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Interserve PLC (IRV)

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Wednesday 06 August, 2014

Interserve PLC

Half-Year Results

RNS Number : 3316O
Interserve PLC
06 August 2014
 



News Release

 

6 August 2014

 

 Half-Year Results for the six months to 30 June 2014

 

Strong performance and good strategic progress

 

Interserve, the international support services and construction group, announces its half-year results for the six months ended 30 June 2014.

 


H1 2014

H1 2013

Change

Revenue

£1,374.8m

£1,068.2m

+28.7%

Total operating profit*

Headline pre-tax profit*

£53.7m

£50.2m

£39.5m

£36.8m

+35.9%

+36.4%

Headline earnings per share*

27.5p

21.4p

+28.5%

Interim dividend

Cash/(net debt)              

7.5p

(£243.1m)

6.8p

£0.7m

+10.3%

 

Highlights

 

·     Strong organic growth - 15.4% in total operating profit, 14.5% in earnings per share and 9.1% in revenue

·     Well positioned for future growth with future workload up to £7.5 billion (FY 2013: £6.4 billion) and £2 billion of new contracts secured in the period

·     Long-term funding secured through US$350 million private placement

·     £300 million pension buy-in (completed 1 August) to reduce volatility on  around 35% of the Interserve Pension Scheme's liabilities

·     Acquired businesses performing well and integrations on track

·     Key contract wins with both new and existing clients including the Ministry of Defence, Foreign & Commonwealth Office (France), Education Funding Agency, Mercedes-Benz, Qatar Shell GTL, ExxonMobil, University of Birmingham, Christie NHS Foundation Trust, Doha Festival City (Qatar) and Halliburton (Abu Dhabi). 

Chief Executive Adrian Ringrose commented:

 

"It has been a very good first half of the year for Interserve. We have delivered strong organic growth, achieved through robust performances from our UK Support Services and Construction businesses and excellent results in Equipment Services.

 

"Market conditions in International Construction and Support Services continue to be highly competitive, although we are now starting to see signs of improving demand.

 

"Our strong organic growth was complemented by the performance of our acquisitions. Initial Facilities traded in line with our expectations during the period and its integration is progressing smoothly.

 

"Our financial position remains strong which, together with our growing future workload, underpins the Board's confidence in our positive outlook and the increase in the interim dividend to 7.5 pence."

 

- Ends -

 

For further information please contact:

Rhys Jones/Robin O'Kelly                                   0118 960 0123

Interserve

 

Richard Campbell/Michael Kinirons     

Capital MSL                                                       0203 219 8816

 

About Interserve

Interserve is one of the world's foremost support services and construction companies. Our vision is to redefine the future for people and places. Everything we do is shaped by our core values.  We are a successful, growing, international business: a leader in innovative and sustainable outcomes for our clients and a great place to work for our people. We offer advice, design, construction, equipment, facilities management and frontline public services. We are headquartered in the UK and listed in the FTSE 250 index. We have gross revenues of £3.1 billion and a workforce of over 75,000 people worldwide.

www.interserve.com @interservenews

 

Contractor of the Year 2014 (Construction News)

 

 

*This news release and the Interim Management Report include a number of non-statutory measures to reflect the impact of non-trading and non-recurring items. See note 13 to the condensed consolidated financial statements for a reconciliation of these measures to their statutory equivalents on page 33 and note 8 on page 29 for calculation of earnings per share


 

 

Interim Management Report

 

Chairman's Statement

 

STRATEGIC DEVELOPMENT

 

Interserve performed well during the first half of 2014, generating strong organic growth by maintaining a clear focus on our development strategy. Additionally, we completed the £250 million acquisition of Initial Facilities in March, adding breadth to our customer offering and depth to our market position in the UK. With global markets seeing varying, but overall encouraging, signs of economic recovery, we remain well placed to continue to expand the business.

 

In our Support Services division we have grown revenue and profit in the UK and continued to develop our Oil and Gas services business in the Middle East. Our construction businesses generated increased revenues in the period as markets in both the UK and the Middle East begin to recover, albeit at variable speeds, and our Equipment Services division continued to grow both margins and revenue through widespread increases in activity. Work winning was strong in the period, resulting in a substantially increased future workload. 

 

During the period we took a number of actions to prepare the Group's financial structure for the next phase in our growth and to sustain our strong balance sheet through a share placing and a US Private Placement.  Shortly after the period end, we took the next step in respect of our pension scheme liability management, reducing shareholder risk by protecting around 35 per cent of our scheme liabilities from fluctuating interest rates, inflation and longevity risk through a buy-in agreement with Aviva.

 

The integration of Initial Facilities is well underway and the anticipated synergies remain on track. In recent years we have added to each of our divisions through acquisition, as well as achieving sustained organic growth, reflecting our long established strategy: to build strong core businesses; to capture related expansion opportunities; and to expand internationally.

 

SUSTAINABILITY

 

In May 2014, we celebrated the first anniversary of the launch of SustainAbilities.  Sustainability is increasingly integral to how we deliver value to our stakeholders; delivering on our plans will give the Group a differentiated customer offer, a 'licence to operate' within our communities and a strong gravitational pull for our people. Although 2013 was very much a baseline year, against which future performance towards meeting our targets can be measured, there are already a number of notable successes, as highlighted in our recent update (see at: http://sustainabilities.interserve.com) including hosting the UK's first Social Value summit, and commissioning research on how skills can unlock potential in the UK workforce.

 

People remain our most valuable asset and we continue to place a strong emphasis on our Health and Safety culture. While we continue to invest in developing the skills of all our employees, we are particularly focused on those in the early stages of their career.  So far this year we have significantly increased our intake of graduate recruits. Through this and other early career entry and development programmes, we are well on our way towards meeting our ambitious long-term objectives.

 

As one of the UK's largest employers, particularly with the acquisition of Initial, we believe Interserve can play a wider role in developing the skills of young people beyond the core needs of our own business. To this end, we have established the Interserve Academies Trust and expect to become one of the first corporate academy sponsors later this year. 

 

BOARD CHANGES

 

On 9 July, I was pleased to announce the appointments of Nick Salmon and Russell King as non-executive directors and members of the Audit, Nomination and Remuneration committees. David Thorpe will retire from the Board on 31 August and is succeeded as Remuneration Committee chairman by Keith Ludeman.  I would like to pay tribute to the major contribution that David has made in over five years as an Interserve director. He will be missed, but we wish him well for the future.

 

PROSPECTS

 

Trading conditions in our main markets continue to improve, albeit in some cases from a low ebb.  Having taken early action to weather the downturn at the start of the recession, the Group is now positioning itself to take advantage of sustained market improvement by investing in skills, infrastructure and fixed assets.  We are well-positioned in our main markets with a healthy spread of geography, segments and service lines. We remain confident in our near-term prospects and optimistic regarding our medium term future. 

 

DIVIDEND

 

Reflecting our performance and prospects, the Board has approved a further increase in the interim dividend of 10.3 per cent to 7.5 pence per share (2013: 6.8 pence per share) which will be paid on 23 October 2014 to shareholders on the register at the close of business on 19 September 2014.

 

Lord Blackwell

Chairman

6 August 2014

 



 

BUSINESS REVIEW

 

The Group performed strongly in the first half of the year with significant overall revenue and total operating profit growth of 28.7 per cent and 35.9 per cent respectively. Underpinning this was strong organic growth of 9.1 per cent in revenue and 15.4 per cent in operating profit, the balance being attributable to the impact of acquired businesses, which we continue to integrate in line with our plans.

 

Results summary

H1 2014

H1 2013

Change

Revenue

£1,374.8m

£1,068.2m

+28.7%

Total operating profit

£53.7m

£39.5m

+35.9%

Headline pre-tax profit

£50.2m

£36.8m

+36.4%

Headline Earnings per Share

 

27.5p

 

21.4p

 

+28.5%

 

Future Workload

£7.5bn

£6.4bn

+17.2%

 

DIVISIONAL REVIEW

 

We segment our results into four main areas of service - Support Services, Construction, Equipment Services and Investments - all of which are supported by central Group Services.

 

SUPPORT SERVICES

 

The Support Services division focuses on the management and delivery of operational services including facilities and building management, a broad range of accommodation-related services and services direct to the citizen. Our client base comprises both public and private-sector organisations in the UK and overseas.

 

Results summary

H1 2014

H1 2013

Change

Consolidated revenue

 

 

 

-    UK

£808.5m

£597.5m

+35.3%

-    International

 

£58.7m

£22.8m

+157.5%

Contribution to Total

operating profit

£37.1m

£27.7m

+33.9%

UK

£33.9m

£25.3m

+34.0%

International

£3.2m

£2.4m

+33.3%

Operating margin (UK)

4.2%

4.2%

 

Operating margin (International)*

4.3%

6.4%

 

*Combined underlying margins of subsidiaries and associates

 

Support Services UK

 

Support Services UK performed well, achieving revenue growth of 35.3 per cent. The operating margin was stable at 4.2 per cent (H1 2013: 4.2 per cent) and we continued to demonstrate our ability to win work, through a number of notable successes that reflect our diverse capabilities.

 

Strong organic revenue growth (8.4 per cent) came from our focus on extending existing relationships, together with major contract wins in the defence, automotive, real estate, central and local government sectors.

 

Future workload for the division increased to £5.8 billion at the half year (FY 2013: £5.1 billion).

 

Highlights in the period included:

 

·     Mobilising a five-year contract with the BBC, valued at more than £150 million, to provide the management and delivery of facilities management and security services at over 150 buildings, including New Broadcasting House in central London and MediaCityUK in Salford.

·     Winning a £322 million contract with the Ministry of Defence (MoD) to manage the National Training Estate Prime contract over a new five-year term, with an option to extend for a further five years, following a previous 10 year contract.

·     Building on relationships with existing clients to win additional work, including the Foreign & Commonwealth Office (France), Mercedes-Benz and real estate group CBRE.

·     Contract extensions with clients including Bournemouth University, Turner Broadcasting and the English National Opera.

·     Winning three Community Work Placement contracts worth £19 million, covering West and South Yorkshire and Devon, Cornwall, Dorset and Somerset.

 

Acquisition Update

 

On 18 March we completed the £250 million acquisition of Initial Facilities ("Initial"). Our enlarged UK Support Services division is now one of the top three businesses (by revenue) in the UK facilities management market, offering a greater breadth of services and allowing us to broaden our customer proposition. The acquired business employs approximately 25,000 people, with operations in the UK, Ireland and Spain and provides a comprehensive range of facilities services including cleaning, catering, security, mechanical and electrical building maintenance, energy management and statutory compliance. This expansion broadens our customer base within the private sector, including professional services firms, national retailers, transport operators and a variety of industrial businesses, complementing the prominent position that Interserve has within the public sector.

 

Since acquisition Initial has traded in line with the Board's expectations and the integration is progressing as planned. Our people and customers have responded well to the integration, evidenced by our ability to maintain the purchased order book of £0.6 billion. During the period, Initial has continued to win important new contracts including Exterion and Dairy Crest. We have streamlined the management structure and the anticipated synergies remain in line with previous guidance.  We are re-branding the business as Interserve, which will complete in September.

 

Support Services International

 

Our principal focus is on the Middle East oil and gas industry where we deliver project management, operational services (such as rig-moving), fabrication, maintenance, turnaround services and training in the United Arab Emirates (UAE), Qatar and Oman. Revenue (including our share of associates) increased strongly to £76.1 million (H1 2013: £40.6 million) partly due to the contribution of Adyard, the UAE-based oil and gas services business we acquired in the second half of 2013.

 

During the period, margins tightened to 4.3 per cent  in part due to an expected change in the business mix following the acquisition of Adyard and from continued competitive trading conditions. Contribution to total operating profit increased by 33.3 per cent to £3.2 million (H1 2013: £2.4 million).

 

Future workload declined marginally to £149 million at the half year (FY 2013: £164 million).

 

Highlights in the period included:

 

·     A three-year extension (plus an optional fourth year) to our longstanding logistics and oilfield services contract with Occidental Petroleum.

·     A new three-year contract to provide Qatar Shell GTL with a range of mechanical services, including the replacement of large sections of piping and an upgrade to structural supports.

·     A five-year facilities management contract with international oil and gas group, ExxonMobil.

 

CONSTRUCTION

 

We provide advice, design, construction and fit-out services for buildings and infrastructure. Our focus is on forming long-term relationships, and delivering repeat business predominantly through framework agreements and Public-Private Partnership (PPP projects).

 

Results summary

H1 2014

H1 2013

Change

Revenue

 

 

 

-    UK (Consolidated revenue)

£432.6m

£387.6m

+11.6%

-    International

(share of associates)

£99.4m

£96.5m

+3.0%

 

Contribution to Total

operating profit

 

£12.3m

 

£13.1m

 

-6.1%

UK

£8.0m

£7.4m

+8.1%

International

£4.3m

£5.7m

-24.6%

Operating margin (UK)

1.9%

1.9%

 

Operating margin (International)*

2.4%

4.8%

 

*Underlying margins of associates

 

Construction UK

 

Construction UK performed strongly. Demand is beginning to improve, although margins remain tight as supply chain pressures feed through. Organic revenue growth was 4.9 per cent compared to the same period in 2013, boosted to 11.6 per cent by Paragon (the specialist fit-out and refurbishment business we acquired in May 2013). Contribution to total operating profit increased by 8.1 per cent to £8.0 million.  Margins remained stable at 1.9 per cent and future workload rose to £1.4 billion. (FY 2013: £1.0 billion).

 

Approximately two-thirds of our revenue is derived from framework agreements and repeat business relationships. We continue to source our activity from a broad range of established sectors, including health, education and utilities. We have also made further progress in diversifying our revenue sources by expanding our property development capability.

 

Part of our strategy is to combine our investment, development and project management skills to finance and deliver selective private sector commercial developments.  We started work in February on the Haymarket development in central Edinburgh, which will become one of the city's largest commercial developments. In May we started construction on another development scheme, the Co-op building in Newcastle.

 

Paragon performed well during the period as momentum increased and we won new business with a number of clients, notably Facebook and Markel.

 

Highlights in the period included:

 

·     Winning a £150 million Private Finance 2 (PF2) contract to build seven secondary schools across Hertfordshire, Luton and Reading, the first batch of private finance schools to be built under the Government's new school building programme.

·     Award of a contract to design and build a high energy proton beam cancer therapy facility for the Christie NHS Foundation Trust in Manchester.

·     Winning a contract to build a new £55 million sports centre for the University of Birmingham.

·     Completion and hand-over of Jaguar Land Rover's (JLR) new Engine Manufacturing Centre near Wolverhampton.

·     Completion of the 'Endeavour Centre', part of HMS Drake's Naval Service Recovery Centre in Portsmouth.

 

Construction International

 

We are starting to see signs of recovery in Middle East construction markets.  We achieved revenue growth of 3.0 per cent, which is encouraging, however, this activity has yet to generate profit growth due, in part, to timing and to continued competitive trading conditions.  These factors impacted the operating margin, reducing it to 2.4 per cent in the period. 

 

Our future workload grew 14.1 per cent to £227 million (FY 2013: £199 million).

 

Highlights in the period included:

 

·     A £323 million contract, in joint venture with ALEC Qatar, to build Doha Festival City, which will be Qatar's largest retail and entertainment development.

·     Further enabling works contracts for Siemens and NCC in the development of Qatar's power network.

·     Commencement of a £160 million extension to Dubai's Mall of the Emirates.

·     Other awards in the UAE included a contract to build a new field services complex for Halliburton in Abu Dhabi, as well as work with DP World, the UAE Roads and Transport Authority, Dubai's Taj Hotel, Meraas and the RIVA Group.

 

EQUIPMENT SERVICES

 

Our Equipment Services business (RMD Kwikform) operates globally, designing, hiring and selling formwork and falsework solutions for infrastructure and building projects.

 

Results summary

H1 2014

H1 2013

Change

Revenue

£90.9m

£83.6m

+8.7%

Contribution to Total operating profit

£14.0m

£8.5m

+64.7%

Margin

15.4%

10.2%

 

 

The division made excellent overall progress, with encouraging revenue growth of 8.7 per cent, within which a somewhat higher proportion of hire revenues and stronger pricing led to significant profit growth across most markets. Contribution to total operating profit increased by 64.7 per cent to £14.0 million, with margins rising to 15.4 per cent, slightly above the Board's expectations.

 

As planned, net capital expenditure rose significantly as we increased investment in both the equipment fleet and in new branches in South Africa (Cape Town and Nelspruit), the United States (San Leandro, California) and Panama (Panama City) to meet growing demand. Capital expenditure during the period was £14.7 million, up from £2.5 million in the same period of 2013.

 

We continue to see strong growth across the Middle East as business confidence grows (see highlights below).

 

In Asia, we delivered a strong performance in Hong Kong, driven by the Chinese Government's ongoing infrastructure expenditure programme. We also performed well in the Philippines, particularly in the commercial sector, with further investment in the power sector expected.

 

Demand in Australia has been affected by the completion of a number of major energy projects and by a slowdown in the mining sector in Western Australia. Although we have seen some uplift in commercial schemes, this did not fully offset the reduction in the civil engineering sector during the period.

 

The UK performed well, boosted by projects such as the Resorts World Casino project in Birmingham and benefitting from the restructuring actions we implemented early  in the construction downturn.

 

The USA's overall economic recovery has been somewhat slower than anticipated and Government investment remains sluggish. However, our expansion in California is now bearing fruit, with ongoing work on a number of sizeable commercial developments in the Bay Area and downtown San Francisco. In addition, we continued our expansion in Latin America, growing in new geographies such as Colombia and Panama.

 

Highlights in the period included:

 

·     Supplied specialised heavy duty support equipment for the construction of the new 700,000 square metre Midfield Terminal Complex at Abu Dhabi International Airport.

·     Started work on a new 14 floor, 65,000 square metre transport hub being built in Makkah to provide transport for pilgrims.

·     Provided 1,300 tonnes of equipment for the 162,500 square metre Mall of Egypt project, which is currently being built by a Besix Orascom JV.

·     Provided the tallest shoring (building support) towers in RMD's history (43 metres) for the Sultan Qaboos Mosque project in Oman.

 

INVESTMENTS

 

Investments manages our project finance activities, principally transaction structuring and management of Private Private Partnerships (PPP) and property development schemes.

 

 

H1 2014

H1 2013

Contribution to Total operating profit

£0.3m

£0.7m

Interest received on subordinated debt investments

£0.4m

£0.3m

Total

£0.7m

£1.0m

 

Highlights in the period included:

·     A further £3.1 million investment into the Haymarket project in Edinburgh

·     Financial close on the redevelopment the Co-op building in Newcastle (the redevelopment of which we are managing on behalf of DTZ Investment Management).

·     Appointed preferred bidder to build seven schools in the UK and a centre of excellence for the Scottish National Blood Transfusion Service.

·     Selected by University Hospital Southampton NHS Foundation Trust (UHS) as its long-term estates development partner in a joint venture with social care property group, Prime.

·     Secured a £9.6 million investment from the Scottish Partnership for Regeneration in Urban Centres (SPRUCE) Fund as a co-investor in the Edinburgh Haymarket development.

 

GROUP SERVICES

 

All central costs, including those related to our financing and central bidding activities, are disclosed within the Group Services segment. Group Services' costs in H1 2014 were £10.0 million (H1 2013: £10.5 million).

 

FINANCIAL HIGHLIGHTS

 

Movement in our headline earnings per share was impacted during the period both by a reduction in our effective tax rate and by an increase in the number of shares in issue as a result of the placing, detailed below.

 

During the period we incurred an exceptional charge of £11.7 million relating principally to the transaction and integration costs of the Initial acquisition.   A further tranche of restructuring costs will be incurred in the second half of 2014 as we complete the integration.

 

During 2014 we have taken three important actions to re-configure and underpin our long-term financing and balance sheet strength:

 

A placing of 12.9 million shares - 9.9 per cent of our share capital - which generated gross proceeds of £74.8 million from new and existing investors at 580 pence per share (a small premium to the prevailing market price) to part fund the acquisition of Initial Facilities.

 

Raising US$350 million from a series of corporate bonds, via a US Private Placing, in order to repay short-term bank debt. These fixed rate instruments have a weighted average duration of 10 years.

 

Shortly after the period end we took further action to reduce risk in our pension scheme by entering into a buy-in transaction. Through this deal we have put in place an insurance contract with Aviva plc for £300 million of our pensioner liabilities, thereby eliminating our exposure to interest rate, inflation and mortality risks for approximately 35 per cent of our scheme liabilities.

 

Key performance indicators (KPIs)

 

KPI

Unit

Target

H1 2014

H1 2013


Workload (excl. associates) for next year1

%

At the half-year: visibility over 50% of next year's consolidated revenue (consensus)

50.2

56.6


Headline earnings per share (EPS)

Pence

Double headline EPS over the five years to 2015

27.5p

21.4p


Operating cash conversion2,

3-year rolling average

%

100% over medium term

61.4

119.7


Annualised staff turnover3

%

Below 10%

9.8

7.3


Annualised all-labour accident incidence rate4

Per 100,000 workforce

Halve the rate by 2020

from a 2010 base5

224

225


 

1.     Future workload comprises forward orders and pipeline. Forward orders are those for which we have secured contracts in place and pipeline covers contracts for which we are in bilateral negotiations and on which final terms are being agreed.

2.     See note 13 on page 33 for a definition of operating cash conversion.

3.     Staff turnover measures the proportion of managerial, technical and office-based staff leaving voluntarily over the course of the period. This is measured on a 12 month rolling basis.

4.     Includes Interserve, its subsidiaries, associates and subcontractors.

5.     2010 base: 377.

 

 

We use a set of financial and non-financial KPIs to measure critical aspects of the Group's performance. These KPIs are aligned with:

 

•   Achieving the Group's strategic objectives of delivering a substantial future workload and generating strong earnings growth and cash conversion.

•   The Group's key behavioural goals, specifically regarding our employees and the health and safety of everyone working both directly and indirectly for Interserve.

 

OUTLOOK

 

Against a backdrop of generally improving market conditions in most segments, we reiterate our full-year guidance for further progress in 2014, driven by continued organic growth across all of our segments and the successful integration of our recent acquisitions. In addition, our growing future workload, underpinned by a robust financial position, reinforces the Board's confidence in our ability to deliver our medium-term strategy. 


PRINCIPAL RISKS AND UNCERTAINTIES

 

The principal risks and uncertainties which could have a material impact upon the Group's performance, together with the mitigation strategies adopted, have been reviewed and have not changed significantly from those set out on pages 34 and 35 of the Strategic Report included in the Group's 2013 Annual Report and Financial Statements.

 

These risks and uncertainties arise from:

 

•   Failure to win new or sufficiently profitable contracts in our chosen markets or to complete those contracts with sufficient profitability, due to adverse changes in the business, economic and political environment.

 

•   The termination or unsatisfactory execution of major contracts.

 

•   A breakdown of the relationships in the businesses in which we do not have overall control.

 

•   Failure to recruit or retain key people.

 

•   Failure to manage health and safety adequately.

 

•   The financial risks discussed in the Financial Review on pages 44 to 51 of the Group's 2013 Annual Report and Financial Statements.

 

•   Damage to reputation resulting from the management of our business or the behaviour of our employees.

 

•   The consequences of climate change.

 

The Group continues to have no material exposure to currency risks or volatility in commodity prices. The Group's principal businesses operate in countries which we regard as politically stable.

 

AUDITOR

 

Following a recent tender process Grant Thornton UK LLP have been appointed as our new auditor for the 2014 financial year.  Reappointment will be subject to approval by the shareholders at the next general meeting.

 

RESPONSIBILITY STATEMENT

 

A list of current directors and their functions 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;

 

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 Conduct 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 Haywood

Chief Executive                           Group Finance Director

 

6 August 2014

 

Independent review report to the members of Interserve Plc

 

Introduction

We have reviewed the condensed set of financial statements in the half-yearly financial report of Interserve Plc for the six months ended 30 June 2014 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows and related notes. We have read the other information contained in the half yearly financial report which comprises only the Chairman's Statement and Business Review 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's members, as a body, 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'. Our review work has been undertaken so that we might state to the company's members those matters we are required to state to them in an 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 and the company's members as a body, for our review work, for this report, or for the conclusion 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 Conduct Authority.

 

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards 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 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'. A review of interim financial information consists of making enquiries, 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 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

GRANT THORNTON UK LLP
AUDITOR

London
6 August 2014

Unaudited condensed consolidated income statement

For the six months ended 30 June 2014

 

 

 


Six months ended 30 June 2014

Six months ended 30 June 2013

Year ended 31 December 2013


Before

exceptional

items and

amortisation



Before

exceptional

items and

amortisation

of acquired



Before

exceptional

items and

amortisation




Exceptional

items and

amortisation

of acquired


Exceptional

items and

amortisation

of acquired


Exceptional

items and

amortisation

of acquired











of acquired



of acquired



intangible

intangible


intangible

intangible


intangible

intangible



assets

assets

Total

assets

assets

Total

assets

assets

Total


£million

£million

£million

£million

£million

£million

£million

£million

£million

Continuing operations




















Revenue including share of associates and joint ventures

1,565.5

-

1,565.5

1,244.2

-

1,244.2

2,581.9

-

2,581.9

Less: Share of associates and joint ventures

(190.7)

(190.7)

(176.0)

-

(389.3)

Consolidated revenue

1,374.8

-

1,374.8

1,068.2

-

1,068.2

2,192.6

-

2,192.6

Cost of sales

(1,221.8)

(1,221.8)

(949.9)

-

(1,927.0)

Gross profit

153.0

-

153.0

118.3

-

265.6

Administration expenses

(106.0)

-

(106.0)

(87.1)

-

(87.1)

(196.2)

-

(196.2)

Amortisation of acquired intangible assets

-

(10.2)

(10.2)

-

(4.6)

(4.6)

-

(8.8)

(8.8)

Other exceptional items (note 4)

-

(11.7)

(11.7)

-

(2.6)

(2.6)

Total administration expenses

(106.0)

(21.9)

(127.9)

(87.1)

(4.6)

(91.7)

(196.2)

(11.4)

(207.6)

Loss on disposal of property and investments (note 4)

-

-

(1.4)

(1.5)

(1.5)

Operating profit

47.0

(21.9)

25.1

25.2

(12.9)

56.5

Share of result of associates and joint ventures

6.7

-

6.7

8.3

-

8.3

17.3

-

17.3

Amortisation of acquired intangible assets

-

-

-

(0.1)

(0.1)

(0.1)

Total share of result of associates and joint ventures (note 6)

6.7

6.7

8.2

(0.1)

17.2

Total operating profit

53.7

(21.9)

31.8

39.5

(6.1)

33.4

86.7

(13.0)

73.7

Investment revenue

2.0

-

2.0

1.8

-

1.8

3.6

-

3.6

Finance costs

(5.5)

(5.5)

(4.5)

-

(9.2)

Profit before tax

50.2

(21.9)

28.3

36.8

(6.1)

30.7

81.1

(13.0)

68.1

Tax (charge)/credit (note 5)

(9.6)

(5.3)

(6.0)

1.9

(13.1)

Profit for the period

40.6

(17.6)

23.0

29.9

(5.2)

24.7

66.1

(11.1)

55.0











Attributable to:










Equity holders of the parent

38.0

(17.6)

20.4

27.4

(5.2)

22.2

61.3

(11.1)

50.2

Non-controlling interests

2.6

2.6

2.5

-

4.8


40.6

(17.6)

23.0

29.9

(5.2)

24.7

66.1

(11.1)

55.0

 


Six months

Six months

Year


ended

ended

ended


30 June

30 June

31 December


2014

2013

2013

Earnings per share (note 8)

pence

 

pence

 

pence

 

Basic

14.7

17.4

39.1

Diluted

14.6

17.1

38.2





 

 

 

Unaudited condensed consolidated statement of comprehensive income

For the six months ended 30 June 2014

 

 

 


Six months

Six months

Year


ended

ended

ended


30 June

30 June

31 December


2014

2013

2013


£million

£million

£million





Profit for the period

23.0

24.7

55.0





Items that will not be reclassified subsequently to profit or loss:




Actuarial gains/(losses) on defined benefit pension schemes

(2.8)

27.4

21.3

Deferred tax on above items taken directly to equity (note 5)

0.6

(6.3)

(7.3)


(2.2)

21.1

14.0

Items that may be reclassified subsequently to profit or loss:




Exchange differences on translation of foreign operations

(8.6)

8.3

(13.0)

Gains/(losses) on cash flow hedging instruments (excluding joint ventures)

(6.1)

0.5

0.8

Deferred tax on above items taken directly to equity (note 5)

-

-

1.3

Net impact of Items relating to joint-venture entities

(1.3)

2.1

2.3


(16.0)

10.9

(8.6)





Other comprehensive income/(expense) net of tax

(18.2)

32.0

5.4

Total comprehensive income

4.8

56.7

60.4

 

Attributable to:




Equity holders of the parent

2.2

54.2

55.7

Non-controlling interests

2.6

2.5

4.7


4.8

56.7

60.4



Unaudited condensed consolidated balance sheet

At 30 June 2014

 


30 June 2014

30 June 2013

31 December 2013


£million

£million

£million

Non-current assets




Goodwill

387.1

238.5

248.0

Other intangible assets

115.3

39.2

38.6

Property, plant and equipment

171.7

148.2

155.9

Interests in joint-venture entities

22.9

10.3

20.6

Interests in associated undertakings

73.0

74.4

73.9

Deferred tax asset

3.6

21.2

21.0


773.6

531.8

558.0





Current assets




Inventories

41.9

25.3

30.7

Trade and other receivables

690.9

483.9

486.1

Cash and deposits

120.7

82.1

79.7


853.5

591.3

596.5

Total assets

1,627.1

1,123.1

1,154.5





Current liabilities




Bank overdrafts

(0.8)

(5.4)

(27.4)

Trade and other payables

(769.9)

(590.1)

(592.3)

Current tax liabilities

(1.2)

(3.2)

(5.3)

Short-term provisions

(24.1)

(27.9)

(18.1)


(796.0)

(626.6)

(643.1)

Net current assets/(liabilities)

57.5

(35.3)

(46.6)





Non-current liabilities




Borrowings

(362.2)

(75.0)

(90.0)

Trade and other payables

(13.8)

(13.7)

(13.5)

Long-term provisions

(26.1)

(28.2)

(29.9)

Retirement benefit obligation (note 12)

(0.5)

(9.5)

(7.7)


(402.6)

(126.4)

(141.1)

Total liabilities

(1,198.6)

(753.0)

(784.2)

Net assets

428.5

370.1

370.3





Equity




Share capital

14.4

12.9

12.9

Share premium account

115.3

114.3

115.0

Capital redemption reserve

0.1

0.1

0.1

Merger reserve

121.4

49.0

49.0

Hedging reserve

(5.0)

1.9

2.4

Translation reserve

13.7

43.5

22.3

Investment in own shares

(2.7)

(4.0)

(2.9)

Retained earnings

160.1

143.1

161.6

Equity attributable to equity holders of the parent

417.3

360.8

360.4

Non-controlling interests

11.2

9.3

9.9

Total equity

428.5

370.1

370.3


 

Unaudited condensed consolidated statement of changes in equity

For the six months ended 30 June 2014          

 










Attributable






Capital




Investment


to equity

Non-



Share

Share

redemption

Merger

Hedging

Translation

in own

Retained

holders of

controlling



capital

premium

reserve

reserve

reserve

reserve

shares

earnings

the parent

interests

Total


£million

£million

£million

£million

£million

£million

£million

£million

£million

£million

£million

Balance at 31 December 2012

12.7

113.1

0.1

49.0

(0.7)

35.2

(1.4)

116.5

324.5

6.3

330.8

Profit for the period

-

-

-

-

-

-

-

22.2

22.2

2.5

24.7

Other comprehensive income

-

-

-

-

2.6

8.3

-

21.1

32.0

-

32.0

Total comprehensive income

-

-

-

-

2.6

8.3

-

43.3

54.2

2.5

56.7

Dividends paid (note 7)

-

-

-

-

-

-

-

(17.9)

(17.9)

(1.3)

(19.2)

Shares Issued

0.2

1.2

-

-

-

-

-

-

1.4

-

1.4

Acquisition

-

-

-

-

-

-

-

-

-

1.8

1.8

Purchase of Company shares

-

-

-

-

-

-

(2.7)

-

(2.7)

-

(2.7)

Company shares used to settle share-based payments

-

-

-

-

-

-

0.1

-

0.1

-

0.1

Share-based payments

-

-

-

-

-

-

-

1.2

1.2

-

1.2

Transactions with owners

0.2

1.2

-

-

-

-

(2.6)

(16.7)

(17.9)

0.5

(17.4)

Balance at 30 June 2013

12.9

114.3

0.1

49.0

1.9

43.5

(4.0)

143.1

360.8

9.3

370.1

Profit for the period

-

-

-

-

-

-

-

28.0

28.0

2.3

30.3

Other comprehensive income





0.5

(21.2)

-

(5.8)

(26.5)

(0.1)

(26.6)

Total comprehensive income

-

-

-

-

0.5

(21.2)

-

22.2

1.5

2.2

3.7

Dividends paid (note 7)

-

-

-

-

-

-

-

(8.3)

(8.3)

(1.6)

(9.9)

Shares issued

-

0.7

-

-

-

-

-

-

0.7

-

0.7

Company shares used to settle share-based payments

-

-

-

-

-

-

1.1

(0.5)

0.6

-

0.6

Share-based payments

-

-

-

-

-

-

-

5.1

5.1

-

5.1

Transactions with owners

-

0.7

-

-

-

-

1.1

(3.7)

(1.9)

(1.6)

(3.5)

Balance at 31 December 2013

12.9

115.0

0.1

49.0

2.4

22.3

(2.9)

161.6

360.4

9.9

370.3

Profit for the period

-

-

-

-

-

-

-

20.4

20.4

2.6

23.0

Other comprehensive income

-

-

-

-

(7.4)

(8.6)

-

(2.2)

(18.2)

-

(18.2)

Total comprehensive income

-

-

-

-

(7.4)

(8.6)

-

18.2

2.2

2.6

4.8

Dividends paid (note 7)

-

-

-

-

-

-

-

(20.8)

(20.8)

(1.3)

(22.1)

Shares issued

1.5

0.3

-

72.4

-

-

-

-

74.2

-

74.2

Purchase of Company shares

-

-

-

-

-

-

-

-

-

-

-

Company shares used to settle share-based payments

-

-

-

-

-

-

0.2

0.3

0.5

-

0.5

Share-based payments

-

-

-

-

-

-

-

0.8

0.8

-

0.8

Transactions with owners

1.5

0.3

-

72.4

-

-

0.2

(19.7)

54.7

(1.3)

53.4

Balance at 30 June 2014

14.4

115.3

0.1

121.4

(5.0)

13.7

(2.7)

160.1

417.3

11.2

428.5

 

     On 5 March 2014, 12,897,771 ordinary shares were issued and placed at a price of 580p per share. The net proceeds after costs were £73.7 million. The placing utilised a structure, whereby a special purpose entity issued redeemable preference shares in consideration for the receipt of the cash proceeds (net of issue costs) arising from the placing. The Company's ordinary shares were issued as consideration for the transfer to it of the shares, which it did not already own, in the special purpose entity. As a result, in the opinion of the Directors, the placing qualified for merger relief under section 612 of Companies Act 2006 so that the £72.4 million excess of the value of the acquired shares in the special purpose entity over the nominal value of the ordinary shares issued by the Company was credited to the Company's Merger reserve.

 

     The £121.4 million merger reserve represents £16.4 million premium on the shares issued on the acquisition of Robert M. Douglas Holdings Plc in 1991, £32.6 million premium on the shares issued on the acquisition of MacLellan Group Plc in 2006 and £72.4 million premium on the shares placed to partially fund theacquisition of Initial Facilities during the period.

 

     The investment in own shares reserve represents the cost of shares in Interserve Plc held by the trustees of the How Group, Bandt and Interserve Employee Benefit Trusts. The market value of these shares at 30 June 2014 was £6.0 million (£5.3 million at 31 December 2013 and £5.8 million at 30 June 2013).

 

 

Unaudited condensed consolidated statement of cash flows

For the six months ended 30 June 2014


Six months

Six months

Year ended


ended          30 June 2014

ended           30 June 2013

31 December 2013


£million

£million

£million

Operating activities




Total operating profit

31.8

33.4

73.7





Adjustments for:




Amortisation of acquired intangible assets

10.2

4.6

8.8

Amortisation of capitalised software development

1.2

0.9

1.9

Depreciation of property, plant and equipment

17.6

15.2

31.9

Loss on disposal of property and investments

-

1.4

1.5

Other non-cash exceptional items

0.5

-

0.5

Pension payments in excess of income statement charge

(10.1)

(10.0)

(18.5)

Share of results of associates and joint-venture entities

(6.7)

(8.2)

(17.2)

Charge relating to share-based payments

1.0

1.7

5.5

Gain on disposal of plant and equipment - hire fleet

(5.2)

(7.1)

(13.4)

Gain on disposal of plant and equipment - other

(0.1)

(0.1)

-

Operating cash flows before movements in working capital

40.2

31.8

74.7

(Increase)/decrease in inventories

(8.5)

1.5

(4.5)

Increase in receivables

(96.2)

(21.6)

(14.6)

Increase/(decrease) in payables

68.2

18.4

(0.6)

Cash generated by operations before changes in fire fleet

3.7

30.1

55.0

Capital expenditure - hire fleet

(25.0)

(12.4)

(29.8)

Proceeds on disposal of plant and equipment - hire fleet

7.5

10.3

18.0

Cash generated by operations

(13.8)

28.0

43.2

Taxes paid

(6.7)

(2.1)

(5.7)

Net cash from operating activities

(20.5)

25.9

37.5

 

Investing activities




Interest received

2.0

1.8

3.5

Dividends received from associates and joint ventures

4.8

8.9

13.7

Proceeds on disposal of plant and equipment - non-hire fleet

0.1

0.2

0.2

Capital expenditure - non-hire fleet

(7.5)

(13.4)

(22.1)

Purchase of business

(226.5)

(24.3)

(49.1)

Investment in joint venture-entities

(3.1)

-

(10.6)

Costs of disposal of investments

-

(0.2)

(0.2)

Receipt of loan repayment - Investments

0.3

-

-

Net cash generated in investing activities

(229.9)

(27.0)

(64.6)

 

Financing activities




Interest paid

(5.4)

(3.8)

(7.8)

Dividends paid to equity shareholders

(20.8)

(17.9)

(26.2)

Dividends paid to minority shareholders

(1.3)

(1.3)

(2.9)

Proceeds from issue of shares and exercise of share options

74.2

1.6

3.3

Purchase of own shares

-

(2.7)

(2.7)

Proceeds from US private placement

207.2

-

-

Increase in bank loans

65.0

45.0

60.0

Movement in obligations under finance leases

(0.1)

(0.2)

(0.3)

Net cash used in financing activities

318.8

20.7

23.4





Net increase in cash and cash equivalents

68.4

19.6

(3.7)

Cash and cash equivalents at beginning of period

52.3

57.0

57.0

Effect of foreign exchange rate changes

(0.8)

0.1

(1.0)

Cash and cash equivalents at end of period

119.9

76.7

52.3





Cash and cash equivalents comprise




Cash and deposits

120.7

82.1

79.7

Bank overdrafts

(0.8)

(5.4)

(27.4)


119.9

76.7

52.3





Reconciliation of net cash flow to movement in net debt




Net increase/(decrease) in cash and cash equivalents

68.4

19.6

(3.7)

Proceeds from US private placement

(207.2)

-

-

Increase in bank loans

(65.0)

(45.0)

(60.0)

Movement in obligations under finance leases

0.1

0.2

0.3

Change in net debt resulting from cash flows

(203.7)

(25.2)

(63.4)

Effect of foreign exchange rate changes

(0.8)

0.1

(1.0)

Change in net debt during the period

(204.5)

(25.1)

(64.4)

Net cash/(debt) - opening

(38.6)

25.8

25.8

Net cash/(debt) - closing

(243.1)

0.7

(38.6)

 

 

Notes to the unaudited interim financial statements

For six months ended 30 June 2014

 

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 2014 (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 from the date of signing of the interim statements, noting in particular that: the majority of the Group's revenue is derived from long-term contracts; the Group had visibility of £1.6 billion of work scheduled for 2015 at the balance sheet date; and the Group has access to committed debt facilities of $350 million with a weighted average maturity of 10 years and £250 million until at least 2016. Accordingly, the Group continues to adopt the going concern basis in preparing the interim financial statements.

 

A copy of the statutory accounts for the year ended 31 December 2013 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 2014 have been reviewed by Grant Thornton UK LLP but have not been audited (see page 15).

 

2. Accounting policies and principal risks

 

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 2013.

 

Other than the adoption of the new standards mentioned below, 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 2013 and which are available on the Group's website at www.interserve.com.

 

In addition, the 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 2013. Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual earnings.

 

In the current year, the following new and revised standards and interpretations have been adopted and affected the amounts reported in these interim financial statements:

 

IFRS 10 (amended) Consolidated Financial Statements

IFRS 11 Joint Arrangements

IFRS 12 Disclosures of Interests in Other Entities

IAS 27 (revised) Separate Financial Statements

IAS 28 (revised) Investments in Associates and Joint Ventures

IAS 32 (amended) Financial Instruments: Offsetting Financial Assets and Financial Liabilities

IFRS 10, IFRS 12 and IAS 27 (amended) Investment Entities

IAS 39 (amended) Novation of Derivatives and Continuation of Hedge Accounting

 

These do not materially impact the Group.

 

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:

 

IFRS 9 Financial instruments

 

The impact of the sections of IFRS 9 currently issued will result in the Group's project finance interests that are currently treated by the joint venture companies as being available-for-sale, being treated as a debt carried at "fair value through profit or loss" or "amortised cost". As a result, movements in the fair value will no longer be taken to "Other comprehensive income".

 

Except for IFRS 9 above, 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.

 

In the directors' view, there have been no changes to the principal risks and uncertainties facing the Group from those described on pages 34 and 35 of the Group's Annual Report and Financial Statements for the year ended 31 December 2013. 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

 

The Group is organised into four operating divisions, as set out below. Information reported to the Executive Board for the purposes of resource allocation and assessment of segment performance is based on the products and services provided.

 

·      Support Services: provision of outsourced support services to public- and private-sector clients, both in the UK and the Middle East.

·      Construction: design, construction and maintenance of buildings and infrastructure, both in the UK and through Middle East subsidiaries and associates.

·      Equipment Services: design, hire and sale of formwork, falsework and associated access equipment.

·      Investments: transaction structuring, and management of, the Group's project finance activities. Investments' segmental figures represent the Group's share of the associated special purpose companies.

 

Costs of central services, including those relating to managing our PFI investments and central bidding activities, are shown in "Group Services".


Revenue including share of associates and joint ventures

 

Consolidated revenue                      

Result

 


Six months

Six months

Year

Six months

Six months

Year

Six months

Six months

Year

 


ended

ended

ended  31

ended

ended

ended 31

ended

ended

ended 31

 


30 June

30 June

December

30 June

30 June

December

30 June

30 June

December

 


2014

2013

2013

2014

2013

2013

2014

2013

2013

 


£million

£million

£million

£million

£million

£million

£million

£million

£million

 











 

Support Services - UK

866.3

649.2

1,292.5

808.5

597.5

1,196.6

33.9

25.3

56.0

 

Support Services - International

76.1

40.6

100.5

58.7

22.8

57.5

3.2

2.4

4.1

 

Support Services

942.4

689.8

1,393.0

867.2

620.3

1,254.1

37.1

27.7

60.1

 











 

Construction - UK

432.6

387.6

802.2

432.6

387.6

802.2

8.0

7.4

14.7

 

Construction - International

99.4

96.5

215.9

-

-

-

4.3

5.7

13.1

 

Construction

532.0

484.1

1,018.1

432.6

387.6

802.2

12.3

13.1

27.8

 











 

Equipment Services

90.9

83.6

169.6

90.9

83.6

169.6

14.0

8.5

20.1

 

Investments

16.1

10.0

34.5

-

-

-

0.3

0.7

0.8

 

Group Services

8.2

-

7.1

8.2

-

7.1

(10.0)

(10.5)

(22.1)

 

Inter-segment elimination

(24.1)

(23.3)

(40.4)

(24.1)

(23.3)

(40.4)

-

-

-

 


1,565.5

1,244.2

2,581.9

1,374.8

1,068.2

2,192.6

53.7

39.5

86.7

 

Amortisation of acquired intangible assets







(10.2)

(4.7)

(8.9)

 

Exceptional items







(11.7)

(1.4)

(4.1)

 

Total operating profit







31.8

33.4

73.7

 

Investment revenue







2.0

1.8

3.6

 

Finance costs







(5.5)

(4.5)

(9.2)

 

Profit before tax







28.3

30.7

68.1

 

Tax charge







(5.3)

(6.0)

(13.1)

 

Profit after tax







23.0

24.7

55.0

 




Net assets/(liabilities)


30 June

30 June

31 December


2014

2013

2013


£million

£million

£million





Support Services - UK

28.6

(6.6)

10.5

Support Services - International

51.1

22.0

50.9

Support Services

79.7

15.4

61.4





Construction - UK

(83.9)

(106.8)

(130.5)

Construction - International

46.5

46.8

48.7

Construction

(37.4)

(60.0)

(81.8)





Equipment Services

170.8

160.5

151.7

Investments

22.9

10.3

20.6


236.0

126.2

151.9

Group Services, goodwill and acquired intangible assets

424.4

233.9

247.1


660.4

360.1

399.0

Net cash/(debt)

(243.1)

0.7

(38.6)

Net assets (excluding non-controlling interests)

417.3

360.8

360.4

 

(b) Geographical segments

 

The Support Services and Construction divisions are located in the United Kingdom and in the Middle East. Equipment Services has operations in all of the geographic segments listed below. The Investments division is based predominantly in the United Kingdom.

 

The table below provides an analysis of the Group's sales by geographical market, irrespective of the origin of the goods/services.

 


Revenue including share of associates and joint ventures

Consolidated revenue

 


Six months

Six months

Year

Six months

Six months

Year


ended

ended

ended

ended

ended

ended


30 June

30 June

31 December

30 June

30 June

31 December


2014

2013

2013

2014

2013

2013


£million

£million

£million

£million

£million

£million








United Kingdom

1,312.6

1,054.6

2,145.4

1,238.7

992.9

2,015.0

Rest of Europe

15.7

3.7

8.1

15.7

3.7

8.1

Middle East & Africa

214.5

170.2

381.4

97.7

55.9

122.5

Australasia

15.5

19.0

40.0

15.5

19.0

40.0

Far East

10.0

6.9

15.8

10.0

6.9

15.8

Americas

13.1

13.1

24.5

13.1

13.1

24.5

Group Services

8.2

-

7.1

8.2

-

7.1

Inter-segment elimination

(24.1)

(23.3)

(40.4)

(24.1)

(23.3)

(40.4)


1,565.5

1,244.2

2,581.9

1,374.8

1,068.2

2,192.6

 



Total operating profit

 





Six months

Six months

Year





ended

ended

ended





30 June

30 June

31 December





2014

2013

2013





£million

£million

£million








United Kingdom




44.0

34.1

73.5

Rest of Europe




(0.6)

(1.1)

(2.7)

Middle East & Africa




14.9

12.4

25.5

Australasia




2.7

4.1

10.8

Far East




3.0

0.7

2.8

Americas




(0.3)

(0.2)

(1.1)

Group Services




(10.0)

(10.5)

(22.1)

Inter-segment elimination




-

-

-





53.7

39.5

86.7

Amortisation of acquired intangible assets


(10.2)

(4.7)

(8.9)

Exceptional items




(11.7)

(1.4)

(4.1)





31.8

33.4

73.7

 

 

 

4. Exceptional items

 




 

Six months ended

30 June

Six months ended

30 June

Year

ended

31 December


2014

2013

2013


£million

£million

£million





Agreed valuation of transfer to pension scheme

-

55.0

55.0

Transaction costs

-

(0.2)

(0.2)

Disposals

-

(51.2)

(51.2)

Profit on disposal of PFI assets

-

3.6

3.6

Write-down of investment in Indian associate company  

-

(5.0)

(5.1)

Loss on disposal of property and investments

-

(1.4)

(1.5)





Transaction costs on the acquisition of Initial Facilities

(7.6)

-

-

Integration costs on the acquisition of Initial Facilities

(3.6)

-

-

Earnout arrangements on the acquisition of Paragon Management UK Ltd

(0.5)

-

(0.5)

Bonus and share-based payments triggered by the exceptional profits on the disposals of PFI investments above

-

-

(2.1)

Other exceptional items

(11.7)

-

(2.6)





Exceptional items

(11.7)

(1.4)

(4.1)





 

 

5. Income tax expense

 


Six months

Six months

Year


ended

ended

ended


30 June

30 June

31 December


2014

2013

2013


£million

£million

£million





Current tax - UK

0.5

(0.9)

2.2

Current tax - overseas

2.0

1.4

5.0

Deferred tax

2.8

5.5

5.9


A

5.3

6.0

13.1

 

Tax charge before prior period adjustments and changes in rates


5.3

6.0

14.0

Prior period adjustments - (credits)/charges


-

-

(0.9)


A

5.3

6.0

13.1

 

Profit before tax





Subsidiary undertakings' profit before tax

B

21.6

23.9

52.4

Loss on disposal of property and investments


-

(1.4)

(1.5)

Group share of profit after tax of associates and joint ventures


6.7

8.2

17.2



28.3

30.7

68.1

Effective tax, excluding one-offs, on subsidiary profits before tax

A/B

24.5%

25.1%

25.0%

 

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


2014

2013

2013


£million

£million

£million





Tax on actuarial gains/(losses) on defined benefit pension schemes

(0.6)

6.3

4.3

Impact of change in corporation tax rate on pension liability

-

-

3.0

Tax on fair value adjustment on cash flow hedging instruments

-

-

0.2

Tax on the intrinsic value of share-based payments

-

-

(1.5)

Total

(0.6)

6.3

6.0

 

 

6. Share of results of joint-venture entities and associated undertakings

 


Six months ended 30 June 2014

Six months ended 30 June 2013



Support




Support




Construction

Services

Investments

Total

Construction

Services

Investments

Total


£million

£million

£million

£million

£million

£million

£million

£million

Revenue

99.4

75.2

16.1

190.7

96.5

69.5

10.0

176.0










Operating profit

2.4

2.3

0.4

5.1

4.6

2.2

1.4

8.2

Net interest receivable

-

-

0.1

0.1

0.2

-

(0.7)

(0.5)

Taxation

1.9

(0.2)

(0.2)

1.5

0.9

(0.3)

-

0.6

Group share of profit after tax

4.3

2.1

0.3

6.7

5.7

1.9

0.7

8.3

Amortisation of acquired intangible assets

-

-

-

-

(0.1)

-

-

(0.1)

Contribution to total operating profit

4.3

2.1

0.3

6.7

5.6

1.9

0.7

8.2

Dividends

(3.6)

(0.9)

(0.3)

(4.8)

(7.5)

(1.2)

(0.2)

(8.9)

Retained result for the period

0.7

1.2

-

1.9

(1.9)

0.7

0.5

(0.7)

 


Year ended 31 December 2013



Support




Construction

Services

Investments

Total


£million

£million

£million

£million

Revenue

215.9

138.9

34.5

389.3






Operating profit

11.0

4.7

1.0

16.7

Net interest receivable

0.2

-

0.1

0.3

Taxation

1.2

(0.6)

(0.3)

0.3

Group share of profit after tax

12.4

4.1

0.8

17.3

Amortisation of acquired intangible assets

(0.1)

-

-

(0.1)

Contribution to total operating profit

12.3

4.1

0.8

17.2

Dividends

(9.4)

(3.8)

(0.5)

(13.7)

Retained result for the period

2.9

0.3

0.3

3.5

 

The joint-venture and associated undertakings for Construction are located in the Middle East, those for Support Services are located in the United Kingdom and the Middle East, and those for Investments are located in the United Kingdom.

 

7. Dividends



Six months

Six months

Year



ended

ended

ended


Dividend

30 June

30 June

31 December


per share

2014

2013

 2013


pence

£million

£million

£million






Final dividend for the year ended 31 December 2012

14.1

-

17.6

17.6

Interim dividend for the year ended 31 December 2013

6.8

-

-

8.6

Final dividend for the year ended 31 December 2013

14.7

20.8

-

-

Amount recognised as distribution to equity holders in the period


20.8

17.6

26.2

 

The 2014 interim dividend of 7.5p per share, amounting to £10.8 million, was approved by the directors on 6 August 2014 and has therefore not been included as a liability as at 30 June 2014.


 

8. 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


2014

2013

2013


£million

£million

£million





Net profit attributable to equity holders of the parent (for basic and basic diluted earnings per share)

20.4

22.2

50.2

Adjustments:




Exceptional items

11.7

1.4

4.1

Amortisation of acquired intangibles

10.2

4.7

8.9

Tax effect of above adjustment

(4.3)

(0.9)

(1.9)

Headline earnings (for headline and headline diluted earnings per share)

38.0

27.4

61.3

 

Weighted average number of shares

Six months

Six months

Year


ended

ended

ended


30 June

30 June

31 December


2014

2013

2013


Number

Number

Number


thousand

thousand

thousand





Weighted average number of ordinary shares for the purposes of basic and headline earnings per share

138,318

127,781

128,386

Effect of dilutive potential ordinary shares:




 Share-based payments

1,487

2,335

3,155

Weighted average number of ordinary shares for the purposes of basic and headline diluted earnings per share

139,805

130,116

131,541

 

Earnings per share

Six months ended 30 June 2014

Six months ended 30 June 2013

Year ended

31 December 2013


pence

pence

pence





Headline earnings per share

27.5

21.4

47.7

Diluted headline earnings per share

27.2

21.1

46.6





Basic earnings per share

14.7

17.4

39.1

Diluted basic earnings per share

14.6

17.1

38.2

 


9. Acquisitions

 

Acquisition of Initial Facilities

 

On 18 March 2014, the Group acquired 100% of the facilities services business ("Initial Facilities") of Rentokil Initial Plc, for a cash consideration of £249.7 million. The acquisition strengthens the Support Services offering of Interserve, allowing the provision of a significantly enhanced service offering. The enlarged business offers a full range of services across all contract sizes and to both public and private sector customers.

 

Preliminary fair value exercises have been performed, as set out below:

 


Initial Facilities

Assets acquired

£million



Property, plant and equipment

7.1

Intangible assets

87.7

Cash balances

25.3

Inventories

3.5

Trade and other receivables

108.8

Trade and other payables

(98.3)

Other liabilities

(24.3)



Net assets

109.8

Goodwill

139.9

Consideration paid

249.7



Net cash outflow on acquisition of Initial Facilities

224.4

 

The fair value adjustments relate to certain intangible assets and their associated deferred tax charge. These have been separately identified and recognised using appropriate valuation techniques based on the fair value of forecast future cash flows. The resultant goodwill from the acquisition represents the future economic benefits arising from assets that are not capable of being individually identified and separately recognised. None of the goodwill is expected to be deductible for income tax purposes.

 

Acquisition-related costs amounted to £11.2 million, reflected in exceptional costs (see note 4).

 

Since acquisition on 18 March 2014, Initial Facilities has contributed £160.6 million to revenue and a £7.7 million loss after exceptional items. If the business had been acquired on 1 January 2014, it would have contributed revenues of £275.5 million and a loss of £5.4 million after exceptional items.

 

Acquisition in 2013 of Adyard

 

A further £2.1 million of cash was paid in the period relating to the 2013 acquisition of Adyard.

 

 

10. Borrowing facilities and financial assets/(liabilities) held at fair value

 

Borrowing facilities

On 20 June 2014, the Group announced the successful completion of a US$350 million issue of US Private Placement loan notes ("loan notes"), which have a weighted average maturity length of 10 years. The loan notes attract differing fixed rates of interest depending on their tenor. This has been swapped to a fixed sterling equivalent of £207.2 million, along with the associated interest payments, with the use of derivatives that have been designated as cash flow hedges that are held at fair value.

 

The loan notes are in addition to £250 million of committed bank facilities which bear interest at floating rates which are set according to published LIBOR rates. These bank facilities mature in 2016 and 2019, having been extended during the period.


Financial assets/(liabilities) held at fair value

Trade and other receivables, trade and other payables and long term borrowings are held at amortised cost. The directors consider these values to approximate their fair values. The interest rate and foreign exchange hedges are held at fair value at each balance sheet date.

 

Classification of financial assets/(liabilities) held at fair value according to the definitions set out in IFRS 7 Paragraph 27:

 


30 June

30 June

31 December


2014

2013

2013


£million

£million

£million





Level 2

(6.4)

(0.7)

(0.3)

 

Derivatives used for hedging financial liabilities are considered to be within the grouping referred to as "Level 2". Their fair values are calculated based on the valuation models operated by the relevant counterparty bank, based on market interest rates in force on the date of valuation. The Level 2 financial derivatives are classified within Trade and other payables.

 

No financial instruments have been transferred between Levels during the period.

 

 

11. Share capital

 


Six months

Six months

Year


ended

ended

ended


30 June

30 June

31 December


2014

2013

2013


Shares thousand

Shares thousand

Shares thousand





At 1 January

129,054

126,847

126,847

Equity placing

12,898

-

-

Exercised share-based payments

1,957

1,995

2,207

At the end of the period

143,909

128,842

129,054

 

12,897,771 ordinary shares, being 9.99% of the existing share capital, were issued at 580.0p on 5 March 2014 via an equity placing, raising gross proceeds of £74.8 million to partially fund the acquisition of Initial Facilities (see note 9).

 

 

12. 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


2014

2013

2013





Significant actuarial assumptions




Retail prices index

3.30% pa

3.40% pa

3.00% pa

Discount rate

4.30% pa

4.70% pa

4.50% pa

Consumer prices index

2.30% pa

2.40% pa

2.40% pa

Pension increases in payment:




  LPI/RPI

3.20%/3.20%

3.30%/3.40%

3.30%/3.40%

  Fixed 5%

5.00%

5.00%

5.00%

  3% or RPI if higher (capped at 5%)

3.70%

3.70%

3.70%

General salary increases

2.30 - 2.80% pa

2.40 - 2.90% pa

2.40 - 2.90% 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 2014

30 June 2013

31 December

 2013


£million

£million

£million





Present value of defined benefit obligation

851.4

788.8

826.9

Fair value of schemes' assets

(850.9)

(779.3)

(819.2)

Liability recognised in the balance sheet

0.5

9.5

7.7

 

The amounts recognised in the income statement are as follows:

 


Six months

Six months

Year


ended

ended

ended


30 June

30 June

31 December


2014

2013

2013


£million

£million

£million





Employer's part of current service cost

4.0

3.7

7.4

Administration costs

1.1

1.1

1.9

Net interest expense

0.1

0.7

1.4

Total expense recognised in the income statement

5.2

5.5

10.7

 

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 comprehensive income.

 

Insurance buy-in transaction

 

On 1 August 2014 further action was taken to reduce risk in our pension scheme by entering into a buy-in transaction. This transaction has put in place an insurance contract with Aviva plc, covering approximately 35% of our scheme liabilities.

 

 

13. Reconciliation of non-statutory measures

 

The Group uses a number of key performance indicators to monitor the performance of its business. This note reconciles these key performance indicators to individual lines in the financial statements.

 


Six months

Six months

Year


ended

ended

ended


30 June

30 June

31 December

a) Headline pre-tax profit

2014

2013

2013


£million

£million

£million

Profit before tax

28.3

30.7

68.1

Adjusted for:




   Amortisation of acquired intangible assets

10.2

4.6

8.8

   Share of associates' amortisation of acquired intangible assets

-

0.1

0.1

   Exceptional items

11.7

1.4

4.1

Headline pre-tax profit

50.2

36.8

81.1

 


Six months

Six months

Year


ended

ended

ended


30 June

30 June

31 December

b) Operating cash flow

2014

2013

2013


£million

£million

£million

Cash generated by operations

(13.8)

28.0

43.2

Adjusted for:




   Pension contributions in excess of income statement charge

10.1

10.0

18.5

   Other exceptional items cash impact

11.2

-

2.1

   Proceeds on disposal of plant and equipment - non-hire fleet

0.1

0.2

0.2

   Capital expenditure - non-hire fleet

(7.5)

(13.4)

(22.1)

Operating cash flow

0.1

24.8

41.9

 


Six months

Six months

Year


ended

ended

ended


30 June

30 June

31 December

c) Free cash flow

2014

2013

2013


£million

£million

£million

Operating cash flow

0.1

24.8

41.9

Adjusted for:




   Pension contributions in excess of income statement charge

(10.1)

(10.0)

(18.5)

   Taxes paid

(6.7)

(2.1)

(5.7)

   Dividends received from associates and joint ventures

4.8

8.9

13.7

   Interest received

2.0

1.8

3.5

   Interest paid

(5.4)

(3.8)

(7.8)

   Effect of foreign exchange rate change

(0.8)

0.1

(1.0)

Free cash flow

(16.1)

19.7

26.1

 

 

Six months

Six months

Year


ended

ended

ended


30 June

30 June

31 December

d) Operating cash conversion

2014

2013

2013


£million

£million

£million

Operating cash flow

0.1

24.8

41.9

Operating profit, before exceptional items and amortisation




   of acquired intangible assets

47.0

31.2

69.4

Current period operating cash conversion

0.2%

79.5%

60.4%





Three-year rolling operating cash flow

118.2

182.9

163.6

Three-year rolling operating profit, before exceptional items and  amortisation of acquired intangible assets

192.5

152.8

165.8

Operating cash conversion, three-year rolling average

61.4%

119.7%

98.7%


































Six months

Six months

Year


ended

ended

ended


30 June

30 June

31 December

e) Gross operating cash conversion

2014

2013

2013


£million

£million

£million

Operating cash flow

0.1

24.8

41.9

Dividends received from associates and joint ventures

4.8

8.9

13.7

Gross operating cash flow

4.9

33.7

55.6





Operating profit, before exceptional items and amortisation




    of acquired intangible assets

47.0

31.2

69.4

Share of result of associates and joint ventures, before




  exceptional items and amortisation of acquired intangible assets

6.7

8.3

17.3

Total operating profit, before exceptional items and amortisation




    of acquired intangible assets

53.7

39.5

86.7





Current period gross operating cash conversion

9.1%

85.3%

64.1%





Three-year rolling gross operating cash flow

162.3

250.9

217.7

Three-year rolling total operating profit, before exceptional items and amortisation of acquired intangible assets

257.2

230.6

236.4

Gross operating cash conversion, three-year rolling average

63.1%

108.8%

92.1%

 

 

Six months

Six months

Year


ended

ended

ended


30 June

30 June

31 December

f) Gross revenue

2014

2013

2013


£million

£million

£million

Consolidated revenue

1,374.8

1,068.2

2,192.6

Share of revenue of associates and joint ventures

190.7

176.0

389.3

Gross revenue

1,565.5

1,244.2

2,581.9

 


Six months

Six months

Year


ended

ended

ended


30 June

30 June

31 December

g) Operating margins

2014

2013

2013


£million

£million

£million

Total operating profit, before exceptional items and amortisation

53.7

39.5

86.7

    of acquired intangible assets




Gross revenue

1,565.5

1,244.2

2,581.9

Total operating margin

3.4%

3.2%

3.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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