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Interserve Regulatory News (IRV)



Regulatory News for Interserve (IRV)


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Half-Year Results 2017

Wed, 9th Aug 2017 07:00

RNS Number : 4500N
Interserve PLC
09 August 2017
 

News Release

 

09 August 2017                    

 

Half-Year Results 2017

 

Interserve, the international support services and construction group, reports its half-year results for the six months ended 30 June 2017.

 

 

 

H1 2017

H1 2016

 

 

 

Revenue

 

£1,647.7m

£1,632.9m

 

 

 

Headline total operating profit*

 

£46.1m

£64.3m

 

 

 

Headline profit before tax*

 

£36.5m

£55.2m

 

 

 

 

Statutory Profit / (Loss) before tax

 

£24.9m

(£33.8m)

 

 

 

Basic earnings per share

 

14.8p

(25.5p)

 

 

 

Headline earnings per share*

 

21.5p

32.3p

 

 

 

 

 

 

 

 

 

 

 

·     Stable overall revenues of £1.6 billion in challenging market conditions and an uncertain political environment

 

·     Headline total operating profit of £46.1 million

 

·     Strong performances from Equipment Services and Construction International

 

·     A resilient performance from Support Services UK despite the impact of higher operating costs driven by increased regulation

 

·     Management actions in UK Construction gaining traction, however results impacted by underperformance on a small number of contracts and the continuation of tough market conditions

 

·     Exited Energy from Waste business: We are making progress on all projects. Overall we continue to believe the provision taken in 2016 remains appropriate, although significant risks and uncertainties remain

 

·     June 2017 net debt in line with expectations at £387.5 million (2.5x EBITDA). Full-year average net debt** expected to be in the range £475-£500 million

 

·     Strong future workload of £7.1 billion with more than 95 per cent visibility of 2017 consensus revenues, with contract wins in Support Services and a narrower market focus in UK Construction.  Notable wins in the period include contracts with the Defence Infrastructure Organisation, Ministry of Justice, Network Rail, BT Group, Stagecoach Group, Musanada (Abu Dhabi) and Liwa Plastics (Oman)

 

 

Chief Executive Adrian Ringrose commented:

"Trading in the first half of the year was mixed. In the UK, Support Services delivered robust volume but margins were impacted by a number of anticipated cost headwinds, while in Construction the continuation of a long period of challenging market conditions, coupled with areas of underperformance in operational delivery, resulted in a small loss for the division. We expect the restructuring and cost reduction measures we have taken in recent months to benefit both divisions' performance during the second half of the year.

 

Internationally, our Construction businesses delivered a strong performance, while Support Services International benefitted from the actions we took on its cost base in the second half of 2016, delivering a profit despite seeing a further drop in volumes. In Equipment Services, the updated strategic focus and associated operational initiatives are delivering the anticipated results.

 

In our Exited Energy from Waste business we are making progress on all projects. Overall we continue to believe the provision taken in 2016 remains appropriate, although significant risks and uncertainties remain.

 

Despite the increased political and macro-economic uncertainty following the UK's EU referendum and recent General Election, our outlook for the current year remains unchanged."

 

- Ends -

 

For further information please contact:

 

Rhys Jones, Group Head of PR                           +44 (0) 7909 605336

 

Robin O'Kelly, Group Director of Communications +44 (0) 7786 702526

 

Richard Campbell/Michael Kinirons                     +44 (0) 203 219 8816

CNC Communications                            

 

 

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. We have gross revenues of £3.7 billion and a workforce of circa 80,000 people worldwide.

www.interserve.com

For news follow @interservenews

 

 

This announcement contains inside information

 

Legal identifier number: 549300MVYY4EZCRFHZ09

 

 

\* This news release and the Annual Report include a number of non-statutory measures to reflect the impact of non-trading and non-recurring items. Use of these non-statutory measures is considered to better reflect the underlying trading of the business. See note 11 to the condensed consolidated financial statements for a reconciliation of these measures to their statutory equivalents and note 7 for calculation of earnings per share.

** Defined as the average of the last 12 months, month-end net debt balances

 

INTERIM MANAGEMENT REPORT

 

CHAIRMAN'S STATEMENT

 

Interserve's performance in the first half of 2017 was achieved against a background of challenging market conditions, regulatory and political changes and expected cost headwinds.  In our Exited Energy from Waste business we are making progress on all projects. Overall we continue to believe the provision taken in 2016 remains appropriate, although significant risks and uncertainties remain.

 

Board changes

 

This has been a period of transition and I am grateful for Adrian's ongoing hard work and commitment in advance of Debbie White's arrival as our new Chief Executive on 1 September.  In June, we announced that Group Finance Director, Tim Haywood, is to step down from the Board in September and will leave the business at the end of November. I'd like to thank Tim for his significant contribution to the business over the past seven years and wish him well for the future. The process to identify Tim's replacement is underway and we will make a further announcement on this in due course.

 

People

 

In spite of recent challenges, when I meet Interserve employees I am always encouraged by the enthusiasm and positive attitude I encounter and on behalf of the Board, I'd like to take this opportunity to thank our people for their continuing hard work and dedication.

 

Outlook

 

In the UK, we expect actions taken in the first half, both in construction and support services to lead to a better performance in the second half. In the Middle East, we see the outlook in the region as broadly favourable, notwithstanding the potential impact on general economic activity in the region of continuing political tensions between Qatar and other GCC states. Construction International has made good progress, while the actions we have taken to reduce our cost base in Support Services International has created a smaller but more resilient business. We expect our global Equipment Services business will continue to perform well in the second half of the year.

 

Glyn Barker, Chairman

 

9 August 2017

 

 

 

 

BUSINESS REVIEW

 

The Group delivered a resilient performance in the first half of the year against the backdrop of mixed trading conditions and increasing uncertainty in a number of markets. Revenue was stable at £1.6 billion (H1 2016: £1.6 billion) although headline total operating profit was £46.1 million (H1 2016: £64.3 million), reflecting the impact of cost headwinds absorbed and restructuring actions taken in the period.

 

In the UK, Support Services generated stable revenues, although profitability was impacted by a number of anticipated regulation-driven cost headwinds, the upfront costs associated with further efficiency improvements and by the phasing of profit recognition during the early stages of mobilisation of major new contracts. Construction UK continues to face an ongoing period of challenging market conditions which, coupled with areas of underperformance in operational delivery on a small number of contracts, resulted in a small loss for the division. We expect the restructuring and cost reduction measures we have taken in recent months to benefit both divisions' performance during the second half of the year and beyond.

 

In our Exited Energy from Waste business we are making progress on all projects. Overall we continue to believe the provision taken in 2016 remains appropriate, although significant risks and uncertainties remain.

 

Internationally, we performed well in construction throughout the Middle East with Support Services International returning a modest profit, as a result of cost reduction actions taken in the second half of 2016. Equipment Services produced another strong and geographically broad-based performance, driven by focussed expansion and selective new product and fleet investment together with rationalisation of under-performing business units.

 

 

 

 

Results summary

 

H1 2017

H1 2016

Revenue

£1,647.7m

£1,632.9m

Headline total operating profit

£46.1m

£64.3m1

Gross operating cash flow

£8.1m

£129.7m1

Headline Earnings per share

 

21.5p

 

32.3p1

 

 

 

H1 2017

 

YE2016

Future Workload excl

Exited Business

£7.1bn

£7.6bn

Net debt

£387.5m

£274.4m

1As restated

 

 

DIVISIONAL REVIEW

 

We segment our results into three main areas of service - Support Services, Construction and Equipment Services - each of which is supported by central Group Services.

 

SUPPORT SERVICES

Support Services focuses on the management and delivery of outsourced operational activities, including facilities management, a broad range of process - and accommodation-related services and services direct to the citizen. Our customer base is comprised of both public and private-sector organisations in the UK and overseas. Operations in mainland Europe, which are managed from the UK, are disclosed under Support Services UK.

 

Results summary

H1 2017

H1 2016

Revenue

 

 

-    UK (consolidated revenue)

£897.5m

£899.3m

-    International

(incl share of associates)

£102.3m

£147.2m

 

Contribution to total operating profit

 

£29.0m

 

£43.2m

-    UK

£28.1m

£36.7m

-    International

 

£0.9m

£6.5m

Operating margin (UK)

3.1%

4.1%

Operating margin (International)*

1.2%

4.5%

 

Future workload

 

H1 2017

 

YE 2016

-    UK

£5.6bn

£5.7bn

-    International

(including share of associates)

£207m

£192m

*Blended underlying margins of associates and subsidiaries

 

Support Services UK

Revenue was stable at £897.5 million, reflecting the hiatus in government procurement around the 2016 EU referendum and this year's General Election as well as our increased margin discipline and selectivity in the work we bid for.

 

As expected, operating profit was impacted by new regulatory-driven cost including an additional three months of impact of the National Minimum Wage increases (introduced in April 2016), the Apprenticeship Levy, increased IAS 19 pension service charges and changes to the application of holiday pay and travelling time on our large workforce. Profits were also impacted by a number of large contract mobilisations and some underperforming accounts which are being remedied through contract improvement programmes.

 

We have taken a range of actions to mitigate the impact of these factors and to enhance our operational efficiency through investing further in automation and technology. We expect to realise the benefits to profitability of these actions during the second half of the year.

 

We continue to maintain strong revenue visibility through our order book (£5.6 billion in UK Support Services) and are encouraged by the levels of contract bidding opportunities we are now starting to see across our core markets, as clients continue to look to outsource work to offset their own rising costs and to conclude procurement activity that had stalled during the recent political hiatus.

 

We reinforced our position as one of the Ministry of Defence's largest infrastructure partners during the period, winning a two-year contract extension worth up to £265 million to continue as the infrastructure support provider for four overseas UK Armed Forces bases (in the Falkland Islands and Ascension Island in the South Atlantic Ocean, as well as Gibraltar and Cyprus in the Mediterranean).

 

We were also awarded a one-year contract extension to provide total facilities management services to the Ministry of Justice (MoJ) worth £16 million, building upon our longstanding and wide-ranging relationship with the MoJ, which has seen us provide facilities and probation services to the department for a number of years.

 

In the transport sector we secured a further five-year facilities management contract with Network Rail worth £65 million. We will deliver a range of facilities services across 11 of Network Rail's managed stations in London, Reading and Bristol, which include eight of the UK's 10 busiest stations. The new contract, which will be delivered by a single provider for the first time, builds upon Interserve's existing relationship with Network Rail, which has included providing cleaning services across the organisation's estate for the last five years.

 

We continued to develop our growing frontline public-services business during the period by investing further in our learning and skills division to maximise the opportunities presented by the Apprenticeship Levy and expect to build on recent contract wins with BT Group, Stagecoach Group, Grafton and Unilever, during the second half.

 

Our capability in designing, delivering and evaluating apprenticeship training within our learning and skills business is now playing an increasingly valuable role as higher employment costs and regulatory requirements drive employers to invest more in training and skills, either to defray their Apprenticeship Levy or to gain additional productivity from an increasingly costly workforce.

 

In the justice sector, we were named as preferred bidder to run a range of employment training schemes at Wrexham's HMP Berwyn, where inmates can improve their skills, employability and qualifications to ensure they are work-ready when they are released.

 

Support Services International

 

Internationally, we provide outsourced services in sectors such as hospitality, leisure, education, defence, retail and oil and gas across the Middle East region.

 

In the face of reductions in client spending during 2016 we took decisive action to address the cost base in our oil and gas operations, which form the majority of the divisional activities. As a result of this, and despite volumes falling a further 20 per cent since the second half of 2016, we returned to profit, delivering £0.9 million of operating profit (H2 2016 £0.3 million loss).

 

Market conditions in the Middle East facilities management market - in which we delivered a small profit during the period - are more favourable, enabling us to leverage our extensive UK experience and longstanding customer relationships in the region. This was exemplified in the period through securing a £34 million facilities management contract with Musanada, which delivers maintenance and infrastructure projects for the Abu Dhabi government. We also won a £10 million contract to provide facilities management services at Qatar's Doha Festival City Mall and a £5 million support services contract with Emirates Aluminium.

 

The division's future workload at the end of June was up 8 per cent at £207 million (YE 2016: £192 million).

 

CONSTRUCTION

We provide advice, design, construction and fit-out services for buildings and infrastructure. Our focus is on forming long-term relationships, developing sector expertise and delivering repeat business, predominantly through framework agreements.

 

 

Results summary

H1 2017

H1 2016

Revenue1

 

 

-    International (share of associates)

£145.3m

£141.0m

-    UK (consolidated revenue)

Contribution to total operating profit1

£536.2m

 

£6.3m

£468.3m

 

£10.5m

 

 

 

-    International

£8.3m

£6.0m

-    UK ongoing business

 

(£2.0m)

£4.5m

Operating margin International2

 

5.8%

 

3.9%

UK

-0.4%

1.0%

 

Future workload

 

 

H1 2017

 

YE 2016

-    International (share of associates)

£302m

£365m

-    UK

 

£1.1bn

£1.3bn

1 Excludes Exited Business

2 Underlying margins of associates

 

Construction International

 

Our associate businesses in the Middle East grew well with contribution to operating profit increasing by 38 per cent to £8.3 million (H1 2016: £6.0 million) while margins strengthened to 5.8 per cent, above both our 2016 half-year (3.9 per cent) and 2016 full-year (5.5 per cent) margins.

 

Work-winning during the period remained resilient, especially in Dubai's hospitality sector where we won refurbishment and fit-out contracts worth c£80 million with the Jumeirah Group (Jumeirah Beach Hotel) and Dubai Properties (Double Tree Hilton).

 

In Qatar, we won a £102 million contract to build a range of substations and continue to make good progress (with our joint-venture partner ALEC) in delivering Doha Festival City. The recent political developments in the region have led to some isolated project deferrals in Qatar and remain a clear risk to the business that could impact during the second half of the year and beyond. We continue to monitor the situation closely and prepare contingency plans for our people and our operations in the region.

 

During the period we won contracts for civil and building works for the new 445 MW combined power plant in Oman for SEPCO and for £74 million worth of buildings, civils and underground piping work on the Liwa Plastics project, which is part-funded with the support of UK Export Finance.

 

Construction UK

 

The continuation of a long period of challenging market conditions, coupled with areas of underperformance in operational delivery on a small number of contracts, resulted in a £2.0 million net loss for the UK Construction business.

 

In response to these difficulties and those involving the Exited Business (reported separately, below), we have made further management, systems, procedural and other organisational changes across the division to enhance our financial and commercial controls and reporting. As well as further strengthening operational controls, we have also narrowed our strategic focus, restricting work winning activity to core sectors and activities and have refined our risk appetite in new work that we take on. As such, we anticipate an improved performance in the second half of the year and beyond as older, less favourable contracts are completed. 

 

Our future workload fell by £0.2 billion during the period, reflecting the recalibration of our risk appetite and our selective approach to the work that we take on. We expect to see the workload reduction feed into more modest revenue from 2018 onwards. The substantial majority of our UK Construction activity is now focused on projects with an average value of less than £10 million, constructing a range of buildings and infrastructure, plus selective larger contracts within our core competences, such as the Defence National Rehabilitation Centre, which is progressing well.

 

Our operating model combines a strong regional presence and exposure to framework agreements with infrastructure and public-sector customers, in sectors such as defence, education and healthcare, along with a growing presence in fit-out markets.  

 

While we expect this business to be smaller in the future, we are encouraged by the evolution of our forward order book, with an increasing emphasis on higher quality, repeat business within our core competence, as evidenced by our success in winning work in the education and health sectors - two of our most important and established markets. We won contracts with an average value of c£20 million to build four schools in Yorkshire and Wales and secured a place on a new construction framework launched by specialist healthcare property company, Prime, and Yeovil District Hospital NHS Foundation Trust (YDH). This continues our 15-year role on UK health frameworks, through which we have delivered over £1 billion of diverse healthcare facilities across more than 250 projects, including the UK's first Proton Beam therapy unit, currently under construction at The Christie in Manchester.

 

Exited Business

 

Work on our remaining Energy from Waste projects is progressing albeit with some delays. We expect to complete substantially the construction of the projects in the first half of 2018. Overall we continue to believe the provision taken in 2016 remains appropriate, although significant risks and uncertainties remain.

 

During the period, the Waste Treatment Centre we are building in Derby started accepting the first loads of waste, which marks the start of testing the facility.

 

EQUIPMENT SERVICES

Equipment Services, which trades globally as RMD Kwikform (RMDK), provides engineering solutions in the specialist field of temporary structures needed to deliver major infrastructure and building projects.  Our engineers solve complex problems for our customers through the application of world-class design and logistics capabilities, backed up by technology and fulfilled through an extensive fleet of specialist equipment.

 

Results summary1

H1 2017

H1 2016

Revenue

£111.0m

£108.0m2

 

Contribution to Total operating profit

 

 

£24.9m

 

£24.9m2

Margin

22.4%

23.1%

1Excluding exited geographies

2 As restated

 

Equipment Services performed well during the first half, matching the record performance delivered during the first half of 2016, achieved through geographic expansion, engineering excellence, product innovation and fleet investment over the last few years.

 

Further investment was made in people, technology and systems in the period that will help to drive the next phase of growth in the business and the evolution of our engineering and technology-led customer proposition. Margins remained well above 20 per cent, reflecting healthy demand, strong pricing and market positioning across the broad range of global infrastructure markets in which we operate.

 

The division continues to have good momentum across its international markets, particularly the Far East, Middle East and UK.

 

In Asia-Pacific, we delivered strong performances in Hong Kong and the Philippines, driven by our ongoing work on large-scale infrastructure projects, including the Kowloon Rail Terminus, the Hong Kong Macau Bridge and the Manila Bay Development.

 

We again performed well in the Middle East, with demand continuing to grow in the UAE, where we won work on the Dubai Ports Bridge project and in Saudi Arabia, where we continue to work on the Riyadh Metro scheme.

 

We delivered a strong performance in the UK, with work on several ongoing major projects continued, including the Mersey Gateway Bridge, the Medway crossing and Defence National Rehabilitation Centre. Work also continues on sizeable rail improvement projects in Reading and on the Stockley Viaduct project near Heathrow airport.

 

As part of our ongoing improvement programme we have invested further in innovation and new product development. As part of this we have launched new products within the UK ground shoring market, which are performing well, while we have also rolled out further new technologies to our global sales teams. Additionally, we have made good progress with the restructuring of our operational footprint, and have exited two of our smaller, less attractive markets. The remaining markets selected for closure are expected to be exited by the end of the year.

 

GROUP SERVICES

All central costs and income, including those related to our financing, central bidding and asset management activities are disclosed within the Group Services segment.

 

Group Services' costs during the period were £14.1 million (H1 2016: £14.3 million), reflecting the ongoing investment in back-office capabilities, IT infrastructure, people development and communications.

 

OUTLOOK

 

UK

 

We expect Support Services to deliver a stronger second half performance than the usual seasonal weighting following the actions we have taken to reduce the division's cost base, which include headcount reductions, increased automation of back-office tasks and increased profit contributions from mobilised contracts.

 

In Construction, we expect the management, systems, procedural and other organisational changes that we have implemented across the division in recent months - coupled with our more selective and risk averse approach to the work we take on - to return the division to profitability in the second half of the year and beyond.

 

International

 

We expect Equipment Services to continue to perform well in the second half of the year, helped by our improved fleet utilisation and capital efficiency and the continued impact of actions arising from our improvement programme.

 

In the Middle East, the oil and gas market slowdown, the impact of which was witnessed by Support Services International in the second half of 2016, is likely to continue to dampen volumes during the second half of the year. However, we believe the mitigating actions we have taken on our cost base has created a smaller, more resilient business, which can deliver a profit in a market where volumes are suppressed, while being agile enough to react when market conditions improve.

 

Current trading conditions are positive and the outlook in the region's construction market is broadly favourable, with a less certain near-term outlook in Qatar given recent political events in the region. However, strategic development plans such as the UAE's plans for Expo 2020 and the ongoing need for infrastructure development, to keep pace with rapid population growth across the Gulf, all continue to stimulate activity.

 

NET DEBT AND OPERATING CASHFLOW

 

Net debt at 30 June was £387.5 million. Aggregate bank facilities were extended in February 2017, as previously disclosed in our 2016 annual report, and stand at £640 million with a weighted average expiry of April 2022.The key covenant of net debt to EBITDA stood at 2.5x (max 3x). Covenant compliance is measured on 30 June and 31 December each year.

 

Average net debt, measured as an average of month end net debt balances, was £457.3 million for the first six months of 2017. The average for the full 12 months of 2017 is expected to be in the range of £475 million to £500million. This compares to our previous guidance of c£450 million, the movement being driven principally by revised timing assumptions on insurance receipts in the Exited business and by working capital investment in major public sector outsourcing contracts. 

 

Year-end 2017 net debt is expected to be in the range of £400 million-£425 million.

 

£million

H1 2017

H1 2016

 

 

 

Total operating profit before exceptional items and amortisation of intangible assets

46.1

64.3

Depreciation & other amortisation

23.6

17.7

 

 

 

EBITDA

69.7

82.0

 

 

 

Net capex

(14.4)

(13.8)

Dividends in (deficit) / excess of JVA profits

(1.0)

5.4

Working capital movements

(34.8)

60.2

Other

(11.4)

(4.1)

 

 

 

Gross operating cash flow

8.1

129.7

Exited business (Energy from Waste)

(67.1)

(52.8)

 

 

 

Gross operating cash flow incl Exited business

(59.0)

76.9

 

 

 

Pension contributions in excess of income statement charge

(8.1)

(10.6)

Tax & interest

(12.7)

(13.9)

Investments

(31.4)

3.8

Dividends paid to equity shareholders

0.0

(23.7)

Other

(1.9)

0.7

 

 

 

Movement in net debt

(113.1)

33.2

 

Net capex was £14.4 million in the period. We continue to invest in both our back-office IT and front-office operational systems and expect to see the efficiency benefits of this coming through from the second half of 2017 onwards. We generated a net £6.7 million of cash from hire fleet disposals whilst continuing to grow the business as the actions of our strategic review continue to drive increased utilisation and efficiency.

 

Following an exceptionally strong year for cash repatriation in 2016 the 2017 dividends returned from JVAs more closely mirrored profit generated.

 

Working capital outflow of £34.8 million in 2017, excluding Exited Businesses, predominantly reflects an increase in Group receivables. Significant contract mobilisations in our UK Support Services business lead to a temporary increase in debt and WIP as contract procedures bedded in; we expect this to be reversed in the second half of 2017. This was paired with slower than expected cash receipts in our Saudi education business, where the timing of Eid holidays delayed period-end cash collections.

 

Within the exited Energy from Waste business we incurred cash outflows of £67.1 million in the first half with the costs of completing our construction obligations in line with our earlier expectations. We continue to prepare and pursue a number of material insurance claims and the net cash profile of the Exited business remains sensitive to the timing of any cash receipts on these. Our approach continues to be to prioritise the quality and strength of our case rather than seeking a quick cash settlement. This has led to slower receipt of cash during the first half of 2017. Albeit we have received some cash in from insurance claims and expect additional significant inflows in the second half of 2017, we anticipate aggregate net outflows of c£25 million in the second half of the year. We expect net cash inflows in 2018 as commercial matters on the portfolio of contracts begin to conclude.

Joint venture investments of £31.4 million comprise planned equity injections into Derby Waste and a further investment into our Haymarket development.

 

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 26 to 29 of the Strategic Report included in the Group's 2016 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 deliver 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 30 to 36 of the Group's 2016 Annual Report and Financial Statements.

 

 Damage to reputation resulting from issues arising within contracts, the management of our business and its IT systems or the behaviour of our employees.

 

 Environmental change which could have uncertain implications for our business and for many of our customers.

 

The Group continues to have no material exposure to currency risks. Whilst it does not trade in commodities, the Group operates in countries where their economies depend upon commodity extraction and are therefore subject to volatility in commodity prices. The Group's principal businesses operate in countries which we regard as politically stable.

 

AUDITOR

 

Grant Thornton UK LLP has been the Group's auditor since 2014. 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 at 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 Guidance 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

 

09 August 2017

 

Unaudited condensed consolidated income statement

For the six months ended 30 June 2017

 

 

 

 

Six months ended 30 June 2017

Six months ended 30 June 2016

Year ended 31 December 2016

 

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

 

assets

assets

 

assets

assets

 

 

 

(note 4)

Total

 

(note 4)

Total

 

(note 4)

Total

 

 

 

 

restated #

restated #

 

 

 

 

 

£million

£million

£million

£million

£million

£million

£million

£million

£million

Continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue including share of associates and joint ventures

1,844.3

36.6

1,880.9

1,789.4

64.2

1,853.6

3,589.9

95.3

3,685.2

Less: Share of associates and joint ventures

(233.2)

-

(233.2)

(220.7)

-

(220.7)

(440.6)

-

(440.6)

Consolidated revenue

1,611.1

36.6

1,647.7

1,568.7

64.2

1,632.9

3,149.3

95.3

Cost of sales

(1,408.7)

(35.1)

(1,443.8)

(1,338.1)

(139.0)

(1,477.1)

(2,713.7)

(253.1)

(2,966.8)

Gross profit/(loss)

202.4

1.5

203.9

230.6

(74.8)

155.8

435.6

(157.8)

277.8

Administration expenses

(167.3)

(1.6)

(168.9)

(175.6)

1.4

(174.2)

(334.0)

(12.9)

(346.9)

Amortisation of acquired intangible assets

-

(11.4)

(11.4)

-

(15.5)

(15.5)

-

(29.8)

(29.8)

Total administration expenses

(167.3)

(13.0)

(180.3)

(175.6)

(14.1)

(189.7)

(334.0)

(42.7)

(376.7)

Operating profit/(loss)

35.1

(11.5)

23.6

55.0

(88.9)

(33.9)

101.6

(200.5)

(98.9)

Share of result of associates and joint ventures

11.0

-

11.0

9.3

-

9.3

22.6

-

22.6

Amortisation of acquired intangible assets

-

(0.1)

(0.1)

-

(0.1)

(0.1)

-

(0.1)

(0.1)

Total share of result of associates and joint ventures

11.0

(0.1)

10.9

9.3

(0.1)

9.2

22.6

(0.1)

22.5

Total operating profit/(loss)

46.1

(11.6)

34.5

64.3

(89.0)

(24.7)

124.2

(200.6)

Investment revenue

2.3

-

2.3

2.5

-

2.5

5.6

-

5.6

Finance costs

(11.9)

-

(11.9)

(11.6)

-

(11.6)

(23.3)

-

(23.3)

Profit/(loss) before tax

36.5

(11.6)

24.9

55.2

(89.0)

(33.8)

106.5

(200.6)

Tax (charge)/credit (note 5)

(4.2)

1.9

(2.3)

(6.8)

4.9

(1.9)

(12.2)

4.7

(7.5)

Profit/(loss) for the period

32.3

(9.7)

22.6

48.4

(84.1)

(35.7)

94.3

(195.9)

(101.6)

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

 

 

Equity holders of the parent

31.3

(9.7)

21.6

47.0

(84.1)

(37.1)

92.2

(195.9)

(103.7)

Non-controlling interests

1.0

-

1.0

1.4

-

1.4

2.1

-

2.1

 

32.3

(9.7)

22.6

48.4

(84.1)

(35.7)

94.3

(195.9)

(101.6)

 

 

Six months

Six months

Year

 

ended

ended

ended

 

30 June

30 June

31 December

 

2017

2016

2016

Earnings per share (note 7)

pence

 

pence

 

pence

 

Basic

14.8

(25.5)

(71.2)

Diluted

14.8

(25.5)

(71.2)

 

 

 

 

 

 

   #See note 2

 

Unaudited condensed consolidated statement of comprehensive income

For the six months ended 30 June 2017

 

 

 

 

Six months

Six months

Year

 

ended

ended

ended

 

30 June

30 June

31 December

 

2017

2016

2016

 

£million

£million

£million

 

 

 

 

Profit/(loss) for the period

22.6

(35.7)

(101.6)

 

 

 

 

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

 

 

 

Actuarial gains/(losses) on defined benefit pension schemes

-

(53.8)

(90.2)

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

-

10.8

15.3

 

-

(43.0)

(74.9)

Items that may be reclassified subsequently to profit or loss:

 

 

 

Exchange differences on translation of foreign operations

(17.9)

38.8

67.7

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

(12.2)

31.3

42.0

Recycling of cash flow hedge reserve to profit and loss account

15.1

(25.1)

(48.4)

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

(0.5)

(1.3)

0.9

Net impact of Items relating to joint-venture entities

0.2

(3.6)

(5.3)

 

(15.3)

40.1

56.9

 

 

 

 

Other comprehensive income/(expense) net of tax

(15.3)

(2.9)

(18.0)

Total comprehensive income/(expense)

7.3

(38.6)

(119.6)

 

Attributable to:

 

 

 

Equity holders of the parent

6.3

(40.2)

(122.0)

Non-controlling interests

1.0

1.6

2.4

 

7.3

(38.6)

(119.6)

 

  #See note 2

 

Unaudited condensed consolidated balance sheet

At 30 June 2017

 

 

30 June 2017

30 June 2016

31 December 2016

 

£million

£million

£million

Non-current assets

 

 

 

Goodwill

434.6

433.1

437.0

Other intangible assets

69.1

81.1

77.0

Property, plant and equipment

240.7

232.6

250.4

Interests in joint-venture entities

73.6

34.0

41.6

Interests in associated undertakings

82.1

92.7

85.3

Deferred tax asset

18.6

11.1

18.6

 

918.7

884.6

909.9

 

 

 

 

Current assets

 

 

 

Inventories

35.0

40.6

36.5

Trade and other receivables

763.6

747.4

724.4

Derivative financial instruments

54.8

56.4

67.1

Cash and deposits

153.7

115.1

113.3

 

1,007.1

959.5

941.3

Total assets

1,925.8

1,844.1

1,851.2

 

 

 

 

Current liabilities

 

 

 

Bank overdrafts

(10.1)

(5.6)

(11.1)

Trade and other payables

(834.9)

(818.9)

(899.3)

Current tax liabilities

(1.7)

(3.9)

(2.6)

Short-term provisions

(26.6)

(39.8)

(21.8)

 

(873.3)

(868.2)

(934.8)

Net current assets

133.8

91.3

6.5

 

 

 

 

Non-current liabilities

 

 

 

Borrowings

(589.3)

(436.2)

(449.4)

Trade and other payables

(13.8)

(16.1)

(16.6)

Long-term provisions

(43.4)

(49.1)

(42.9)

Retirement benefit obligation (note 10)

(44.9)

(25.5)

(52.4)

 

(691.4)

(526.9)

(561.3)

Total liabilities

(1,564.7)

(1,395.1)

(1,496.1)

Net assets

361.1

449.0

355.1

 

 

 

 

Equity

 

 

 

Share capital

14.6

14.6

14.6

Share premium account

116.5

116.5

116.5

Capital redemption reserve

0.1

0.1

0.1

Merger reserve

121.4

121.4

121.4

Hedging and revaluation reserve

(6.2)

3.2

(8.8)

Translation reserve

91.8

80.9

109.7

Investment in own shares

(1.9)

(2.4)

(1.9)

Retained earnings

10.9

102.0

(9.4)

Equity attributable to equity holders of the parent

347.2

436.3

342.2

Non-controlling interests

13.9

12.7

12.9

Total equity

361.1

449.0

355.1

 

 

Unaudited condensed consolidated statement of changes in equity

For the six months ended 30 June 2017          

 

 

 

 

 

 

 

 

 

 

Attributable

 

 

 

 

 

Capital

 

 

 

Investment

 

to equity

Non-

 

 

Share

Share

redemption

Merger

Hedging and revaluation

Translation

in own

Retained

holders of

controlling

 

 

capital

premium

reserve

reserve1

reserve2

reserve

shares3

earnings

the parent

interests

Total

 

£million

£million

£million

£million

£million

£million

£million

£million

£million

£million

£million

Balance at 31 December 2015

14.5

116.5

0.1

121.4

2.0

42.3

(1.5)

205.2

500.5

12.1

512.6

Profit for the period

-

-

-

-

-

-

-

(37.1)

(37.1)

1.4

(35.7)

Other comprehensive income

-

-

-

-

1.2

38.6

-

(42.9)

(3.1)

0.2

(2.9)

Total comprehensive income

-

-

-

-

1.2

38.6

-

(80.0)

(40.2)

1.6

(38.6)

Dividends paid (note 6)

-

-

-

-

-

-

-

(23.7)

(23.7)

(1.0)

(24.7)

Shares Issued

0.1

-

-

-

-

-

-

-

0.1

-

0.1

Purchase of Company shares

-

-

-

-

-

-

(0.9)

-

(0.9)

-

(0.9)

 

Company shares used to settle share-based payments

-

-

-

-

-

-

-

-

-

-

-

Share-based payments

-

-

-

-

-

-

-

0.5

0.5

-

0.5

Transactions with owners

0.1

-

-

-

-

-

(0.9)

(23.2)

(24.0)

(1.0)

(25.0)

Balance at 30 June 2016

14.6

116.5

0.1

121.4

3.2

80.9

(2.4)

102.0

436.3

12.7

449.0

Profit for the period

-

-

-

-

-

-

-

(66.6)

(66.6)

0.7

(65.9)

Other comprehensive income

-

-

-

-

(12.0)

28.8

-

(32.0)

(15.2)

0.1

(15.1)

Total comprehensive income

-

-

-

-

(12.0)

28.8

-

(98.6)

(81.8)

0.8

(81.0)

Dividends paid (note 6)

-

-

-

-

-

-

-

(11.8)

(11.8)

(0.6)

(12.4)

Purchase of Company shares

-

-

-

-

-

-

0.5

-

0.5

-

0.5

 

Company shares used to settle share-based payments

-

-

-

-

-

-

-

(0.5)

(0.5)

-

(0.5)

Share-based payments

-

-

-

-

-

-

-

(0.5)

(0.5)

-

(0.5)

Transactions with owners

-

-

-

-

-

-

0.5

(12.8)

(12.3)

(0.6)

(12.9)

Balance at 31 December 2016

14.6

116.5

0.1

121.4

(8.8)

109.7

(1.9)

(9.4)

342.2

12.9

355.1

Profit for the period

-

-

-

-

-

-

-

21.6

21.6

1.0

22.6

Other comprehensive income

-

-

-

-

2.6

(17.9)

-

-

(15.3)

-

(15.3)

Total comprehensive income

-

-

-

-

2.6

(17.9)

-

21.6

6.3

1.0

7.3

Dividends paid (note 6)

-

-

-

-

-

-

-

-

-

-

-

Purchase of Company shares

-

-

-

-

-

-

-

-

-

-

-

 

Company shares used to settle share-based payments

-

-

-

-

-

-

-

-

-

-

-

Share-based payments

-

-

-

-

-

-

-

(1.3)

(1.3)

-

(1.3)

Transactions with owners

-

-

-

-

-

-

-

(1.3)

(1.3)

-

(1.3)

Balance at 30 June 2017

14.6

116.5

0.1

121.4

(6.2)

91.8

(1.9)

10.9

347.2

13.9

361.1

 

1The £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 on the acquisition of Initial Facilities in 2014.

 

 2The hedging and revaluation reserve includes £21.9 million relating to the revaluation of available-for-sale financial assets within the joint ventures (£19.9 million at December 2015 and £24.1 million at 30 June 2016).

 

3The investment in own shares reserve represents the cost of shares in Interserve Plc held by the trustees of the Interserve Employee Benefit Trust. The market value of these shares at 30 June 2016 was £1.1 million (£1.6 million at 31 December 2016 and £1.8 million at 30 June 2016).

 

 

                                  Unaudited condensed consolidated statement of cash flows

For the six months ended 30 June 2017

 

Six months

Six months

Year ended

 

ended          30 June 2017

ended           30 June 2016

31 December 2016

 

£million

 

£million

restated #

£million

 

Operating activities

 

 

 

Total operating profit/(loss)

34.5

(24.7)

(76.4)

 

 

 

 

Adjustments for:

 

 

 

Amortisation of acquired intangible assets

11.4

15.5

29.8

Amortisation of capitalised software development

1.8

0.9

1.4

Depreciation of property, plant and equipment

21.8

16.8

37.6

Pension payments in excess of income statement charge

(8.1)

(10.6)

(19.5)

Share of results of associates and joint-venture entities

(10.9)

(9.2)

(22.5)

(Credit)/Charge relating to share-based payments

(1.3)

2.9

(0.2)

Gain on disposal of plant and equipment - hire fleet

(10.0)

(6.9)

(16.0)

Operating cash flows before movements in working capital

39.2

(15.3)

(65.8)

(Increase)/decrease in inventories

0.4

2.9

9.4

(Increase)/decrease in receivables

(46.5)

44.6

80.8

Increase/(decrease) in payables

(55.8)

31.9

75.6

Cash generated by operations before changes in hire fleet

(62.7)

64.1

100.0

Capital expenditure - hire fleet

(6.4)

(16.5)

(30.9)

Proceeds on disposal of plant and equipment - hire fleet

13.1

9.0

21.6

Cash generated by operations

(56.0)

56.6

90.7

Cash used by operations - Energy from Waste exited business

(67.1)

(52.8)

(116.9)

Cash used by operations - strategic review of Equipment Services

(0.1)

(1.4)

(7.7)

Cash generated by operations - ongoing business

11.2

110.8

215.3

Taxes paid

(3.7)

(4.3)

(10.2)

Net cash from operating activities

(59.7)

52.3

80.5

 

Investing activities

 

 

 

Interest received

2.9

2.0

4.5

Dividends received from associates and joint ventures

9.9

14.6

34.1

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

0.7

9.6

8.6

Capital expenditure - non-hire fleet

(21.8)

(15.9)

(38.3)

Investment in joint-venture entities

(31.4)

(0.8)

(9.8)

Proceeds on disposal of investments

-

4.6

4.6

Net cash generated by/(used in) investing activities

(39.7)

14.1

3.7

 

Financing activities

 

 

 

Interest paid

(11.9)

(11.6)

(23.3)

Dividends paid to equity shareholders

-

(23.7)

(35.5)

Dividends paid to non-controlling interests

-

(1.0)

(1.6)

Proceeds from issue of shares and exercise of share options

-

0.1

0.1

Purchase of own shares

-

(0.9)

(0.4)

Increase in bank loans

155.0

5.0

(5.0)

Movement in obligations under finance leases

(0.5)

0.7

2.2

Net cash from/(used in) financing activities

142.6

(31.4)

(63.5)

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

43.2

35.0

20.7

Cash and cash equivalents at beginning of period

102.2

70.6

70.6

Effect of foreign exchange rate changes

(1.8)

3.9

10.9

Cash and cash equivalents at end of period

143.6

109.5

102.2

 

 

 

 

Cash and cash equivalents comprise

 

 

 

Cash and deposits

153.7

115.1

113.3

Bank overdrafts

(10.1)

(5.6)

(11.1)

 

143.6

109.5

102.2

 

 

 

 

Reconciliation of net cash flow to movement in net debt

 

 

 

Net increase/(decrease) in cash and cash equivalents

43.2

35.0

20.7

Increase in bank loans

(155.0)

(5.0)

5.0

Movement in obligations under finance leases

0.5

(0.7)

(2.2)

Change in net debt resulting from cash flows

(111.3)

29.3

23.5

Effect of foreign exchange rate changes

(1.8)

3.9

10.9

Change in net debt during the period

(113.1)

33.2

34.4

Net debt - opening

(274.4)

(308.8)

(308.8)

Net debt - closing

(387.5)

(275.6)

(274.4)


#See note 2

Notes to the unaudited interim financial statements

For the six months ended 30 June 2017

 

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 2017 (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, 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 2018 at the balance sheet date; and the Group has access to committed debt facilities of $350 million with a weighted average maturity of 7 years and a further £433 million with a weighted average maturity of 3.7 years. 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 2016 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 2017 have been reviewed by Grant Thornton UK LLP but have not been audited.

 

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 2016.

 

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 2016 and which are available on the Group's website at www.interserve.com.  Various presentational changes have been made, as described in note 2(c) below.

 

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 2017. Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual earnings.

 

(a) Adoption of new and revised standards

 

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'.

 

IFRS 15 Revenue from contracts with customers

 

The new standard will replace IAS 18 Revenue and IAS 11 Construction contracts. It will become effective for accounting periods on or after 1 January 2018.  The main impact of the standard will be to require the recognition and disclosure of revenue to be based around the principle of disaggregation of discrete performance obligations.
 

IFRS 16 Leases

 

The new standard will replace IAS 17 Leases. It will become effective for accounting periods on or after 1 January 2019. It will require nearly all leases to be recognised on the balance sheet as liabilities, with corresponding assets being created.

 

In advance of the adoption of IFRS 15 and 16, the Group is conducting a systematic review of all existing major contracts and leases to ensure that the impact and effect of the new standards are fully understood, and changes to the current accounting procedures are highlighted and acted upon. Any impact is neither known nor possible to estimate at this time.

 

Except for IFRS 9, IFRS 15 and IFRS 16 noted above, the directors do not currently anticipate that the adoption of any other standard and interpretation that has been issued but is not yet effective will have a material impact on the financial statements of the Group in future periods.

 

(b) Principal risks

 

In the directors' view, there have been no changes to the principal risks and uncertainties facing the Group from those described on pages 26 to 29 of the Group's Annual Report and Financial Statements for the year ended 31 December 2016. The directors expect that the Group's Headline profits will continue to be weighted to the second half.

 

(c) Restatement of comparatives

 

As disclosed in the statutory accounts for the year ended 31 December 2016, the 2016 results included exceptional losses relating to decisions made in a strategic review of our Equipment Services division, which was concluded in the second half of 2016.  These included the exit from a number of smaller and less attractive markets. The results of markets in the process of being exited are treated as Exceptional in nature (see note 4) and excluded from the calculation of Headline Earnings per Share (see note 7). The presentation of comparative information for the first half of 2016 has been restated to be consistent with this presentation. There is no impact on comparative net assets or statutory profit before taxation.   

 

3. Business and geographical segments

 

(a) Business segments

 

The Group is organised into three 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 internationally.

·      Construction: design, construction and maintenance of buildings and infrastructure, both in the UK and internationally.

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

 

Costs of central services, including the financial impact of our PFI investments, 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

 

2017

2016

2016

2017

2016

2016

2017

2016

2016

 

£million

£million

£million

£million

£million

£million

£million

£million

£million

 

 

restated #

 

 

restated #

 

 

restated #

 

 

 

 

 

 

 

 

 

 

 

Support Services - UK

904.8

908.5

1,798.4

897.5

899.3

1,775.0

28.1

36.7

80.8

Support Services - International

102.3

147.2

267.9

64.9

113.1

211.9

0.9

6.5

6.2

Support Services

1,007.1

1,055.7

2,066.3

962.4

1,012.4

1,986.9

29.0

43.2

87.0

 

 

 

 

 

 

 

 

 

 

Construction - UK

536.2

468.3

971.4

536.2

468.3

971.4

(2.0)

4.5

(3.1)

Construction - International

145.3

141.0

296.9

-

-

-

8.3

6.0

16.9

Construction

681.5

609.3

1,268.3

536.2

468.3

971.4

6.3

10.5

13.8

 

 

 

 

 

 

 

 

 

 

Equipment Services

111.0

108.0

224.1

111.0

108.0

224.1

24.9

24.9

48.6

Group Services

49.9

49.0

81.3

6.7

12.6

17.0

(14.1)

(14.3)

(25.2)

Inter-segment elimination

(5.2)

(32.6)

(50.1)

(5.2)

(32.6)

(50.1)

-

-

-

 

1,844.3

1,789.4

3,589.9

1,611.1

1,568.7

3,149.3

46.1

64.3

124.2

 

 

 

 

 

 

 

 

 

 

Exceptional items and amortisation of acquired intangible assets (note 4)

36.6

64.2

95.3

36.6

64.2

95.3

(11.6)

(89.0)

(200.6)

Revenue/Total operating profit/(loss)

1,880.9

1,853.6

3,685.2

1,647.7

1,632.9

3,244.6

34.5

(24.7)

(76.4)

Investment revenue

 

 

 

 

 

 

2.3

2.5

5.6

Finance costs

 

 

 

 

 

 

(11.9)

(11.6)

(23.3)

Profit/(loss) before tax

 

 

 

 

 

 

24.9

(33.8)

(94.1)

Tax charge

 

 

 

 

 

 

(2.3)

(1.9)

(7.5)

Profit/(loss) after tax

 

 

 

 

 

 

22.6

(35.7)

(101.6)

 

                         #See note 2

 

 

(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 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

 

2017

2016

2016

2017

2016

2016

 

£million

£million

£million

£million

£million

£million

 

 

restated #

 

 

restated #

 

 

 

 

 

 

 

 

United Kingdom

1,416.4

1,363.7

2,738.0

1,409.1

1,354.5

2,714.6

Rest of Europe

30.9

25.8

54.1

30.9

25.8

54.1

Middle East & Africa

310.3

343.8

675.4

127.6

168.7

322.5

Australasia

14.2

12.1

29.4

14.2

12.1

29.4

Far East

8.9

12.9

26.0

8.9

12.9

26.0

Americas

18.9

14.7

35.8

18.9

14.7

35.8

Group Services

49.9

49.0

81.3

6.7

12.6

17.0

Inter-segment elimination

(5.2)

(32.6)

(50.1)

(5.2)

(32.6)

(50.1)

 

1,844.3

1,789.4

3,589.9

1,611.1

1,568.7

3,149.3

Exceptional items and amortisation of acquired intangible assets (note 4)

36.6

64.2

95.3

36.6

64.2

95.3

 

1,880.9

1,853.6

3,685.2

1,647.7

1,632.9

3,244.6

               

 

 

 

Total operating profit

 

 

 

 

 

Six months

Six months

Year

 

 

 

 

ended

ended

ended

 

 

 

 

30 June

30 June

31 December

 

 

 

 

2017

2016

2016

 

 

 

 

£million

£million

£million

 

 

 

 

 

restated #

 

 

 

 

 

 

 

 

United Kingdom

 

 

 

32.6

47.9

80.6

Rest of Europe

 

 

 

0.8

0.5

3.1

Middle East & Africa

 

 

 

19.5

23.3

45.6

Australasia

 

 

 

3.0

0.9

6.4

Far East

 

 

 

3.1

5.9

11.7

Americas

 

 

 

1.2

0.1

2.0

Group Services

 

 

 

(14.1)

(14.3)

(25.2)

 

 

 

 

46.1

64.3

124.2

Exceptional items and amortisation of acquired intangible assets (note 4)

(11.6)

(89.0)

(200.6)

 

 

 

 

34.5

(24.7)

(76.4)

                 

 

# See note 2

 

 

4. Exceptional items and amortisation of acquired intangible assets

 

 

 

Six months ended 30 June 2017

Six months ended 30 June 2016

 

Exited business 1

 

 

Exited business 1

 

 

 

Energy from Waste

Strategic review of Equipment Services

 

Amortisation of acquired intangible assets

Total

Energy from Waste

Strategic review of Equipment Services

 

Amortisation of acquired intangible assets

Total

 

£million

£million

£million

£million

£million

£million

£million

£million

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated revenue

34.2

2.4

-

36.6

62.3

1.9

-

64.2

Cost of sales

(34.2)

(0.9)

-

(35.1)

(138.0)

(1.0)

-

(139.0)

Gross profit/(loss)

-

1.5

-

1.5

(75.7)

0.9

-

(74.8)

 

 

 

 

 

 

 

 

 

Directly associated management costs

-

(1.6)

-

(1.6)

3.7

(2.3)

-

1.4

Amortisation of acquired intangible assets

-

-

(11.4)

(11.4)

-

-

(15.5)

(15.5)

Total administration expenses

-

(1.6)

(11.4)

(13.0)

3.7

(2.3)

(15.5)

(14.1)

Operating profit/(loss)

-

(0.1)

(11.4)

(11.5)

(72.0)

(1.4)

(15.5)

(88.9)

Amortisation of acquired

intangible assets of associates

-

-

(0.1)

(0.1)

-

-

(0.1)

(0.1)

Profit for the period/(loss)

(11.5)

(11.6)

(15.6)

(89.0)

 

 

 

 

 

 

 

 

 

Tax on exceptional items

 

 

 

 

 

 

 

 

On exited business

-

-

-

-

2.0

-

-

2.0

Amortisation of acquired intangible assets

-

-

1.9

1.9

-

-

2.9

2.9

Tax on exceptional items

-

-

1.9

1.9

2.9

4.9

 

 

 

 

 

 

 

 

 

Profit/(loss) after taxation

(9.6)

(9.7)

(12.7)

(84.1)

                     

 

 

 

Year ended 31 December 2016

 

Exited business 1

 

 

 

Energy from Waste

Strategic review of Equipment Services

 

Amortisation of acquired intangible assets

Total

 

£million

£million

£million

£million

 

 

 

 

 

 

 

 

 

 

Consolidated revenue

91.0

4.3

-

95.3

Cost of sales

(251.0)

(2.1)

-

(253.1)

Gross profit/(loss)

(160.0)

2.2

-

(157.8)

 

 

 

 

 

Directly associated management costs

-

(12.9)

-

(12.9)

Amortisation of acquired intangible assets

-

-

(29.8)

(29.8)

Total administration expenses

-

(12.9)

(29.8)

(42.7)

Operating profit/(loss)

(160.0)

(10.7)

(29.8)

(200.5)

Amortisation of acquired intangible assets of associates

-

-

(0.1)

(0.1)

Profit for the period/(loss)

(160.0)

(10.7)

(29.9)

(200.6)

 

 

 

 

 

Tax on exceptional items

 

 

 

 

On exited business

-

-

-

-

Amortisation of acquired intangible assets

-

-

4.7

4.7

Tax on exceptional items

-

-

4.7

4.7

 

 

 

 

 

Profit/(loss) after taxation

(160.0)

(10.7)

(25.2)

(195.9)

           

 

 

1T he construction of Energy from Waste facilities, where there was contractual responsibility taken for process risk, and business streams exited as a result of the strategic review of Equipment Services, along with directly associated costs, are considered to be exited businesses. Exited businesses are presented as exceptional items and are excluded from the calculation of headline earnings per share (reflecting their material and non-recurring nature). The exited businesses do not meet the definition of discontinued operations as stipulated by IFRS 5 Non-current assets held for sale and discontinued operations because the business has not been disposed of and there are no assets classified as held for sale. Accordingly the disclosures within exceptional items differ from those applicable for discontinued operations.
 

# See note 2

 

 

5. Taxation

 

 

 

Six months ended 30 June 2017

Six months ended 30 June 2016

Year ended 31 December 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit before tax

Tax

Rate

Profit before tax

Tax

Rate

Profit before tax

Tax

Rate

 

 

£million

£million

%

£million

£million

%

£million

£million

%

 

 

 

 

 

restated#

restated#

restated#

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsidiaries

25.5

(4.2)

16.5%

45.9

(6.8)

14.8%

83.9

(12.2)

14.5%

 

Post-tax earnings from associates

11.0

-

n/a

9.3

-

n/a

22.6

-

n/a

 

Headline total

36.5

(4.2)

11.5%

55.2

(6.8)

12.3%

106.5

(12.2)

11.5%

 

Amortisation of acquired intangible assets

(11.5)

1.9

16.5%

(15.6)

2.9

18.6%

(29.9)

4.7

15.7%

 

Exited business

(0.1)

-

n/a

(73.4)

2.0

2.7%

(170.7)

-

n/a

 

Total

24.9

(2.3)

9.2%

(33.8)

(1.9)

(5.6%)

(94.1)

(7.5)

(8.0%)

 

 

# See note 2

 

 

 

 

 

 

 

 

 

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

 

2017

2016

2016

 

£million

£million

£million

 

 

 

 

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

-

(10.8)

(15.3)

Tax on movements in cash flow hedging instruments

(2.1)

5.2

6.4

Tax on exchange movements on hedged financial instruments

2.6

(3.9)

(7.3)

Tax on the intrinsic value of share-based payments

-

-

0.1

 

0.5

(9.5)

(16.1)

 

 

 

6. Dividends

 

 

Six months

Six months

Year

 

 

ended

ended

ended

 

Dividend

30 June

30 June

31 December

 

per share

2017

2016

 2016

 

pence

£million

£million

£million

 

 

 

 

 

Final dividend for the year ended 31 December 2015

16.4

-

23.7

23.7

Interim dividend for the year ended 31 December 2016

8.1

-

-

11.8

Amount recognised as distribution to equity holders in the period

 

-

23.7

35.5

 

 

 

7. Earnings/(loss) per share

 

The calculation of earnings per share is based on the following data:

 

Earnings/(loss)

Six months

Six months

Year

 

ended

ended

ended

 

30 June

30 June

31 December

 

2017

2016

2016

 

£million

£million

restated #

£million

 

 

 

 

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

 

 

 

Adjustments:

21.6

(37.1)

(103.7)

Exceptional items and amortisation of acquired intangible assets (note 4)

9.7

84.1

195.9

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

31.3

47.0

92.2

 

Weighted average number of shares

Six months

Six months

Year

 

ended

ended

ended

 

30 June

30 June

31 December

 

2017

2016

2016

 

Number

Number

Number

 

thousand

thousand

thousand

 

 

 

 

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

145,714

145,497

145,606

Effect of dilutive potential ordinary shares:

 

 

 

 Share-based payments

30

79

291

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

145,744

145,576

145,897

 

Earnings/(loss) per share

Six months ended 30 June 2017

Six months ended 30 June 2016

Year ended

31 December 2016

 

pence

pence

pence

 

 

restated #

 

 

Basic earnings/(loss) per share

14.8

(25.5)

(71.2)

Diluted basic earnings/(loss) per share

14.8

(25.5)

(71.2)

 

 

 

 

Headline earnings per share

21.5

32.3

63.3

Diluted headline earnings per share

21.5

32.3

63.2

 

 

 

 

# See note 2

 

 

8. 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:

 

 

30 June

30 June

31 December

 

2017

2016

2016

 

£million

£million

£million

 

 

 

 

Level 2

54.8

56.4

67.1

 

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.

 

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

 

 

9. Share capital

 

 

Six months

Six months

Year

 

ended

ended

ended

 

30 June

30 June

31 December

 

2017

2016

2016

 

Shares thousand

Shares thousand

Shares thousand

 

 

 

 

At 1 January

145,714

145,208

145,208

Share awards issued

-

506

506

At the end of the period

145,714

145,714

145,714

 

 

10. 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

 

2017

2016

2016

 

 

 

 

Significant actuarial assumptions

 

 

 

Retail prices index (pa)

3.2%

2.8%

3.3%

Discount rate (pa)

2.8%

2.9%

2.8%

Consumer prices index (pa)

2.2%

1.8%

2.3%

Pension increases in payment:

 

 

 

  LPI/RPI

3.1%/3.2%

2.7%/2.8%

3.1%/3.3%

  Fixed 5%

5.0%

5.0%

5.0%

  3% or RPI if higher (capped at 5%)

3.7%

3.5%

3.7%

General salary increases (pa)

2.7%

2.3%

2.8%

 

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 2017

30 June 2016

31 December

 2016

 

£million

£million

£million

 

 

 

 

Present value of defined benefit obligation

1,042.8

982.6

1,044.6

Fair value of schemes' assets

(997.9)

(957.1)

(992.2)

(Asset)/Liability recognised in the balance sheet

44.9

25.5

52.4

 

The amounts recognised in the income statement are as follows:

 

 

Six months

Six months

Year

 

ended

ended

ended

 

30 June

30 June

31 December

 

2017

2016

2016

 

£million

£million

£million

 

 

 

 

Employer's part of current service cost

3.0

3.2

5.7

Administration costs

0.5

0.6

0.9

Past service (gains)/losses

-

(2.6)

(2.6)

Losses/(gains) on settlements

-

(0.1)

(0.1)

Net interest (income)/expense on the net pension liability/(asset)

0.6

(0.5)

(1.1)

Total expense recognised in the income statement

4.1

0.6

2.8

 

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.

 

The Group has assessed that no further liability arises under IFRIC 14 IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction on the basis that the scheme rules allow the Company an unconditional right to refunds, as a result of the Trustees not having a unilateral power to wind up the scheme and assuming the gradual settlement of plan liabilities over time until all members have left the scheme.


 

11. 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

 

2017

2016

2016

 

a) Headline total operating profit

£million

£million

restated #

 

£million

 

Profit/(loss) before tax

24.9

(33.8)

(94.1)

Adjusted for:

 

 

 

   Amortisation of acquired intangible assets

11.4

15.5

29.8

   Share of associates' amortisation of acquired intangible assets

0.1

0.1

0.1

   Exceptional items - exited business

-

72.0

160.0

   Exceptional items - strategic review of Equipment Services

0.1

1.4

10.7

   Investment revenue

(2.3)

(2.5)

(5.6)

   Finance costs

11.9

11.6

23.3

Headline total operating profit

46.1

64.3

124.2

 

b) Operating cash flow

 

 

 

 

 

 

 

Cash generated by operations

(56.0)

56.6

90.7

Adjusted for:

 

 

 

   Cash generated by operations - exited business

67.1

52.8

116.9

   Cash used by operations - strategic review of Equipment Services

0.1

1.4

7.7

   Pension contributions in excess of income statement charge

8.1

10.6

19.5

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

0.7

9.6

8.6

   Capital expenditure - non-hire fleet

(21.8)

(15.9)

(38.3)

Operating cash flow

(1.8)

115.1

205.1

 

c) Free cash flow

 

 

 

 

 

 

 

Operating cash flow

(1.8)

115.1

205.1

Adjusted for:

 

 

 

   Pension contributions in excess of income statement charge

(8.1)

(10.6)

(19.5)

   Taxes paid

(3.7)

(4.3)

(10.2)

   Dividends received from associates and joint ventures

9.9

14.6

34.1

   Interest received

2.9

2.0

4.5

   Interest paid

(11.9)

(11.6)

(23.3)

   Effect of foreign exchange rate change

(1.8)

3.9

10.9

Free cash flow

(14.5)

109.1

201.6

 

 

 

 

d) Operating cash conversion

 

 

 

 

 

 

 

Operating cash flow

(1.8)

115.1

205.1

Operating profit, before exceptional items and amortisation

 

 

 

   of acquired intangible assets

35.1

55.0

101.6

Current period operating cash conversion

(5.1%)

209.3%

201.9%

 

 

 

 

Three-year rolling operating cash flow

249.8

197.0

263.0

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

302.3

318.5

325.5

Operating cash conversion, three-year rolling average

82.6%

61.9%

80.8%

 

# See note 2

 

 

 

 

 

 

 

 

 

 

Six months

Six months

Year

 

ended

ended

ended

 

30 June

30 June

31 December

 

2017

2016

2016

 

£million

£million

£million

e) Gross operating cash conversion

 

restated #

 

 

 

 

 

Operating cash flow

(1.8)

115.1

205.1

Dividends received from associates and joint ventures

9.9

14.6

34.1

Gross operating cash flow

8.1

129.7

239.2

 

 

 

 

Operating profit, before exceptional items and amortisation

 

 

 

    of acquired intangible assets

35.1

55.0

101.6

Share of result of associates and joint ventures, before

 

 

 

  exceptional items and amortisation of acquired intangible assets

11.0

9.3

22.6

Total operating profit, before exceptional items and amortisation

 

 

 

    of acquired intangible assets

46.1

64.3

124.2

 

 

 

 

Current period gross operating cash conversion

17.6%

201.7%

192.6%

 

 

 

 

Three-year rolling gross operating cash flow

320.4

247.8

328.5

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

368.1

376.0

387.3

Gross operating cash conversion, three-year rolling average

87.0%

65.9%

84.8%

 

 

 

 

f) Gross revenue

 

 

 

 

 

 

 

Consolidated revenue

1,647.7

1,632.9

3,244.6

Share of revenue of associates and joint ventures

233.2

220.7

440.6

Gross revenue

1,880.9

1,853.6

3,685.2

 

 

 

 

 

 

 

 

 

g) Net debt

 

 

 

 

 

 

 

 

 

 

Cash and deposits

A

153.7

115.1

113.3

 

 

 

 

 

 

 

Bank overdrafts

 

(10.1)

(5.6)

(11.1)

 

Bank loans

 

(320.0)

(175.0)

(165.0)

 

US Private Placement Loans

 

(269.3)

(261.2)

(284.4)

 

 

 

(599.4)

(441.8)

(460.5)

 

Finance leases

 

(3.9)

(2.9)

(4.4)

 

Total borrowings

B

(603.3)

(444.7)

(464.9)

 

 

 

 

 

 

 

Per balance sheet

A+B

(449.6)

(329.6)

(351.6)

 

less: Impact of hedges on US Private Placement loan notes

 

62.1

54.0

77.2

 

Net debt

 

(387.5)

(275.6)

(274.4)

 

                     

 

# See note 2

 

 

 

 

 

 

 

 


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


Related Shares:
Interserve (IRV)




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