent lower than a strong performance in the same
period last year. Despite difficult market conditions, Project Services
delivered an excellent performance, with both our UK and international
operations posting improved results that led to a 30 per cent increase in
divisional profits. However, as expected, this was more than offset by reduced
contributions across the rest of the Group, notably from Equipment Services,
which performed creditably in tougher market conditions but was not able to
replace several large hire contracts that helped deliver a record 2009 result
for the division. Support Services revenues increased due to the full-year
impact of prior-year contract wins, but its performance was affected by the
transition of several public sector contracts to planned levels of
profitability and weak private sector market conditions. We are now well
advanced in taking these public sector contracts to higher margin levels and
expect to see a significantly improving result from Support Services as the
year progresses.
We consider our international reach to be a major strength. We have continued
to grow our geographic footprint, developing further opportunities in
complementary markets and services. Our strong position in the Middle East,
built up over more than 25 years, is enabling us to take advantage of ongoing
opportunities in the region. We continue to prosper in existing markets such as
Qatar and Oman and have entered new markets such as Saudi Arabia. During the
period we were awarded our first major support services contract in the UAE and
invested £0.4 million for a 49 per cent stake in Occupational Training
Institute LLC (OTI), a services company that provides training and consultancy
to the petrochemical industry in Oman. In July we committed to invest around £5
million for a 49 per cent stake in a construction business operating in
southern India.
Balance sheet
The Group maintains a strong financial position, with net debt as at 30 June
2010 of £53.1 million (30 June 2009: £85.1 million). During the first half we
successfully completed the renewal of our £250 million committed debt
facilities, which now extend until 2013.
Changes in market conditions resulted in the pension deficit increasing
slightly to £75.8 million (31 December 2009: £68.6 million), net of tax, due
principally to lower than expected asset returns in the first half. Following
the range of actions taken last year to improve significantly the funding
position and reduce future volatility we believe that we now have a robust and
affordable funding plan to address the remaining shortfall over the next seven
years without restricting our ability to support our growth ambitions.
Dividend
Reflecting our confidence in the ability of the Group to sustain its record of
long-term growth and cash generation, the Board has approved a further increase
in the interim dividend. An interim dividend of 5.6p (H1 2009: 5.5p) will be
paid on 25 October 2010 to shareholders on the register at close of business on
24 September 2010.
Board
As announced in June, Group Finance Director, Tim Jones, has tendered his
resignation in order to take up the position of Group Finance Director at
Mitchells & Butlers plc. Our search for his successor is progressing well and
Tim will be remaining at Interserve for an appropriate period to ensure a
smooth and orderly transition. On behalf of the Board, I would like to thank
Tim for all his work over the last seven years. He has made a huge contribution
as Group Finance Director and we wish him well in his future career.
Prospects
We are confident that margin recovery in Support Services and growth from our
international markets will generate improved second-half earnings and sustain
long-term growth, supported by a substantial future workload of £5.7 billion.
In the UK we are making progress in delivering planned margins in Support
Services with an initial target to achieve sustainable margins across the
division that are comparable with our peer group. This margin improvement is
primarily dependent on internal actions rather than market conditions, and can
be delivered in the current, less benign, demand environment. However, the
medium-term demand environment is positive; the benefits of outsourcing as a
means of reducing cost and improving service delivery in an uncertain economic
environment will be essential in enabling the UK government to meet its
expenditure objectives. With a Support Services business founded on long-term,
value-added client relationships in the UK public sector, we are well placed to
continue to be successful in this market.
In recent years we have developed and increased our exposure to international
markets, generating opportunities to expand both our service offering and
geographical footprint at attractive margins. Around 50 per cent of Group
profits are currently derived from outside the UK. We expect this overseas
contribution to remain significant, as our existing international markets such
as Qatar, Oman and Australia offer attractive growth prospects and we continue
to expand into new territories such as Saudi Arabia and, most recently, India.
Both of the latter countries have young, fast-growing populations but a
relative lack of infrastructure to support this growth, providing a fertile
environment for our business. We will continue to look further for
opportunities to expand our international reach.
With our significant international exposure, margin enhancement plan in Support
Services and substantial future workload we are confident that we have a strong
platform to deliver long-term growth.
Lord Blackwell
Chairman
10 August 2010
Business review
Strategy
Interserve's vision is to be The Trusted Partner, bringing together all of our
capabilities to create innovative solutions that support long-term customer
relationships, offering rewarding careers for our staff and underpinning
sustained value creation for shareholders.
Our strategic objectives for fulfilling this vision consist of the following
elements:
Build strong core businesses based on long-term, value-added client
relationships:
Our well-established client relationships have been cultivated over a long
period of time and have withstood previous business and economic cycles,
delivering a high level of repeat business and conferring strong visibility
during uncertain economic periods.
Strategic progress:
* We have a substantial future workload of £5.7 billion, due in large part to
the strong existing relationships we have with major clients such as Thames
Water, United Utilities, Leeds City Council, Shell and Siemens, all of whom
extended their work with us in the first half.
* We were named Best Facilities Management Provider in the Public Private
Finance Awards 2010, recognising our ability to implement strong
partnerships with the public sector in pursuit of improving working
practices and efficiencies.
Capture emerging opportunities for integrated solutions:
The broad reach of the Group's expertise across the asset life cycle enables us
to structure `one-stop-shop' solutions to match our clients' support needs
across markets and sectors. Our culture and organisational flexibility allows
us to transfer expertise across our activities. It also gives us the potential
to grow into new markets and services where we can provide additional value to
our existing clients.
Strategic progress:
* Since securing the HSBC integrated multi-site outsourcing contract last
year we have grown our relationship with this client through the provision
of a number of extended and additional services both in the UK and,
latterly, in the Middle East.
Expand international growth with fuller service offering:
We have extensive sectoral and geographic reach in our existing businesses;
however, our markets are constantly evolving and we seek to develop into
related skills, sectors and geographies as part of our growth strategy.
Strategic progress:
* Our successful and long-standing Project Services partnerships in the
Middle East are providing opportunities for our Support Services business
to win new work in the region. Notably, this year we have won one of the
largest support services contracts in the UAE, and look forward to
developing this business stream further.
* Having successfully developed a services offering for the petrochemical
sector in Qatar via the 2007 acquisition of Madina Group, we have now
invested in a business offering similar services to the Omani petrochemical
sector, a sector where we already have strong relationships via our
construction operation.
* The recent entry into Saudi Arabia by our Equipment Services business is
gaining, winning its initial contracts in the Kingdom and actively pursuing
an attractive pipeline of opportunities.
Given that our core skills and capabilities are transferable across sectors and
geographies, we expect more examples of such strategic developments to arise,
underpinning our confidence in the Group's future.
Key Performance Indicators
H1 2010 H1 2009 Change
Revenue £944.5m £951.2m (0.7)%
Headline earnings per share 17.5p 23.1p (24.2)%
Cash conversion (3) (47.1)% 128.5% (175.6)% pts
Future workload £5.7bn £6.7bn (14.9)%
Annualised staff turnover (4) 8.7% 7.4% +1.3% pts
Annualised all-employee accident 379 366 +3.6%
incidence rate per 100,000 workforce
(3) Cash conversion is calculated as the percentage of cash generated by
operations of £(8.0)m (H1 2009: £37.9m) divided by the sum of: operating
profit of £14.5m (H1 2009: £30.4m); plus amortisation of intangible assets
of £2.5m (H1 2009: £2.5m); less profit on disposal of property and
investments of £nil (H1 2009: £3.4m).
(4) Staff turnover measures the proportion of managerial, technical and
office-based staff leaving voluntarily over the course of the period. The
figures for January-June have been doubled to give an annual equivalent.
The half-year performance was in line with the Board's expectations, with
headline earnings per share of 17.5p (H1 2009: 23.1p) on revenue of £944.5
million (H1 2009: £951.2 million). Revenue growth from the full year impact of
prior-year contract wins in our Support Services division was offset by lower
revenues in Project Services and Equipment Services. At the headline earnings
per share level the performance reflected, as expected, a return to a more
balanced hire/sale mix in Equipment Services following an exceptionally strong
2009 performance and a Support Services result affected by the transition of
several key public sector contracts to planned levels of profitability.
Net debt as at 30 June was £53.1 million (H1 2009: £85.1 million) whilst
average net debt during the first half was £12.0 million. Cash conversion in
the period was impacted by an anticipated reduction in advance payments and
increased pension contributions. On a rolling 12-month basis cash conversion
was over 150 per cent.
Being accident free is one of our five key goals and maintaining a safe and
healthy environment is fundamental to our success, so it is encouraging that we
have been able to maintain a historically low UK all-employee incidence rate
during the first half. It is also pleasing to see that our efforts over recent
years in improving this non-financial key performance indicator were rewarded
during the period. We received the Safe Working Award for 2009 from the
Engineering Construction Industry Association and two further sector awards
from RoSPA: the Outstanding Facilities Sector Award and Defence Sector Award.
Future workload
Our future workload comprises forward orders and pipeline. Forward orders are
those for which we have secured contracts in place. Pipeline covers contracts
for which we are in bilateral negotiations and on which final terms are being
agreed. We include our share of work won by our Middle East associates.
The future workload at the end of the period stood at £5.7 billion, comprising
£4.5 billion of forward orders and £1.2 billion relating to pipeline. The
reduction from the year-end future workload level of £6.5 billion reflects the
following movements during the first half:
* New contract wins amounting to £0.8 billion;
* Delivery of £1.0 billion of work;
* A reduction in the estimated value of pipeline in light of recent
discussions with UK public sector clients, amounting to £0.6 billion, the
majority of which relates to 2013 onwards.
Principal risks and uncertainties
The principal risks and uncertainties which could have a material impact upon
the Group's performance over the remaining six months of the 2010 financial
year, together with the mitigation strategies adopted, and which could cause
the actual results to differ materially from those expected, have not changed
significantly from those set out on pages 24 and 25 of the Business Review
included in the Group's 2009 annual report and financial statements.
These risks and uncertainties may be summarised as:
* Market change
* Major contracts
* Key people
* Health & safety regime
* Financial risks
* Damage to reputation
Segmental review
Interserve's divisions create and deliver integrated and single-service
solutions that offer real benefits in meeting our clients' outsourced service
requirements. Our divisions are supported by a Group Services function which
provides a range of central services and encompasses our financing and PFI
bidding activities. Group Services' costs in the half year were £10.1 million
(H1 2009: £8.0 million), the increase reflecting non-recurring restructuring
charges.
Support Services was formed in January 2010 when we combined Facilities
Management and Specialist Services, reducing costs, simplifying the management
structure and reflecting the increasing amount of work delivered by our
Specialist Services division to our Facilities Management clients. Facilities
Management provided a broad range of integrated services to the public and
private sectors, the vast majority of which we deliver ourselves, while
Specialist Services provided a variety of single-service solutions, such as
security, mechanical and electrical design, installation and maintenance and
technical services.
Results summary:
H1 2010 H1 2009 Change
Revenue £538.2m £503.8m +6.8%
Contribution to Total Operating £8.9m £10.7m (16.8)%
Profit
Operating margin 1.7% 2.1% (0.4)% pts
Support Services delivered a contribution to Total Operating Profit of £8.9
million and a margin of 1.7 per cent in the period. Revenues continued to grow
during the period, reflecting the full-year impact of contracts won and
mobilised during 2009. The margin is still significantly below the level we
believe the business can deliver on a sustainable basis, and primarily reflects
previously highlighted cost pressures in the early stages of several major new
public sector integrated outsourcing contracts, together with weakness in the
private sector and the absorption of around £1.8 million of non-recurring
headcount reduction costs. We are making good progress in moving performance in
a number of public sector contracts to planned levels of profitability.
Contract wins in the period included plant and equipment replacement work at
the NEC in Birmingham and the successful re-bid of a four-year contract with
the Metropolitan Police Service (MPS) to provide special events services
throughout London and the home counties, continuing a relationship with the MPS
that began in 1999. The division had a future workload of £4.3 billion at the
end of June, of which around 85 per cent represented forward orders. Included
within this workload is £0.5 billion of work scheduled for the second half of
2010 and a further £0.7 billion scheduled for delivery in 2011.
Revenues from existing public sector contracts remained relatively stable
during the period, although early signs of a reduction in discretionary work
have emerged as clients postpone some projects pending finalisation of the
Comprehensive Spending Review. However, beyond the near term, the demand
drivers for this business remain attractive. Our customers, in particular
central and local governments, are under pressure to reduce budgets, to improve
efficiencies and to maximise the effectiveness of their available resources
given the current challenging economic environment. At the same time, they
continue to face rising demand from a growing and ageing population to improve
the delivery of existing services. We are well positioned to help them given
our strong capabilities across a broad range of markets, our proven track
record in delivering change and our ability to create innovative solutions, as
evidenced by our recent selection on a government framework contract which
pre-qualifies us for work commissioned by public sector bodies in hard, soft
and managed services. We expect this business to generate good medium-term
growth as a result.
In the private sector many of our clients remain subdued by the current
economic climate, resulting in reduced demand for some of our services, and
this has continued to weigh on the division's performance. However, we remain
confident that the recently-mobilised HSBC contract will provide a boost to our
private sector integrated outsourcing credentials as we bid for new contracts,
and we look forward to improving momentum as and when the economy recovers. The
contract has already provided opportunities for us to grow the scope of the
services we provide to this client, notably in security, construction and
consulting.
Within the division's result the former Specialist Services businesses lost £2
million (H1 2009: £1.6 million loss), reflecting continued difficult trading
conditions and consequent restructuring costs. Following the creation of
Support Services the new divisional leadership has conducted a thorough review
of financial performance and business operations. This has resulted in
additional senior management changes within the security and technical services
businesses and we expect to make further reductions to the cost base.
Given the attractive medium-term demand characteristics for Support Services we
have continued to develop our infrastructure to support future growth. The
National Service Centre is currently managing around 80,000 calls a month
servicing five key clients. Client feedback has been positive and capacity
exists to expand this facility over time, further improving our productivity.
The business also continues to expand overseas, notably in the Middle East
where it can leverage existing Group relationships and business infrastructure.
In the UAE we were awarded during the period one of the largest support
services contracts in the country, and with a growing pipeline of opportunities
we are excited about the business's future in the Gulf.
Looking forward, once the above-mentioned public sector contracts have achieved
their planned levels of profitability, and as the private sector economy
recovers, we expect Support Services to meet our initial target for margins
that are comparable with our peer group. As future growth leverages the
investment in infrastructure and our overseas development continues there is
the potential for further margin improvement.
Project Services is a leading construction business providing professional
services to enable the creation of a broad range of buildings and
infrastructure. First-half trading was strong in both the UK and Middle East,
producing a contribution to Total Operating Profit of £23.5 million (H1 2009: £
18.1 million).
Results summary:
H1 2010 H1 2009 Change
Revenue (UK only) £380.8m £406.4m (6.3)%
Contribution to Total Operating £23.5m £18.1m +29.8%
Profit
- UK £10.9m £7.1m +53.5%
- International associates* £12.6m £11.0m +14.5%
Operating margin (UK) 2.9% 1.7% +1.2% pts
Operating margin (Middle East) 10.3% 8.6% +1.7% pts
* After interest and tax
In the UK over half of the business's activity is generated via PFI and
long-term framework contracts which deliver a relatively predictable flow of
work. The UK's future workload has remained broadly stable compared to the
strong year-end position, at around £1.2 billion. Included within this workload
is £0.3 billion of work scheduled for the second half of 2010 and a further £
0.4 billion scheduled for delivery in 2011. Nevertheless, activity levels are
moderating as the government seeks to reduce public sector spending, initial
signs of which are reflected in the slight year-on-year decline in revenues.
Within this environment, performance in the UK was excellent in the first half,
generating an above-trend margin of 2.9 per cent as the business benefited from
final account settlements on a number of contracts.
We expect this strong performance to continue in the near term, although we are
more cautious on the outlook beyond 2011 when the impact of anticipated reduced
public spending on capital projects would be felt. We are actively targeting
new sectors, including waste and retail, to offset some of the potential
shortfall in work from our traditional segments such as education and
custodial. Moreover, while the government has announced that there will be no
new Building Schools for the Future projects, we believe that we are well
placed to participate in any replacement programme of lower cost school
buildings. As ever, we remain focused on aligning our cost base with expected
workload levels.
New wins in the UK during the period included a £30 million contract to design
and build the new Leeds West Academy for Leeds City Council and a contract to
extend and refurbish Siblands SLD Secondary School in Thornbury, South
Gloucestershire, which was our first project under the Construction Framework
South West framework announced late last year. Also in the local government
sector we were awarded two multi-year construction framework agreements with
North Yorkshire County Council and the East Midlands Property Alliance
respectively, with a combined anticipated value to Interserve of £30 million.
In June the state-of-the-art Help for Heroes Rehabilitation Complex at Headley
Court, Surrey was opened. As well as being the main contractor for this project
the Group's consulting business was also involved, providing project, cost and
design management and technical advice - a good example of how knowledge and
experience across the Group can be brought to bear for the benefit of our
clients.
We had another successful period in our infrastructure business. We won a major
£70 million project in Preston to design and construct new storm water tunnels
for United Utilities, as part of the KMI+ joint venture, and finalised a £60
million contract to construct new facilities and upgrade existing works for
Thames Water at its Riverside wastewater treatment plant. In June a
desalination plant built by our joint venture with Acciona for Thames Water was
opened; the only four-stage desalination plant to be built in the world.
In the Middle East, which contributes more than half of the division's Total
Operating Profit, our diversity across the region, both sectoral and
geographic, together with the strength of our local partnerships, has enabled
our associate companies to deliver another strong first-half performance and,
despite tougher trading conditions in Dubai, the level of dividends remitted
from the region more than doubled. Our associate companies across the region
continued to secure new contracts during the period, improving the region's
future workload to £234 million at 30 June as compared to the year-end position
of £197 million.
In our largest market, Qatar, new contracts were secured in both services and
construction activities. Our services workload was bolstered by a five-year, £
30 million contract at the Shell Gas-To-Liquids facility at Ras Laffan
Industrial City and a three-year services contract with Maersk Oil for the
supply of manpower and equipment to onshore and offshore facilities, worth
around £20 million. Our Qatari construction business was awarded a £40 million,
two-year contract to design and construct two energy centres to service the new
Education City being developed near Doha, and further substation contracts with
a combined value in excess of £100 million, the majority of which is with our
long-term client, Siemens.
The Qatari government has outlined a continuation of its expansionary fiscal
policy, which, together with its support of the more subdued banking and real
estate sectors, is expected to ensure that relatively attractive activity
levels are maintained going forward. With the recent rapid expansion of
Liquified Natural Gas (LNG) production capabilities at Ras Laffan drawing to an
end the government has been keen to ensure there is adequate infrastructure to
support the LNG sector and continues to seek further diversification of its
economy. Developments such as Education City, the Heart of Doha redevelopment,
New Doha International Airport, Dohaland and Lusail City are all examples of
such intent. We believe that our offering, which encompasses construction,
equipment services and support services, positions us well to continue to win
work in this buoyant environment.
In the UAE we won a multi-million pound contract at the new Saadiyat Beach Club
development in Abu Dhabi, and whilst Dubai is experiencing significantly lower
levels of activity than last year we nevertheless continued to secure new work,
becoming the exclusive provider of highways maintenance services to the Dubai
Roads and Transport Authority and winning a £50 million contract to expand and
improve the Ritz Carlton Hotel on Dubai's waterfront.
In Oman notable wins included two contracts for the design and construction of
buildings for Al Hosn Investments, with a combined value of around £20 million.
Building on the success of our services operations feeding the petrochemical
sector in Qatar, we have recently entered the Omani industrial services market,
where we have long-term relationships in the same sector, via an investment of
£0.4 million for a 49 per cent stake in OTI, a leading health and safety
training and consultancy services provider. Prospects for Oman remain promising
as the government continues its strategy of diversifying the economy away from
a reliance on oil production by boosting its industrial and services sectors.
Equipment Services is a global leader in the supply of specialised equipment
(formwork and falsework) used in creating major concrete structures, often
requiring complex specification and design work.
Results summary:
H1 2010 H1 2009 Change
Revenue £68.4m £80.4m (14.9)%
Contribution to Total Operating £7.7m £20.4m (62.3)%
Profit
Operating margin 11.3% 25.4% (14.1)% pts
The division performed creditably in challenging market conditions, posting a
first-half contribution to Total Operating Profit of £7.7 million. As
previously indicated, the record prior year margin benefited from a number of
major hire projects in the UAE which were not replicated during this period.
Cash conversion remained well over 100 per cent in the period resulting from
the continued focus on limiting net capital expenditure and transferring
under-utilised assets from areas of low utilisation to locations with higher
demand or new markets such as Saudi Arabia.
It is pleasing and noteworthy that the division's geographic reach and success
in increasing its overseas business (by 185 per cent over the last six years
across over 30 countries) has been recognised with the award of the prestigious
Queen's Award for Enterprise: International Trade 2010 in June.
The Middle East region remains the largest market for the division, with the
business operating in the UAE, Qatar, Bahrain, Oman and, more recently, Saudi
Arabia, and exporting to the majority of neighbouring countries. During the
first half of 2010 our equipment was used on what is currently the largest
building project in Abu Dhabi, the Nation Towers, whilst in Oman we are
providing formwork and propping solutions to the Group's construction
operation, Douglas OHI, on the Oman Residence project. We continued to grow in
Qatar, working on projects such as the construction of utility tunnels to
supply water and electricity to the new Lusail City, and are involved on major
bridge structures in Bahrain (Sitra Bridges) and Saudi Arabia (Abha Bridge).
However the aggregate of work in these countries was insufficient to replace
the slowdown in the UAE during the period.
We traded well in Australasia, producing another strong result, largely due to
healthy demand in the mining and infrastructure sectors which helped offset a
weaker commercial market. Major projects included the impressive Rectangular
Soccer Stadium and the M80 Ring Road Upgrade in Melbourne where our formwork
and shoring solutions are supporting bridge widening. Our Far East businesses
recorded an improved, albeit small, contribution to Total Operating Profit on
stronger activity levels.
Trading conditions in Europe continued, as expected, to be challenging during
the period. Our UK operation delivered modest growth despite a tough
environment, benefiting from Olympics-related work, infrastructure projects
such as the Tyne Tunnel and cost-reduction programmes, all of which helped
offset a weak commercial sector. The markets in Spain and Ireland remained very
quiet. We have taken action to lower the cost base in both and to move
under-utilised equipment to more attractive markets, but the near-term
prospects in these countries remain challenging.
Our business in Chile is playing an important role in helping restore the
nation's infrastructure after the February earthquake and we are involved in
the construction of the new Hydro Electric plant in Laja in the south of the
country.
Looking forward, after the exceptionally strong performance in 2009 the Middle
East operations are expected to continue to experience quieter market
conditions this year, with the anticipated growth in construction activity in
Abu Dhabi taking longer to materialise than previously expected. However, the
establishment of trading operations in Saudi Arabia is progressing, with
initial contracts having been secured, and we are pursuing an attractive
pipeline of opportunities. The Saudi Arabian construction market is the largest
in the Gulf region and the government has plans for new investment in housing
and retail, water and power, railways, airports, seaports and education, all of
which we expect will provide significant opportunities for growth in the coming
years.
Our businesses in Australasia, the Far East and South America are expected to
perform well; in particular, our Australian operation should benefit from the
continued strength of the mining industry and associated civil engineering. The
rest of our international operations, which operate in Europe and South Africa,
are likely to continue to face more challenging near-term market conditions as
they are dependent on the strength of local construction markets. We have taken
action to mitigate the anticipated lower demand levels by reducing costs and
capital expenditure where necessary, and will continue to review the situation
in each territory going forward.
PFI Investments
H1 2010 H1 2009 Change
Contribution to Total Operating £1.8m £1.8m -
Profit
Interest received on subordinated £1.0m £2.4m (58.3)%
debt investments
Total contribution to Group £2.8m £4.2m (33.3)%
results
After an extremely active period in 2009 the year to date has been a period of
consolidation with respect to our PFI portfolio. The portfolio continues to
make a healthy contribution to Group earnings, with a total contribution to
pre-tax profit of £2.8 million. This reduction on the first half of 2009
principally reflects the transfer of the Group's interest in 13 investments,
valued at £61.5 million, into the Interserve Pension Scheme in November 2009.
The New Leaf Leisure Centres in Armley and Morley, built as part of phase three
of our successful Leeds Building Schools for the Future (BSF) programme,
reached operational stage in May and June respectively, and we have now begun
the provision of ongoing facilities support for the next 25 years.
As at 30 June 2010 we had 20 signed contracts (30 June 2009: 33), of which 12
are now operational and eight under construction, with one more at preferred
bidder stage. The reduction in number of contracts since June 2009 reflects the
above-mentioned transfer of the Group's interest in 13 investments into the
Interserve Pension Scheme. Our total investment commitment on the 20 signed
contracts was £54.3 million at 30 June 2010 (30 June 2009: £75.6 million), of
which £25.8 million (30 June 2009: £39.1 million) had already been paid. The
preferred bidder project will, consequent on financial close, involve
investment of around £12 million.
PFI is an efficient, proven and transparent means of delivering social
infrastructure. With our considerable expertise and track record in delivering,
operating and financing using PFI structures we believe we are well placed to
benefit from the further evolution of similar contracting and funding
arrangements for public sector investments. We are shortlisted on a number of
projects in the health, waste, police and custodial sectors, and we expect to
make further progress in developing and generating value from our portfolio.
Outlook
Despite UK public sector uncertainties we are confident of a strong second-half
performance, driven by margin improvement in Support Services and continued
international growth.
With our significant international exposure, margin enhancement plan in Support
Services and substantial future workload we are confident that we have a strong
platform to deliver long-term growth at attractive margins.
Responsibility statement
The names and functions of the directors of Interserve Plc are as listed in the
Group's Annual Report for 2009. A list of current directors is maintained on
the Group website: www.interserve.com.
The directors confirm to the best of their knowledge:
a) the condensed set of financial statements has been prepared in accordance
with IAS 34 as adopted by the European Union; and
b) the interim management report includes a fair review of the important
events during the first six months and description of the principal risks
and uncertainties for the remaining six months of the year, as required
by DTR 4.2.7R of the Disclosure and Transparency Rules of the Financial
Services Authority (DTR); and
c) the interim management report includes a fair review of the information
required by DTR 4.2.8R.
By order of the Board
Adrian Ringrose Tim Jones
Chief Executive Group Finance Director
10 August 2010
INDEPENDENT REVIEW REPORT TO INTERSERVE PLC
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30 June
2010 which comprises the consolidated income statement, the consolidated
statement of comprehensive income, the consolidated balance sheet, the
consolidated statement of changes in equity, the consolidated statement of cash
flows and related notes 1 to 11. We have read the other information contained
in the half-yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the information in the
condensed set of financial statements.
This report is made solely to the Company in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity"
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the Company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our review work, for this report, or for the conclusions
we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the Disclosure and Transparency
Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 2, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
34, "Interim Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2010 is not prepared, in all
material respects, in accordance with International Accounting Standard 34 as
adopted by the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditors
London, United Kingdom
10 August 2010
Unaudited condensed consolidated income statement
For the six months ended 30 June 2010
Six months ended 30 June 2010 Six months ended 30 June 2009
Before Before
exceptional Exceptional exceptional Exceptional
items and items and items and items and
amortisation amortisation amortisation amortisation
of acquired of acquired of acquired of acquired
intangible intangible intangible intangible
assets assets Total assets assets Total
£m £m £m £m £m £m
Continuing operations
Revenue 944.5 - 944.5 951.2 - 951.2
Cost of sales * (862.1) - (862.1) (845.2) - (845.2)
Gross profit 82.4 - 82.4 106.0 - 106.0
Administration expenses (65.4) - (65.4) (76.5) - (76.5)
Impairment of goodwill - - - - - -
Amortisation of acquired - (2.5) (2.5) - (2.5) (2.5)
intangible assets
Other exceptional Items - - - - - -
Total administration (65.4) (2.5) (67.9) (76.5) (2.5) (79.0)
expenses
Profit on disposal of - - - - 3.4 3.4
property and investments
Operating profit 17.0 (2.5) 14.5 29.5 0.9 30.4
Share of results of 14.8 - 14.8 13.5 - 13.5
associates and joint
ventures
Amortisation of acquired - (0.2) (0.2) - (0.2) (0.2)
intangible assets
Total share of result of 14.8 (0.2) 14.6 13.5 (0.2) 13.3
associates and joint
ventures (note 5)
Total operating profit 31.8 (2.7) 29.1 43.0 0.7 43.7
Investment revenue 18.1 - 18.1 15.0 - 15.0
Finance costs (19.9) - (19.9) (18.7) - (18.7)
Profit before tax 30.0 (2.7) 27.3 39.3 0.7 40.0
Tax (charge)/credit (6.0) 0.7 (5.3) (8.9) 0.7 (8.2)
(note 4)
Profit for the period 24.0 (2.0) 22.0 30.4 1.4 31.8
Attributable to:
Equity holders of the 22.0 (2.0) 20.0 28.9 1.4 30.3
parent
Minority interest 2.0 - 2.0 1.5 - 1.5
24.0 (2.0) 22.0 30.4 1.4 31.8
Year ended 31 December 2009
Before
exceptional Exceptional
items and items and
amortisation amortisation
of acquired of acquired
intangible intangible
assets assets Total
£million £million £million
Continuing operations
Revenue 1,906.8 - 1,906.8
Cost of sales * (1,697.5) - (1,697.5)
Gross profit 209.3 - 209.3
Administration (152.7) - (152.7)
expenses *
Impairment of - (30.0) (30.0)
goodwill
Amortisation of - (5.0) (5.0)
acquired intangible assets
Other exceptional - 9.0 9.0
Items
Total administration (152.7) (26.0) (178.7)
expenses
Profit on disposal of - 37.3 37.3
property and investments
Operating profit 56.6 11.3 67.9
Share of results of 29.1 - 29.1
associates and joint ventures
Amortisation of - (0.4) (0.4)
acquired intangible
assets
Total share of result 29.1 (0.4) 28.7
of associates and joint ventures
(note 5)
Total operating profit 85.7 10.9 96.6
Investment revenue 31.6 - 31.6
Finance costs (39.0) - (39.0)
Profit before tax 78.3 10.9 89.2
Tax (charge)/credit (12.4) (4.4) (16.8)
(note 4)
Profit for the period 65.9 6.5 72.4
Attributable to:
Equity holders of the parent 62.2 6.5 68.7
Minority interest 3.7 - 3.7
65.9 6.5 72.4
* Business unit overheads in the former Specialist Services businesses have
been reallocated in the prior period comparatives from administration expenses
to cost of sales in line with the current Support Services division's
classification. This reclassification does not impact on operating profit.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
Earnings per share (note 6) pence pence pence
Basic 15.9 24.2 54.9
Diluted 15.5 23.6 53.7
Dividend per share: 2010 unpaid and 2009 5.6 5.5 17.5
paid (note 7)
Unaudited condensed consolidated statement of comprehensive income
For the six months ended 30 June 2010
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
£million £million £million
Profit for the period 22.0 31.8 72.4
Other comprehensive income
Exchange differences on translation of 4.3 (26.1) (21.3)
foreign operations
(Losses)/gains on available-for-sale (0.8) 0.2 (0.4)
financial assets (excluding joint
ventures)
(Losses)/gains on cash flow hedges (joint (40.1) 46.9 28.8
ventures)
Gains/(losses) on available-for-sale 32.2 (32.0) (16.8)
financial assets (joint ventures)
Actuarial losses on defined benefit (22.3) (54.4) (31.0)
pension schemes
Deferred tax on items taken directly to 8.8 11.0 5.3
equity (note 4)
Other comprehensive expense net of tax (17.9) (54.4) (35.4)
Total comprehensive income/(expense) 4.1 (22.6) 37.0
Attributable to:
Equity holders of the parent 2.1 (24.1) 33.3
Minority interest 2.0 1.5 3.7
4.1 (22.6) 37.0
Unaudited condensed consolidated balance sheet
At 30 June 2010
30 June 2010 30 June 2009 31 December
2009
£million £million £million
Non-current assets
Goodwill 198.9 228.9 198.9
Other intangible assets 30.5 33.5 31.9
Property, plant and equipment 138.6 143.6 148.8
Interests in joint ventures 67.2 117.7 67.4
Interests in associated 62.2 69.0 57.0
undertakings
Deferred tax asset 32.4 35.5 31.4
529.8 628.2 535.4
Current assets
Inventories 18.1 21.6 20.1
Trade and other receivables 387.8 395.3 355.3
Cash and deposits 49.6 70.4 60.9
455.5 487.3 436.3
Total assets 985.3 1,115.5 971.7
Current liabilities
Bank overdrafts (11.4) (13.7) (11.6)
Trade and other payables (494.2) (492.7) (482.7)
Current tax liability (7.1) (16.4) (8.5)
Short-term provisions (23.2) (15.5) (23.1)
(535.9) (538.3) (525.9)
Net current liabilities (80.4) (51.0) (89.6)
Non-current liabilities
Bank loans (90.0) (140.0) (85.0)
Trade and other payables (9.2) (4.8) (9.0)
Non-current tax liability (9.1) (9.1) (9.1)
Long-term provisions (25.5) (22.6) (25.7)
Retirement benefit obligation (105.3) (205.1) (95.3)
(239.1) (381.6) (224.1)
Total liabilities (775.0) (919.9) (750.0)
Net assets 210.3 195.6 221.7
Equity
Share capital 12.6 12.5 12.5
Share premium account 112.7 112.7 112.7
Capital redemption reserve 0.1 0.1 0.1
Merger reserve 49.0 49.0 49.0
Hedging and translation reserves 67.5 92.9 69.3
Investment in own shares (0.5) (0.5) (0.5)
Retained earnings (34.7) (73.2) (24.1)
Equity attributable to equity 206.7 193.5 219.0
holders of the parent
Minority interest 3.6 2.1 2.7
Total equity 210.3 195.6 221.7
Unaudited condensed consolidated statement of changes in equity
For the six months ended 30 June 2010
Hedging Attributable
Capital and Investment to equity
Share Share redemption Merger translation in own Retained holders of Minority
capital premium reserve reserve reserves shares earnings the parent interest Total
£m £m £m £m £m £m £m £m £m £m
Balance at 31 12.5 112.7 0.1 49.0 108.3 (0.5) (51.8) 230.3 2.0 232.3
December 2008
Total - - - - (15.2) - (8.9) (24.1) 1.5 (22.6)
comprehensive
income
Dividends paid - - - - - - (14.6) (14.6) (1.4) (16.0)
Disposal of - - - - (0.2) - - (0.2) - (0.2)
available-for-sale
financial asset
and related cash
flow hedges
recycled through
the income
statement
Share-based - - - - - - 2.1 2.1 - 2.1
payments
Balance at 30 June 12.5 112.7 0.1 49.0 92.9 (0.5) (73.2) 193.5 2.1 195.6
2009
Total - - - - 2.1 - 55.3 57.4 2.2 59.6
comprehensive
income
Dividends paid - - - - - - (6.9) (6.9) (1.6) (8.5)
Disposal of - - - - (25.7) - - (25.7) - (25.7)
available-for-sale
financial asset
and related cash
flow hedges
recycled through
the income
statement
Share-based - - - - - - 0.7 0.7 - 0.7
payments
Balance at 31 12.5 112.7 0.1 49.0 69.3 (0.5) (24.1) 219.0 2.7 221.7
December 2009
Total - - - - (1.8) - 3.9 2.1 2.0 4.1
comprehensive
income
Dividends paid - - - - - - (15.1) (15.1) (1.1) (16.2)
Shares issued 0.1 - - - - - - 0.1 - 0.1
Share-based - - - - - - 0.6 0.6 - 0.6
payments
Balance at 30 June 12.6 112.7 0.1 49.0 67.5 (0.5) (34.7) 206.7 3.6 210.3
2010
Unaudited condensed consolidated statement of cash flows
For the six months ended 30 June 2010
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
£million £million £million
Operating activities
Total operating profit 29.1 43.7 96.6
Adjustments for:
Amortisation of acquired intangible assets 2.5 2.5 5.0
Impairment of goodwill - - 30.0
Amortisation of capitalised software 0.4 - 0.1
development
Depreciation of property, plant and 12.2 12.4 24.4
equipment
Profit on disposal of property and - (3.4) (37.3)
investments
Pension payments in excess of current (13.5) (6.8) (15.5)
service cost
Special pension contribution - - (61.5)
Pension curtailment - - (20.6)
Share of results of associates and joint (14.6) (13.3) (28.7)
ventures
Charge relating to share-based payments 0.6 2.1 3.1
Gain on disposal of property, plant and (5.9) (3.3) (7.2)
equipment
Operating cash flows before movements in 10.8 33.9 (11.6)
working capital
Decrease in inventories 2.4 4.4 6.9
(Increase)/decrease in receivables (32.2) (28.4) 13.8
Increase in payables 11.0 28.0 31.9
Cash generated by operations (8.0) 37.9 41.0
Taxes paid (1.5) (6.5) (15.7)
Net cash from operating activities (9.5) 31.4 25.3
Investing activities
Interest received 1.9 2.8 7.2
Dividends received from associates and 13.4 5.2 17.6
joint ventures
Proceeds on disposal of property, plant and 10.6 6.6 15.1
equipment
Capital expenditure (7.4) (14.5) (31.0)
Investment in joint ventures - PFI (6.3) (3.0) (7.9)
investments
Disposal of investment - 7.2 68.0
Receipt of loan repayment - PFI investments - 7.6 8.2
Receipt of loan repayment - associated - 0.1 0.3
undertakings
Net cash generated in investing activities 12.2 12.0 77.5
Financing activities
Interest paid (2.4) (2.0) (5.8)
Dividends paid to equity shareholders (15.1) (14.6) (21.5)
Dividends paid to minority shareholders (1.1) (1.5) (3.0)
Increase/(repayment) in bank loans 5.0 (25.5) (80.5)
Movement in obligations under finance (0.3) (0.1) (0.3)
leases
Net cash used in financing activities (13.9) (43.7) (111.1)
Net decrease in cash and cash equivalents (11.2) (0.3) (8.3)
Cash and cash equivalents at beginning of 49.3 58.2 58.2
period
Effect of foreign exchange rate changes 0.1 (1.2) (0.6)
Cash and cash equivalents at end of period 38.2 56.7 49.3
Cash and cash equivalents comprise
Cash and deposits 49.6 70.4 60.9
Bank overdrafts (11.4) (13.7) (11.6)
38.2 56.7 49.3
Reconciliation of net cash flow to movement
in net debt
Net decrease in cash and cash equivalents (11.2) (0.3) (8.3)
(Increase)/repayment in bank loans (5.0) 25.5 80.5
Movement in obligations under finance 0.3 0.1 0.3
leases
Change in net debt resulting from cash (15.9) 25.3 72.5
flows
Effect of foreign exchange rate changes 0.1 (1.2) (0.6)
Change in net debt during the period (15.8) 24.1 71.9
Net debt - opening (37.3) (109.2) (109.2)
Net debt - closing (53.1) (85.1) (37.3)
Notes to the unaudited interim financial statements
For six months ended 30 June 2010
1. General information
Interserve Plc (the Company) is a company incorporated in the United Kingdom.
The half-year results and condensed consolidated financial statements for the
six months ended 30 June 2010 (the interim financial statements) comprise the
results of the Company and its subsidiaries (together referred to as the Group)
and the Group's interest in joint ventures and associates.
The directors have considered the Group's financial position with reference to
latest forecasts and the actual performance for the half-year period. Whilst
the current economic environment continues to be uncertain, the directors
believe that the Group has adequate resources to continue in operational
existence for the foreseeable future, being a period of at least 12 months,
noting in particular that: the majority of the Group's revenue is derived from
long-term contracts; the Group had visibility of £1.1 billion of work scheduled
for 2011 at the balance sheet date; and the Group has access to committed debt
facilities totalling £250 million until at least October 2013. Accordingly, the
Group continues to adopt the going concern basis in preparing the half-yearly
condensed financial statements.
A copy of the statutory accounts for the year ended 31 December 2009 has been
delivered to the Registrar of Companies. The auditors' report on those accounts
was unqualified and did not contain statements made under sections 498(2) or
(3) of the Companies Act 2006.
The interim financial statements for the six months ended 30 June 2010 have
been reviewed but have not been audited.
2. Accounting policies
The interim financial statements have been prepared in accordance with IAS 34
Interim financial reporting, the recognition and measurement criteria of
International Financial Reporting Standards (IFRSs) as adopted by the European
Union and the disclosure requirements of the Listing Rules. The financial
information set out in this interim report does not constitute statutory
accounts as defined in section 434 of the Companies Act 2006. The interim
financial statements do not include all information required for full annual
financial statements and should be read in conjunction with the Annual Report
and Financial Statements for the year ended 31 December 2009.
The accounting policies and methods of computation followed in the interim
financial statements are consistent with those published in the Group's Annual
Report and Financial Statements for the year ended 31 December 2009 and which
are available on the Group's website at www.interserve.com.
In addition, these accounting policies used are consistent with those that the
directors intend to use in the Annual Report and Financial Statements for the
year ending 31 December 2010. Taxes on income in the interim period are accrued
using the tax rate that would be applicable to expected total annual earnings.
Significant standards and interpretations introduced during the period:
Standard
IFRIC 12 Service concession The standard requires that where income
arrangements received on the asset is not on a "per use"
basis then the asset should be classified as
available-for-sale. In addition revenue
generated from the concession should be
treated in accordance with IAS 11 and 18 and
that interest should not be capitalised. The
introduction of this IFRIC did not have a
material impact on the Group's results or
disclosures.
IFRIC 17 Distributions of Does not impact the Group.
non-cash assets to owners
IFRS 3 (revised 2008) Business The standard introduces the requirement to
combinations fair value when there is a change of control
and impacts what is included as consideration
to a vendor. These changes impact prospective
changes to acquired undertakings and have no
material impact on the Group's results or
disclosures.
IAS 27 (revised 2008) The standard deals with changes in control or
Consolidated separate financial significant influence in Group undertakings
statements and has no impact on the Group's results.
IAS 28 (revised 2008) Investment The standard deals with the treatment of an
in associates associate and the equity method of accounting
for associates. The Group already complies
with the requirements.
At the date of authorisation of these interim financial statements the
following standards and interpretations were in issue but not yet effective and
therefore have not been applied in these interim financial statements:
Standard
IFRS 1 (amended) First-time adoption of IFRS - limited exemptions from
comparative IFRS 7 disclosures
IFRIC 14 Prepayments of a minimum funding requirement
IFRIC 19 Extinguishing financial liabilities with equity instruments
IFRS 9 Financial instruments
IAS 24 Related party disclosures (amended Nov 2009)
The directors anticipate that the adoption of these Standards and
Interpretations in future periods will have no material impact on the financial
statements of the Group.
The principal risks and uncertainties facing the Group are those described on
pages 24 to 25 of the Group's Annual Report and Financial Statements for the
year ended 31 December 2009. The directors expect that the Group's profits will
continue to be weighted to the second-half.
3. Business and geographical segments
(a) Business segments
During the previous 12 months, the Specialist Services division had become
progressively integrated into services offered by the Facilities Management
division to its third party customers. As a result on 14 January 2010 the Group
merged the Facilities Management and substantially all of the Specialist
Services divisions into a single reporting segment, forming the Support
Services division. Prior period comparatives have been adjusted accordingly.
The Group is now organised into four operating divisions, as set out below. The
Group internally reviews and allocates resources to each of these operating
divisions and each has a divisional managing director who reports into and
forms part of the executive board.
* Support Services: provision of outsourced support services to public- and
private-sector clients.
* Project Services: design, construction and maintenance of buildings and
infrastructure.
* Equipment Services: design, hire and sale of formwork, falsework and
associated access equipment.
* PFI Investments: transaction structuring and management of the Group's PFI
activities. The Joint ventures - PFI Investments segmental figures
represent the Group's share of its PFI special purpose companies.
Segment information about these operating divisions is presented below.
Revenue Result
Six Six Year Six Six Year
months months months months
ended ended ended ended ended ended
30 June 30 June 31 Dec 30 June 30 June 31 Dec
2010 2009 2009 2010 2009 2009
£million £million £million £million £million £million
Support Services 538.2 503.8 1,010.2 8.9 10.7 22.1
Project Services 380.8 406.4 820.5 23.5 18.1 40.7
Equipment Services 68.4 80.4 157.1 7.7 20.4 35.9
Joint ventures - PFI - - - 1.8 1.8 4.7
Investments
Group Services - - - (10.1) (8.0) (17.7)
Inter-segment elimination (42.9) (39.4) (81.0) - - -
944.5 951.2 1,906.8 31.8 43.0 85.7
Exceptional items - 3.4 16.3
Amortisation of acquired (2.7) (2.7) (5.4)
intangible assets
Total operating profit 29.1 43.7 96.6
Investment revenue 18.1 15.0 31.6
Finance costs (19.9) (18.7) (39.0)
Profit before tax 27.3 40.0 89.2
Tax (5.3) (8.2) (16.8)
Profit after tax 22.0 31.8 72.4
Net assets/(liabilities)
30 June 30 June 31 December
2010 2009 2009
£million £million £million
Support Services (21.9) (62.7) (21.8)
Project Services (97.3) (111.2) (105.1)
Equipment Services 132.6 137.6 138.4
Joint ventures - PFI Investments 67.2 117.7 67.4
80.6 81.4 78.9
Group Services, goodwill and acquired 179.2 197.2 177.4
intangible assets
259.8 278.6 256.3
Net debt (53.1) (85.1) (37.3)
Net assets (excluding minority interest) 206.7 193.5 219.0
(b) Geographical segments
Support Services is predominantly based in the United Kingdom. Project Services
is located in the United Kingdom and operates through associates in the Middle
East. Equipment Services has operations in all of the geographic segments
listed below.
The table below provides an analysis of the Group's sales by geographical
market, irrespective of the origin of the goods/services.
Revenue by geographical Total operating profit
market
Six Six Year Six Six Year
months months months months
ended ended ended ended ended ended
30 June 30 June 31 Dec 30 June 30 June 31 Dec
2010 2009 2009 2010 2009 2009
£million £million £million £million £million £million
United Kingdom 925.6 914.9 1,840.4 23.8 19.2 44.3
Rest of Europe 10.6 14.0 27.1 (0.7) 0.4 0.3
Middle East & Africa 29.6 40.4 79.8 14.8 27.2 52.0
Australasia 16.6 15.8 31.7 4.1 4.8 9.1
Far East 3.1 2.9 5.5 0.1 (0.4) (1.2)
Americas 1.9 2.6 3.3 (0.2) (0.2) (1.1)
Group services - - - (10.1) (8.0) (17.7)
Inter-segment (42.9) (39.4) (81.0) - -
elimination
944.5 951.2 1,906.8 31.8 43.0 85.7
Exceptional items - 3.4 16.3
Amortisation of (2.7) (2.7) (5.4)
acquired intangible
assets
29.1 43.7 96.6
Non-current assets
30 June 30 June 31 December
2010 2009 2009
£million £million £million
United Kingdom 112.3 165.8 117.5
Rest of Europe 16.3 18.7 19.8
Middle East & Africa 127.0 115.2 108.7
Australasia 17.0 15.2 16.0
Far East 5.5 5.8 4.8
Americas 4.4 4.2 4.2
Group Services, goodwill and acquired 214.9 267.8 233.0
intangible assets
497.4 592.7 504.0
Deferred tax asset 32.4 35.5 31.4
Total non-current assets 529.8 628.2 535.4
4. Income tax expense
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
£million £million £million
UK taxation (1.4) 7.4 6.6
Overseas taxation 1.5 1.8 3.2
Deferred taxation 5.2 (1.0) 7.0
5.3 8.2 16.8
Effective tax rate 19.4% 20.5% 18.8%
The effective corporation tax charged represents the best estimate of the
weighted average annual corporation tax rate expected for the full financial
year. No account has been taken in these interim financial statements of the
2010 Finance Bill that was substantially enacted in July 2010, after the
balance sheet date. It is estimated that the reduction in the corporation tax
rate from 28% to 27% from April 2011 would have resulted in a £1.2 million
reduction in the deferred tax asset held on the balance sheet at 30 June 2010
if the change had been applied in the interim statements.
In addition to the income tax charged to the income statement, the following
deferred tax charges/(credits) have been recorded directly in equity in the
period:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
£million £million £million
Tax on actuarial loss on pension (6.2) (15.2) (8.7)
liability
Tax on (loss)/gain on (0.2) 0.1 (0.1)
available-for-sale financial assets
Tax on fair value adjustment on cash (11.3) 13.1 8.1
flow hedges
Tax on the fair value adjustments on 8.9 (9.0) (4.6)
available-for-sale financial assets
within the PFI special purpose
companies
(8.8) (11.0) (5.3)
5. Share of results and net assets of joint venture and associated undertakings
Six months ended 30 June 2010 Six months ended 30 June 2009
Joint Joint
ventures ventures
Project Support - PFI Project Support - PFI
Services Services Investments Total Services Services Investments Total
£m £m £m £m £m £m £m £m
Revenue 131.6 45.4 43.8 220.8 164.3 47.7 73.1 285.1
Operating 13.5 0.5 0.3 14.3 14.2 1.0 1.7 16.9
profit
Net interest 0.5 - 3.6 4.1 0.4 - 1.1 1.5
receivable
Taxation (1.4) (0.1) (2.1) (3.6) (3.6) (0.3) (1.0) (4.9)
Group share 12.6 0.4 1.8 14.8 11.0 0.7 1.8 13.5
of profit
after tax
Amortisation (0.2) - - (0.2) (0.2) - - (0.2)
of acquired
intangible assets
Total 12.4 0.4 1.8 14.6 10.8 0.7 1.8 13.3
operating profit
Dividends (10.2) (1.0) (2.2) (13.4) (3.8) (1.0) (0.4) (5.2)
Retained 2.2 (0.6) (0.4) 1.2 7.0 (0.3) 1.4 8.1
profits
Year ended 31 December 2010
Joint
ventures
Project Support - PFI
Services Services Investments Total
£m £m £m £m
Revenue 319.1 88.1 156.7 563.9
Operating profit 28.9 1.8 4.8 35.5
Net interest receivable 0.7 - 3.0 3.7
Taxation (6.5) (0.5) (3.1) (10.1)
Group share of profit 23.1 1.3 4.7 29.1
after tax
Amortisation of (0.4) - - (0.4)
acquired intangible assets
Total operating profit 22.7 1.3 4.7 28.7
Dividends (13.9) (1.0) (2.7) (17.6)
Retained profits 8.8 0.3 2.0 11.1
The joint venture and associate undertakings are located in the United Kingdom
except for the Project Services associates which are located in the Middle
East.
6. Earnings per share
The calculation of earnings per share is based on the following data:
Earnings Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
£million £million £million
Earnings for the purposes of basic 20.0 30.3 68.7
earnings per share, being net profit
attributable to equity holders of the
parent
Adjustments:
Exceptional items - (3.4) (16.3)
Amortisation of acquired intangibles 2.7 2.7 5.4
Tax effect of above adjustments (0.7) (0.7) 4.4
Headline earnings 22.0 28.9 62.2
Earnings for the purposes of diluted 20.0 30.3 68.7
earnings per share
Weighted average number of shares Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
Number Number Number
thousand thousand thousand
Weighted average number of ordinary 125,626 125,057 125,214
shares for the purposes of basic and
headline earnings per share
Effect of dilutive potential ordinary shares:
Share-based payments 3,186 3,566 2,817
Weighted average number of ordinary 128,812 128,623 128,031
shares for the purposes of diluted
earnings per share
Earnings per share Six months Six months Year ended
ended 30 ended 30 31 December
June 2010 June 2009 2009
pence pence pence
Headline earnings per share 17.5 23.1 49.7
Basic earnings per share 15.9 24.2 54.9
Diluted earnings per share 15.5 23.6 53.7
7. Dividends
Six months Six months Year
ended ended ended
Dividend 30 June 30 June 31 Dec
per share 2010 2009 2009
pence £million £million £million
Final dividend for the year 11.7 - 14.6 14.6
ended 31 December 2008
Interim dividend for the year 5.5 - - 6.9
ended 31 December 2009
Final dividend for the year 12.0 15.1 - -
ended 31 December 2009
Amount recognised as 15.1 14.6 21.5
distribution to equity
holders in the period
The interim dividend of 5.6p per share, amounting to £7.0m, was
approved by the directors on 10 August 2010 and has therefore not been included
as a liability as at 30 June 2010.
8. Defined benefit retirement schemes
The following table sets out the key IAS 19 assumptions used to assess the
present value of the defined benefit obligation
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
Retail price inflation 3.30% pa 3.50% pa 3.50% pa
Discount rate 5.40% pa 6.20% pa 5.60% pa
Pension increases in payment:
LPI/RPI 3.20%/3.30% 3.40%/3.50% 3.40%/3.50%
Fixed 5% 5.00% 5.00% 5.00%
3% or RPI if higher (capped 3.60% 3.70% 3.70%
at 5%)
General salary increases 4.05 - 4.80% pa 4.25 - 5.00% pa 4.25 - 5.00% pa
The amount included in the balance sheet arising from the Group's obligations
in respect of the various pension schemes is as follows:
30 June 2010 30 June 2009 31 Dec 2009
£million £million £million
Present value of defined benefit 640.2 597.5 627.4
obligation
Fair value of schemes' assets (534.9) (392.4) (532.1)
Liability recognised in the balance 105.3 205.1 95.3
sheet
The amounts recognised in the income statement are as follows:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
£million £million £million
Employer's part of current service 3.3 6.0 11.0
cost
Interest cost 17.4 16.7 33.2
Expected return on schemes' assets (16.1) (12.2) (24.4)
Gains on curtailments and settlements - - (20.6)
Total expense/(income) recognised in 4.6 10.5 (0.8)
the income statement
Actuarial gains and losses are recognised in full in the period in which they
occur. They are recognised directly in equity and presented in the statement of
other comprehensive income. In December 2009, the non passport section of the
Interserve Pension Scheme was closed to future accrual of benefit. As a result
a £20.6 million curtailment gain was recognised in the year ending 31 December
2009.
9. Share capital
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
Shares thousand Shares thousand Shares thousand
At 1 January 125,368 125,016 125,016
Exercised share-based 436 352 352
payments
At the end of the period 125,804 125,368 125,368
10. Related parties
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note.
Key management compensation is disclosed on pages 50 to 61 in the Annual Report
and Financial Statements for the year ended 31 December 2009.
During the period, Group companies entered into the following transactions with
related parties who are not members of the Group:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2010 2009 2009
£million £million £million
Sales of goods and Joint ventures - PFI 105.1 109.1 195.5
services Investments
Associates 64.3 76.4 135.4
Purchases of goods Joint ventures - PFI - - -
and services Investments
Associates 1.6 1.3 3.0
Amounts owed by Joint ventures - PFI 0.9 - -
related parties Investments
Associates 2.6 3.1 1.6
Amounts owed to Joint ventures - PFI - - -
related parties Investments
Associates - 0.2 -
Sales and purchases of goods and services to related parties were made on
normal trading terms.
The amounts outstanding per the above table are unsecured and will be settled
in cash. No guarantees have been given or received on these amounts. No
provisions have been made for doubtful debts in respect of the amounts owed by
related parties.
11. Contingent liabilities
Other contingent liabilities of the Group have not materially changed from
those published in the Annual Report and Financial Statements for the year
ended 31 December 2009.