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Final Results

24 Feb 2016 07:00

RNS Number : 9303P
Interserve PLC
24 February 2016
 



News Release

 

 

24 February 2016

 

Strong growth and strategic progress

Annual Results 2015

 

 

 

Interserve, the international support services and construction group, reports on a year of strong growth and strategic progress, with its annual results for the year ended 31 December 2015.

 

 

 

2015

2014

 

Revenue

 

£3,204.6m

£2,913.0m

+10%

Headline total operating profit*

 

£131.8m

£117.2m

+12%

Headline pre-tax profit*

 

£115.4m

£106.2m

+9%

Profit before tax

 

£79.5m

£61.9m

+28%

Headline earnings per share*

 

67.9p

58.8p

+15%

Full-year dividend

 

24.3p

23.0p

+6%

 

 

Highlights

 

· Revenue growth of 10 per cent

 

· Headline total operating profit growth of 12 per cent

 

· Headline earnings per share growth of 15 per cent

 

· Full-year dividend: Recommended increase of 6 per cent to 24.3p

 

· Key contract wins with both new and existing clients including London Underground, B&Q, Superdrug, BS Stanford, BP Khazzan (Oman), Shell GTL (Qatar) and the Dubai Aviation City Corporation (UAE)

 

· Future workload of £7.7 billion

 

· Commenced strategic review of our Equipment Services business (RMD Kwikform) 

 

 

 

 

 

Chief Executive Adrian Ringrose commented:

 

"Over the last five years we have made substantial strategic progress creating a broader, stronger business. Our performance in 2015 was good, resulting in 12 per cent operating profit growth in markets that continue to offer both opportunities and challenges. In light of the changing shape of our portfolio over the last few years, we have started a strategic review of our Equipment Services business (RMD Kwikform).

 

Overall, we expect 2016 to be broadly steady compared to 2015 as underlying growth is restrained by the impact of a slower order intake following an election year and the impact of the National Living Wage. However, we expect to return to growth in 2017, underpinned by our strong positions in attractive markets."

 

 

 

- Ends -

 

 

 

For further information please contact:

 

Rhys Jones, Group PR Manager +44 (0) 118 9602285

 

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 250 index. We have gross revenues of £3.6 billion and a workforce of circa 80,000 people worldwide.

 

www.interserve.com

 

For news follow @interservenews

 

 

\* 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. See note 16 to the condensed consolidated financial statements for a reconciliation of these measures to their statutory equivalents and note 9 for calculation of earnings per share.

 

 

 

 

CHAIRMAN'S STATEMENT

 

STRATEGIC DEVELOPMENT

 

In our 2010 Annual Report we set out the ambition to double our earnings per share by 2015. Although we did not quite achieve that, during that five-year period the business achieved a remarkable 71 per cent increase in revenue and grew Headline earnings per share by 68 per cent, despite the backdrop of weak economic growth and government austerity.

We are proud of these results, which reflect the transformation in the business over that period in much more difficult markets than we or others had anticipated. At a time when many in our sectors have faced financial difficulties, we continued to grow our dividend every year at a compound rate of over six per cent. Meanwhile, the investment in new business areas, particularly in UK front-line services, has created a stronger and more robust business with new opportunities to deliver further growth in shareholder value. This performance is a testimony to the strength of our business, strong values and performance culture as well as the determination of the management team. Against this backdrop of substantial strategic progress and the changing shape of our portfolio, we have commenced a strategic review of our Equipment Services business.

 

2015 was another year of continued progress and growth for Interserve, with revenues up 10 per cent and Headline total operating profit 12 per cent. This reflected the strength of our business portfolio, with strong performances in many areas that balanced other areas where performance was weaker. In the UK, our Support Services businesses continued to perform strongly: we continued to extend our reach into new markets, such as further education and justice - where we successfully mobilised the delivery of our new front-line service probation contracts, welcoming a further 2,000 colleagues to the Group - and grew our facilities management operations in both the private and public sectors.

 

Our UK Construction business has had a difficult year, with industry-wide pricing pressures, and some specific supply-chain failures, significantly impacting three of our Energy from Waste projects. These issues were, however, partially offset in the year by strong performance in our building and fit-out businesses.

 

Both International Support Services and International Construction grew well in recovering but volatile Middle East markets, in which the demands of demographic change and plans for enhanced infrastructure outweighed the impact of the weakness in the oil price. Unless disrupted by world events we continue to believe these markets remain attractive over the medium-term given the fundamental growth drivers; however, we are mindful of both the economic and political risks of a sustained low oil price. Our (and our partners') long experience of operating in the region stands us in good stead to respond to potential near-term challenges as well as the medium-term opportunities.

 

Our Equipment Services business performed particularly well, building on our sustained investment in recent years with well-balanced growth coming from our largest markets in the Middle East, the Far East and the UK.

 

SUSTAINABILITY

 

Offering sustainable solutions and services to our customers is increasingly important and the value of a strong sustainable strategy continues to grow. Our many and varied activities in this area have a direct bearing on our ability to win work and to attract and retain employees, as well as playing our part in developing the workforce of tomorrow and safeguarding the natural environment. They are part of our core business strategy (which is reflected in the way that we are increasingly integrating how we report our activities in our Annual Report).

 

Achievements of particular note in the year include: our first ever decoupling of financial growth from resource consumption (with CO2 emissions down by 4.6 per cent in a year of strong revenue growth); our launch (with Business in the Community and Asda) of 'arc', a social enterprise support programme in Yorkshire, which aims to create social value, and, specifically, 1,000 jobs, in the communities in which we operate; and the award of an Ofsted rating of 'Good' to Crawshaw Academy school in Pudsey, Yorkshire, which had been in special measures in 2014, prior to our sponsorship.

 

OUR PEOPLE

 

Interserve's people are our most important asset and the way that our values are reflected through their hard work, skill and diligence, continues to be a source of pride for myself and the Board.

 

The health and safety of our people is a constant priority for Interserve. This year we have continued to make excellent progress, once again reducing our accident incidence rate, which is a key indicator of performance and is rightly viewed as an important barometer for the general health of any business. This year we have achieved our long-term goal of halving our accident incidence rate, from 2010, four years ahead of schedule, which is a considerable achievement. Nevertheless there will always be more to do and health and safety remains a critical focus for the business.

 

Listening to our people is important to us and our 2015 employee survey reflected how health and safety remains central to our corporate culture. The survey also showed employee engagement to have grown significantly in the past two years, a substantial achievement in the context of considerable corporate change and over 30 per cent growth in the number of colleagues.

 

We also made further investment in the training and development of our people during the year, notably in Dubai with the establishment of a new training school, and we have again grown the volume of apprenticeships and work experience opportunities. Volunteering also continues to thrive with over a 50 per cent rise in the number of days given over to community projects around the world by Interserve employees.

 

BOARD CHANGES

 

At the 2015 Annual General Meeting Russell King assumed the role of Senior Independent Director. Following the announcement of my intention to step down, part of Russell's role has been to lead the Board's search for a new Chairman. On behalf of the Board I'm delighted to welcome

Glyn Barker who joined as a non-executive director and Chairman Designate on 1 January 2016. Glyn brings considerable experience from his time at PricewaterhouseCoopers and as an adviser to numerous companies on a wide variety of corporate, strategic and financial issues and will be a great asset to the Board.

 

On 29 February I will be retiring from the Board after ten years as Chairman. I have enjoyed the experience enormously and am proud to have been a part of the Company's considerable success and continued growth over that time. With a new Chairman the Board will be well placed to take a fresh look at the strategic options that the growth in the business now provides. I am confident that Interserve's breadth and scale combined with its extremely able senior management team will ensure continued success as it faces the challenges and the opportunities ahead.

 

PROSPECTS

 

Our near-term development will continue to be played out against a mixed backdrop. As we have highlighted previously, the performance of our UK Support Services division will be impacted by the higher employment costs associated with the new National Living Wage and we expect volume growth to slow temporarily to reflect last year's normal hiatus in new contracts surrounding a General Election. In the Middle East, current trading remains good, but the low oil price creates uncertainties in our markets. Conversely, we expect improved performance in UK Construction, continued strong momentum in Equipment Services and greater cash conversion across all parts of the business. Visibility for 2016 remains broadly consistent with prior years.

 

Looking further ahead to 2017 and beyond, we expect a return to good growth in UK Support Services based on our strong market positions and an encouraging pipeline of attractive opportunities with most of the impact of the National Living Wage by then already having been absorbed. In the Middle East, while mindful of the current risks, our combination of strong customer and partner relationships that have developed over more than 30 years provide a strong platform for future growth. These factors underpin our confidence in further sustainable shareholder value creation and support the Board's recommendation of a final dividend of 16.4p (2014: 15.5p), bringing the total dividend for the year to 24.3p (2014: 23.0p), an increase of 6 per cent. The final dividend will be paid on 20 May 2016 to shareholders on the register at the close of business on 1 April 2016.

Lord Blackwell

Chairman

24 February 2016

 

 

STRATEGIC REPORT

OPERATIONAL REVIEW

 

Overview *

 

Interserve serves the needs of its broad client-base by providing integrated outsourcing and construction services. The value of our services is founded on the skills and ingenuity of our people, and so we invest extensively in the development and training of our 80,000 strong team to ensure we continue to retain and attract the right people. We apply our collective knowledge and experience to meet our customers' needs and develop lasting, long-term relationships.

 

We made good progress during 2015 in markets that offered both opportunities and challenges. We delivered volume growth across the board, and growth in headline earnings per share of 15 per cent, with strong profit performances in our Support Services (UK and International), International Construction and Equipment Services businesses and a break-even result in UK Construction.

 

We continued to invest in building our future capacity, in terms of both our physical infrastructure and the culture that differentiates our business: our people, innovation and shared best practice and insight.

 

SustainAbilities, our broad-based growth plan, shapes every aspect of how we operate. The core of the plan recognises that sustainable business success and shareholder value are dependent on a broad range of factors: the strength of our reputation, the relationships we have with our customers and communities, how we manage risk and conduct our operations. Our focus on sustainability generates positive outcomes over both the near and long term: it helps us reduce waste, minimise consumption, invest in skills, manage risk and give confidence to customers. Our commitment to making positive contributions in natural, social and knowledge capital, while continuing to deliver an excellent financial performance, is an important differentiator with customers, investors, our people and our supply chain.

 

Having been listed on the FTSE4Good social responsibility benchmark index since 2012, we were, for the first time, ranked in Business in the Community's annual benchmark of responsible business, the Corporate Responsibility Index, highlighting the strides the business has made in integrating responsible business practices at all levels.

 

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

 

 

\* This is an excerpt from the Strategic Report. Certain sections referred to herein will be included in the Annual Report.

Support Services

 

Support Services focuses on the management and delivery of operational services to both public and private sector clients in the UK and internationally.

 

Results summary

2015

2014

Change

Revenue

- UK

£1,834.4m

£1,679.9m

+9%

- International1

£224.3m

£157.2m

+43%

Contribution to Total Operating Profit

£100.4m

£88.8m

+13%

- UK

£92.2m

£81.4m

+13%

- International1

£8.2m

£7.4m

+11%

Operating margin

- UK

5.0%

4.8%

- International2

4.1%

4.8%

Future workload3

- UK

£5.6bn

£6.2bn

- International1

£0.3bn

£0.3bn

 

1Including share of associates.

2Operating margin is calculated based on the underlying operating margin of associates and the reported operating margin of subsidiaries.

3Future 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.

 

UK

 

Support Services UK continued to perform well, achieving revenue growth of 9 per cent and a further improvement in the operating margin to 5.0 per cent. We also made further strategic progress on a number of fronts, broadening our offering in front-line services and expanding our portfolio of private-sector clients. As anticipated, the General Election led to a temporary hiatus in public-sector outsourcing opportunities, which is reflected in the reduction in our future workload in this business. Near-term visibility remains strong, however, and the pipeline of bidding opportunities is building encouragingly.

 

We strengthened our significant presence in the UK transport sector by securing contract extensions with Govia, London Underground and Network Rail.

 

We also made good progress in the retail sector adding new clients including New Look and Superdrug as well as the Bicester Village shopping outlet and shopping centres in Telford and Redhill. We also secured a three-year, £35 million extension with B&Q, doubling the scale of the cleaning service and adding catering at around a quarter of the estate and extended our relationship with Debenhams, for whom we have delivered facilities services to their UK stores and offices for over 25 years.

 

We also mobilised our contract with Sony Europe to manage the company's estate, which includes offices, research and development sites and retail stores, in 27 countries.

 

As noted above, the pace of public-sector procurement of new contracts slowed somewhat but, encouragingly, are now starting to see an increased level of bidding, as procurement activity increases in response to continued public-spending pressures. During the year we secured new work with Brighton and Hove City Council and secured a contract extension with Slough Borough Council.

 

Operationally, our public-sector business evolved significantly in the period, reflecting a number of developments that occurred in 2014. Our defence portfolio was scaled down following the loss in 2014 of the South East Regional Prime contract. Winning a considerably re-scoped services contract for the MoD's National Training Estate (NTE) contract was a key achievement in the year in which our sustainability credentials played a large part in our retention of this longstanding contract. This was demonstrated by our success in winning the Energy Institute's 'Energy Excellence' award for helping our client, the Defence Infrastructure Organisation, cut carbon emissions and energy spending across the UK defence estate.

 

We remain one of the MoD's largest and enduring infrastructure partners, managing, in addition to NTE, services at Welbeck Defence Sixth Form College, the Defence Communications Services Agency and the Permanent Joint Overseas Bases (Falklands, Ascension, Cyprus and Gibraltar).

 

Some 5,000 of our colleagues are involved in the delivery of front-line services direct to the citizen, wherein we generate annualised revenues of c£250 million in the learning and employment, healthcare and justice sectors. During the year we successfully mobilised important new contracts to provide probation and rehabilitation services for low and medium-risk offenders in five areas of England (Cheshire and Greater Manchester; Hampshire and the Isle of Wight; Humberside, Lincolnshire and North Yorkshire; Merseyside; and West Yorkshire) as part of the Ministry of Justice's Transforming Rehabilitation programme. Working in partnership with the National Probation Service and local charities, we are responsible for supporting and rehabilitating around 40,000 offenders each year.

 

Our healthcare business, which provides care in the home for high acuity patients, is well placed to grow in 2016, while our learning and employment unit, which is one of the largest providers to the Department of Work and Pensions' Work Programme, providing support and training to help the long-term unemployed back into work, supported customers into over 16,000 jobs during the year.

 

We see further opportunities to link areas of our skills, education and justice businesses and are now able to bid for new work with a strong combined offer around skills and employability services aimed at groups with challenging behaviours or those who are excluded or disadvantaged. We believe that these joined-up capabilities will prove increasingly attractive as the direction of policy moves towards more integrated and potentially devolved public-service commissioning.

 

International

 

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

 

A mix of contract wins and increasing volumes with existing customers resulted in strong revenue growth and a 11 per cent rise in operating profit to £8.2 million.

 

Highlights during the period included winning fuel pipeline construction and installation contracts with BP Khazzan, Gulf Petrochemicals Services Company and RasGas, as well as a contract to provide technical support to Qatar Shell GTL. We also secured a seawater treatment works contract with Veolia Water and a maintenance support contract with Dolphin Energy in the UAE. Our FM businesses won contracts with new clients including: the Abu Dhabi Equestrian Club; the Environment Agency of Abu Dhabi; Tecom Properties in Dubai; and secured further work in Qatar with IKEA and education provider GEMS International. 

 

We mobilised our first FM contracts in Saudi Arabia for services at the Information Technology and Communications Complex (ITCC) and at the prestigious King Abdullah Financial District in Riyadh for the Al Ra'idah Investment Company.

 

The acquisition in 2014 of esg included three new contracts for the provision of education in Saudi Arabia under the government's Colleges of Excellence programme. Our role under these contracts is to deliver a modern curriculum to enhance the employability of young Saudi men and women. Demand potential for such activity is significant and we look forward to developing our presence in this market over the coming years.

 

In recent years we have developed greater reach and capability across the oil and gas services sector in the region, offering customers pan-regional, as well as national services and enhancing our operational efficiency by more effectively leveraging our scale. An example of this is a recent oil and gas services contract with Petrofac in Oman, having initially worked for this client solely in the UAE.

 

Construction

We offer design, development, consultancy and construction services to create whole-life, sustainable solutions for building and infrastructure projects. Our focus is on forming long-term relationships and delivering repeat business through commercial structures such as framework agreements and project-financed schemes.

 

Our presence in the Middle East (in UAE, Qatar and Oman) is structured through longstanding joint-venture partnerships, enabling us to form enduring relationships with clients and to combine our international experience with our partners' local knowledge to deliver outstanding service.

 

 

Results summary

2015

2014

Change

Revenue

- UK

£1,040.8m

£970.7m

+7%

- International1

£279.0m

£207.9m

+34%

Contribution to Total Operating Profit

£13.1m

£26.2m

-50%

- UK

£0.1m

£15.4m

- International1

£13.0m

£10.8m

+20%

Operating margin

- UK

0.0%

1.6%

- International2

4.3%

4.7%

Future workload

- UK

£1.6bn

£1.4bn

- International1

£0.3bn

£0.3bn

 

1Share of associates.

2Operating margin is calculated based on the underlying operating margin of associates.

 

UK

 

Market demand continued to strengthen in the period, particularly in fit-out and regional building, reflected in our revenue growth of 7 per cent. However, as previously highlighted, supply-chain pricing pressures continued to be felt and the division's performance was adversely impacted by three loss-making energy process contracts.

 

Notwithstanding the particular challenges outlined above, we remain confident in our operating model, which blends our strong regional business with public-sector and infrastructure frameworks, along with our growing presence in the commercial development and fit-out markets.

 

Work winning in the period was strong, leading to further growth in our future workload to £1.6 billion (2014: £1.4 billion). Our regional building business was particularly successful, winning a number of new contracts in our core sectors of health, education and defence, while Paragon, our specialist fit-out and refurbishment business continued to thrive, building on its longstanding reputation for delivering high-end projects and benefitting from a buoyant market and access to the wider client base served by other Group businesses.

 

Our credentials in building facilities for the defence sector were reinforced through new awards, including the prestigious £200 million Defence and National Rehabilitation Centre at Stanford Hall. We also won contracts to revamp Sandhurst's Grade 2 listed Royal Military Academy and MoD training facilities in south-west Scotland as part of the UK government's defence construction framework.

 

In education, we were selected to build facilities for the universities of Durham, Edinburgh, York and Hull and reached financial close on the contract to build seven secondary schools across Hertfordshire, Luton and Reading.

 

Significant wins in the health sector included a £35 million contract to design and build a new clinical facility for Birmingham Children's Hospital and a contract to build a new £43.3 million A&E department at the Leicester Royal Infirmary.

 

Paragon delivered an excellent performance, growing revenue by 28 per cent as it won fit-out work from existing clients served by our FM business, including Boots, Societe Generale and Bourne Capital. Paragon won £106 million of new work overall, including contracts to fit-out premises for clients including Colt, Blackrock and Hammerson.

 

An increasingly important differentiating factor in winning new work is our commitment to make a positive economic and social impact in the communities in which we deliver our projects. Our Social Value Mapping Tool (which we developed jointly with Groundwork and Social Enterprise UK), helps us target and track our supply-chain spend, where we seek to predominantly use local suppliers. The Social Value Mapping Tool combines publicly available data on employment levels, demographics, health, crime, education and poverty with our operational data on contracts, people and procurement, which has helped us target our activity to address the needs of specific regions to best effect.

 

During the year we spent roughly half of our total supply-chain costs with companies local to our construction projects, with 81 per cent of these orders placed with small and medium-sized enterprises. We are also working with our major suppliers to standardise the materials procured through our existing supply-chain partners to help us further influence outcomes related to carbon use, waste reduction (we, ourselves, cut UK construction waste by 30.8 per cent during the year), the use of recycled content and ethical sourcing - issues which are increasingly important to our clients.

 

We showcased our ability to design and build high-tech, innovative projects during the year through the high-energy proton beam cancer therapy facility for the Christie NHS Foundation Trust in Manchester. Having worked closely with Christie - a long-standing client - from the project's inception to develop this groundbreaking project, we expect to complete our work in 2018. We also completed work on the UK's first fully reconfigurable research and assembly plant. Factory 2050, which is part of the University of Sheffield's Advanced Manufacturing Research Centre, can be easily altered to switch between different tasks and reconfigured for future changes of use.

 

Digital modelling of our construction projects is increasingly important both in terms of assuring design and building processes and also in predicting 'cost in use' of a building over its life. We have been developing our capability in this respect for some time and are the first among our peers to be certified as Building Information Modelling (BIM) Level 2 compliant under the BRE Global Business Systems Certification Scheme, reinforcing our commitment to achieving faster delivery, lower costs, reduced risk, enhanced sustainability and an improved whole-life performance of buildings for our clients.

 

International

International Construction continued to gain momentum in improving, albeit highly competitive, markets stimulated by development plans such as Qatar's 'Vision 2030', the UAE's plans for Expo 2020 and the ongoing need for infrastructure development to keep pace with rapid population growth in the region.

 

Contribution to Operating Profit in our associate businesses rose by 20 per cent to £13.0 million (2014: £10.8 million), driven by a strong increase in volume, albeit at slightly lower margins of 4.3 per cent (2014: 4.7 per cent). Future workload remained stable at £0.3 billion (2014: £0.3 billion).

 

Key contract wins included work for the Dubai International Convention and Exhibition Centre to expand the city's World Trade Centre; a new residential community on the Palm Jumeirah Island and an executive jet terminal at Al Maktoum International Airport for Dubai Aviation City Corporation. We also successfully completed one of our most technically challenging projects, the £110 million extension of Dubai's Mall of the Emirates, which involved the construction of 36,000 square metres of new premium shopping, entertainment and dining space above the existing live mall. The extension, which was completed with no disruption to trading in the stores below, opened on schedule towards the end of the year.

 

In Qatar we won contracts to undertake civil engineering and building work on 14 sub-stations for Siemens as well as work on the expansion of the Doha West sewage treatment plant for the Marubeni Corporation and on a water pumping station for a desalination plant for the Toya Thai Corporation.

 

In Oman, contract wins included work on a new power plant for SEPCO; the extension of a desalination plant for Osmoflo and office fit-out work for BP.

 

As the Middle East market matures, Interserve remains committed to driving standards forward, particularly in the training and development of our people. We achieved a number of significant advances in terms of improving the skills and employability of the local workforce in 2015, safeguarding workers' rights and addressing the environmental and cost challenges of resource use in the region, all of which are closely aligned with our SustainAbilities agenda.

 

For example, our recently-opened training centre in Dubai, which runs a full trades training curriculum taught by Construction Industry Training Board qualified tutors, delivered over 65,000 training days in 2015.

 

Other highlights in the year included winning the Emirates Green Building Council award for introducing 'Bionest' technology, which allows waste water to be re-used, into the Middle East market. We also installed a further 22 Bionest plants at sites across the region.

 

Equipment Services

 

Equipment Services operates globally, designing, hiring and selling formwork and falsework solutions for use in infrastructure and building projects. Our activities have a broad geographic spread, the mix of which can change quickly, hence we manage our equipment fleet globally, combining our scale and expertise with agility and responsiveness to meet customers' needs and safeguard our operational efficiency.

 

Results summary 2015 2014 Change

Revenue

£211.0m

£195.5m

+8%

Contribution to Total Operating Profit

£41.9m

£26.6m

+58%

Margin

19.9%

13.6%

 

Performance in the period was excellent: volume growth (achieved over a number of recent years) continued, enabled by sustained investment in our fleet and an expansion in our geographical footprint, driving the margin in this operationally geared business up by 63 basis points and increasing profit by 58 per cent to £41.9 million (FY 2014: £26.6 million).

 

The operational gearing that comes with scale and market reach has been further enhanced through our focus on supply-chain management, fleet logistics and our pricing strategy. As such, the business is delivering sustainable margins in excess of our previously guided 'through-cycle' range.

 

We further extended our reach during the year, opening new branches in India and the United States but also downsized in weaker markets, such as Australia, relocating our fleet to exploit opportunities and keeping our cost base responsive to demand fluctuations.

 

We continued to see strong growth in the Middle East, especially in Qatar where a number of large-scale infrastructure projects are now underway, including the East West Highway project where we are supplying equipment on several bridge structures. Demand remained robust in the UAE, where work has been delivered on the Dubai Opera House, the Saadyatt Resort in Abu Dhabi and on the new Dubai-Abu Dhabi highway.

 

In Asia-Pacific, we delivered strong performances in Hong Kong and the Philippines, driven by increased investment in infrastructure projects, including the Kowloon Rail Terminus, the Hong Kong Macau Bridge and the Manila Bay Development. We performed well in New Zealand but demand in Australia remained muted following the conclusion in 2014 of a series of major mining-related projects.

 

The UK performed very strongly in increasingly confident construction markets, with work continuing on sizeable rail improvement projects in Reading and on the Stockley Viaduct project near Heathrow airport.

 

We showcased our innovation in helping our customers understand how our services and products add value to their construction project by applying augmented reality from the gaming industry to demonstrate how equipment will integrate with new or existing construction sites. The live 3D visualisations enable clients to view equipment solutions and zoom inside designs for construction projects. We also redeveloped our sales training programme - putting sustainability at its core - and re-launched it across the business. During the year we launched a new range of high specification ground-shoring products and have begun to penetrate this large new market segment in the UK.

 

Activity increased in North America, despite ongoing pricing pressures, with the opening of a new location in Seattle and the exploitation of our important strategic alliance on the West Coast with Webcor Builders. We continued to grow in Latin America winning work on a variety of projects including the extension to Tocumen Airport and the Hotel Concordia in Panama and the extension to the International terminal at Jose Maria Cordova Airport and a number infrastructure projects in Colombia.

 

Group Services

 

All central costs, including those related to our financing and central bidding activities, are disclosed within the Group Services segment. This segment now also includes Investments which was formerly reported separately. Following the disposal of the majority of our PFI portfolio it is no longer judged individually material.

 

Group Services' costs fell to £23.6 million (FY 2014: £24.4 million), due principally to a reduction in employment costs as long-term incentive payments were lower than previous years. This net reduction accommodated an increased investment in back-office capabilities, IT infrastructure, people development and communications. We anticipate this increased level of investment will continue in the medium term, as we continue to scale our support and assurance functions appropriately with the growth of our operational businesses. This investment is also reflected in an increased level of capital expenditure as we start the construction of a new Midlands hub into which we will consolidate many of our back-office activities.

 

PRINCIPAL RISKS AND UNCERTAINTIES

We operate in a business environment in which a number of risks and uncertainties exist. While it is not possible to eliminate these completely, the established risk-management and internal control procedures, which are regularly reviewed by the Group Risk Committee on behalf of the Board, are designed to manage their effects and thus contribute to the preservation and creation of value for the Group's shareholders as we pursue our business objectives.

 

The Group continues to be dependent on effective maintenance of its systems and controls. More information about how we manage risk can be found within the Corporate Governance Report. The table below details the principal risks and uncertainties which the Group addresses through its risk-management measures. The changes to these risks relative to the last bi-annual review undertaken by the Board in August 2015 are depicted in the column entitled "Risk Environment".

 

 

RISK

 

POTENTIAL IMPACT

 

MITIGATION AND MONITORING

 

BUSINESS, ECONOMIC AND POLITICAL ENVIRONMENT

 

Among the changes which could affect our business are:

 

· shifts in the economic climate both in the UK and internationally, including

changes in the oil and gas industry should the current low prices continue into the medium term;

 

· alterations in the UK government's policy with regard to employment costs, expenditure on improving public infrastructure, buildings, services and modes of service delivery and delays in or cancellation of the procurement of government-related projects;

 

· the imposition of unusually onerous contract conditions by major clients;

 

· changes in our competitors' behaviour;

 

· a deterioration in the profile of our counterparty risk; and

 

· civil unrest and/or shifts in the political climate in some of the regions in which we operate

 

any one or more of which might result in a failure to win new or sufficiently profitable contracts in our chosen markets or to complete contracts with sufficient profitability.

 

We seek to mitigate these risks by fostering long-term relationships with our clients and partners, our governmental/quasi-governmental medium-to-long-term revenue streams, the development of additional capabilities to meet anticipated demand in new growth areas, maintaining a flexible cost base, careful supply chain management and by operating in various regions of the world, including the Middle East as part of a global balanced portfolio, where we are able to transfer resources to maximum effect between the differing economies of that region.

 

We also have in place committed financing with long maturity dates.

 

We constantly monitor market conditions and assess our capabilities in comparison to those of our competitors. Whether we win, lose or retain a contract we analyse the reasons for our success or shortcomings and feed the information back at both tactical and strategic levels. We also constantly monitor our cost base and take action to ensure it is suitable given the prevailing market environment.

 

We constantly monitor and assess levels of political risk and have contingency plans to mitigate such risks.

 

We have also set ourselves the goals of delivering sustainability solutions to our clients, ensuring that we and our suppliers uphold the highest standards in equality, diversity, human rights and ethics, playing an active role in the communities in which we operate and placing sustainability at the heart of our business.

 

 

RISK

 

POTENTIAL IMPACT

 

MITIGATION AND MONITORING

 

IT SYSTEMS/ SECURITY

 

As IT systems become ever more integrated and the number of cyber attacks increases, there is an increasing need to:

 

· maintain data integrity;

 

· prevent loss of service; and

 

· meet contractual requirements which impose increased levels of data security.

 

We have and continue to invest in IT applications and infrastructure, bringing on board a high-quality team to implement our IT strategic roadmap and in the management of the cyber security risk.

 

 

 

 

RISK

 

POTENTIAL IMPACT

 

MITIGATION AND MONITORING

 

MAJOR CONTRACTS

 

As we focus on large-volume relationships with certain major clients for a significant part of our revenue, termination of one or more of the associated contracts would be likely to reduce our revenue and profit. In addition, the management of such contracts entails potential risks including mis-pricing, inaccurate specification, poor mobilisation of new contracts leading to non-delivery of promised cost or efficiency improvements, failure to appreciate risks being taken on, poor control of costs or of service delivery, sub-contractor performance and/or insolvency and failure to recover, in part or in full, payments due for work undertaken.

 

In PFI/PPP contracts, which can last for periods of around 30 years, there may be increases in costs, including wage inflation, beyond those anticipated or clients under financial pressure seeking to implement alternative interpretations of the contract in order to reduce payments.

 

Among our mitigation strategies are targeting work within, or complementary to, our existing competencies, engagement of experts to effectively deploy both business and cultural change requirements, the fostering of long-term relationships with clients, operating an authority matrix for the approval of large bids, monthly management reporting with key performance indicators at contract and business level, the use of monthly cost-value reconciliation, supply chain management and ensuring that periodic benchmarking and/or market testing are included in long-term contracts.

 

We monitor the risk on contractual counterparties to avoid over-dependency on any one customer or sub-contractor.

 

 

RISK

 

POTENTIAL IMPACT

 

MITIGATION AND MONITORING

 

OPERATING SYSTEM

 

We enjoy demonstrable success in working with third parties both through joint ventures and associated companies in the UK and abroad. This success results in a material proportion of our profits and cash flow being generated from businesses in which we do not have overall control. Any weakening of our strong relationships with these business partners could have an effect on our profits and cash flow.

 

We have a proven track record of developing and re-enforcing such relationships in a mutually beneficial way over a long period of time and our experience of this places us well to preserve existing relationships and create new ones as part of our business model. The measures taken to limit risk in this area include: board representation, shareholders' agreements, management secondments, local borrowings and rights of audit in addition to investing time in personal relationships.

 

 

RISK

 

POTENTIAL IMPACT

 

MITIGATION AND MONITORING

 

KEY PEOPLE

 

The success of our business is dependent on recruiting, retaining, developing, motivating and communicating with sufficient numbers of appropriately skilled, competent people of integrity at all levels of the organisation. This is particularly relevant during periods of rapid growth and expansion into new markets.

 

We have a Group-wide leadership programme designed to support the strategic aims of the Company. We have various incentive schemes and run a broad range of training courses for people at all stages in their careers. With active human resources management and Investors in People accreditation in many parts of the Group, we manage our people professionally and encourage them to develop and fulfil their maximum potential with the Group.

 

We have also set ourselves the goals of inspiring the next generation of professionals, measuring and recognising the value of people, society and the environment.

 

We are also committed to providing skills development and training to our current employees through work experience, graduate and apprenticeship schemes. We work with organisations such as the Social Market Foundation and the Skills Commission to lead the debate with the UK Government on training for the workforce of tomorrow.

 

We are very conscious of workers' rights issues in the Middle East and monitor evolving standards and costs of compliance very closely.

 

 

RISK

 

POTENTIAL IMPACT

 

MITIGATION AND MONITORING

 

HEALTH AND SAFETY REGIME

 

The nature of the businesses conducted by the Group involves exposure to health and safety risks for both employees and third parties. Management of these risks is critical to the success of the business and is implemented through the adoption and maintenance of rigorous operational and occupational health and safety procedures.

 

A commitment to safety forms part of our mission statement and the subject leads every Board meeting both at Group and divisional level. Each member of the Executive Board undertakes dedicated visits to look at health and safety measures in place at our operational sites and we have ongoing training and communication campaigns across the Group emphasising its importance.

 

Health and safety also has its own category in our reward and recognition scheme.

 

 

RISK

 

POTENTIAL IMPACT

 

MITIGATION AND MONITORING

 

FINANCIAL RISKS

 

We are subject to certain financial risks which are discussed in the Financial Review on page 17.

 

In particular, we carry out major projects which from time to time require substantial amounts of cash to finance working capital, capital expenditure and investment in certain development projects. Failure to manage working capital appropriately could result in us being unable to meet our trading requirements and ultimately to defaulting on our banking covenants.

 

We have policies in place to monitor the effective management of working capital, including the production of daily balances, weekly cash reports and forecasts together with monthly management reporting.

 

We have in place committed financing with long maturity dates.

 

 

 

Risk

 

Potential impact

 

Mitigation and monitoring

 

DAMAGE TO REPUTATION

 

Issues arising within contracts, from the management of our businesses or from the behaviour of our employees at all levels can have broader repercussions on the Group's reputation than simply their direct impact and may have an adverse impact upon the Group's "licence to operate".

 

This risk increases as we expand the range of front-line services being delivered some of which are high profile and/or politically sensitive.

 

 

Control procedures and checks governing the operation of our contracts and of our businesses, supported by business continuity plans are in place. With the expansion of our front-line services there is even more emphasis placed upon assessing reputational risk before entering into such contracts, having proper procedures in place to monitor performance, escalate issues and monitor our response, promoting a good understanding of our brand amongst stakeholders through timely, clear and consistent communications.

 

We have a clear set of core values which we strive to embed within our organisation and set ourselves the goals of creating a culture of innovation in sustainability and offering transparency to clients on public-sector projects.

 

 

 

Risk

 

Potential impact

 

Mitigation and monitoring

 

ENVIRONMENTAL CHANGE

 

Adverse weather events, travel disruption, long-term climate shifts, water stress and sea-level rises which could have uncertain implications for, our business and for many of our clients, who increasingly require us to help them address the impact of these issues on their activities.

 

We have in place business continuity plans for our own businesses and work closely with our clients in respect of their business continuity arrangements.

 

Our SustainAbilities Plan identifies a number of specific and challenging targets in areas of waste, emissions, recycling and water use. We have set ourselves the goals of being responsible for zero net loss in biodiversity, procuring products and services beyond best practice in environmental and social standards, becoming a water positive business, halving our absolute carbon emissions and those from our supply chain, helping our clients to increase their energy security, caring for the natural resources we use (including treating waste as a resource) and building resilience to environmental change in everything we do.

 

 

 

The Group continues to have no material exposure to currency risks. Whilst it does not trade in commodities, the Group does operate 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.

 

 

Financial review

 

Revenue and operating profit

 

For commentary on the operational results and highlights of the year please refer to the Operational Review section of the Strategic Report.

 

Net interest charge

 

The net interest charge for the year of £16.4 million can be analysed as follows:

 

£million

2015

2014

Net interest on Group debt

(16.7)

(11.3)

Pension finance credit

0.3

0.3

Group net interest charge

(16.4)

(11.0)

Higher interest on Group debt of £16.7 million (2014: £11.3 million) reflects higher average net debt levels in 2015 following the £250 million acquisition of Initial on 18 March 2014.

 

The IAS 19 pension surplus position results in a pension finance credit of £0.3 million (2014: £0.3 million credit).

 

Taxation

The tax charge for the year of £9.3 million represents an effective rate of 11.7 per cent on total Group profit before taxation. The factors underlying this effective rate are shown in the table below.

 

£million

2015

2014

Profit

Tax

Rate

Profit

Tax

Rate

Group companies

92.8

(15.7)

16.9%

89.7

(18.7)

20.8%

Joint ventures and associates *

22.6

-

0.0%

16.5

-

0.0%

Headline profit before tax

115.4

(15.7)

13.6%

106.2

(18.7)

17.6%

Amortisation of intangible assets

(31.1)

5.8

18.6%

(24.4)

4.5

18.4%

Other exceptional items

(4.8)

0.6

12.5%

(19.9)

2.2

11.1%

Profit before tax, tax charge & tax rate

79.5

(9.3)

11.7%

61.9

(12.0)

19.4%

* The Group's share of the post-tax results of joint ventures and associates is included in profit before tax in accordance with IFRS.

 

The Group companies' effective rate stands at 16.9 per cent, below the UK corporation tax rate of 20.0 per cent, due to the impact of profits in lower tax Middle East locations and the utilisation of prior year losses.

 

Tax credits arising on the amortisation of intangible assets and on other exceptional items have remained at broadly stable rates from 2014.

 

Dividend

 

The directors recommend a final dividend for the year of 16.4 pence, to bring the total for the year to 24.3 pence, an increase of 6 per cent over last year. This dividend is covered 2.8 times by Headline earnings per share.

 

 

Net debt and cash flow

 

Year end net debt stands at £308.8 million (2014: £268.9 million). This increase is analysed below:

 

£million

2015

2014

 

Operating profit before exceptional items and amortisation of intangible assets

109.2

100.6

 

Depreciation and amortisation

36.1

39.3

 

Net capital expenditure

(51.2)

(54.3)

 

Gain on disposal of property, plant and equipment

(12.9)

(12.2)

 

Other

0.5

3.4

 

Working capital movement

(53.5)

(53.3)

 

Dividends received from associates and joint ventures

13.6

17.8

 

Gross operating cash flow

41.8

41.3

Pension contributions in excess of the income statement charge

(16.1)

(18.2)

Interest and tax

(23.5)

(21.5)

Dividends paid

(34.7)

(34.4)

 

Investments (net)

(6.6)

(10.1)

 

Acquisitions (net)

-

(243.7)

 

Share issues

2.1

75.2

 

Other non-recurring

(2.9)

(18.9)

 

Increase in net debt

(39.9)

(230.3)

 

 

Year end net debt

(308.8)

(268.9)

 

 

Gross operating cashflow of £41.8 million (2014: £41.3 million) reflects our continuing investment in the growth of the business.

 

We have invested a further £51.2 million capital expenditure in 2015 (2014: £54.3 million) expanding our Equipment Services fleet and client-facing assets in UK Support Services, enhancing our IT, and back-office capabilities, and commencing the development and construction of our future Midlands hub.

 

Working capital investment continues with a £53.5 million outflow (2014: £53.3 million) reflecting the inevitable impact of the strong growth in the business during the year, as well as the impact of loss-making contracts and tight trading conditions in UK Construction, and continuing slow payment terms in the Middle East.

 

Increased levels of Middle Eastern profits generated have been partially offset by a reduction in the level of dividends received from the Middle East, where increasing activity levels are providing the opportunity to invest selectively in capex and working capital.

 

Investments outflow in the year of £6.6 million (2014: £10.1 million) continues to reflect investments in property development schemes, principally our mixed-use Haymarket project in Edinburgh.

 

 

Pensions

 

At 31 December 2015 the Group had an IAS 19 pension surplus of £17.2 million (2014: £4.8 million net deficit).

 

£million

2015

2014

Gross liabilities

(880.9)

(924.9)

Insurance buy-in asset

336.0

360.7

Defined benefit obligation net of insurance assets

(544.9)

(564.2)

Other assets

562.1

559.4

Total surplus / (deficit)

17.2

(4.8)

During the first half of 2015 we concluded negotiations on the triennial valuation of the Interserve Pension Scheme based on the position at 31 December 2014. Since the last time this exercise was carried out we have undertaken considerable efforts both to de-risk the liability position, notably via the 2014 insurance buy-in, and increase the asset strength of the Scheme, including the one-off contribution (in 2013) of £55 million of PFI assets. The impact of these actions is reflected in an IAS 19 pension asset of £17.2 million in our 2015 balance sheet and a much-reduced actuarial deficit of £64 million as at December 2014 (December 2011: £150 million deficit).

 

We have agreed with the Pension Scheme Trustees that the existing deficit recovery payments of £12 million per annum, indexed for inflation, will continue until the next triennial valuation, due in 2018 on the position as at December 2017.

 

Treasury risk management

 

We operate a centralised Treasury function whose primary role is to manage interest rate, liquidity and foreign exchange risks. The Treasury function is not a profit centre and it does not enter into speculative transactions. It aims to reduce financial risk by the use of hedging instruments, operating within a framework of policies and guidelines approved by the Board.

 

Liquidity risk

 

We seek to maintain sufficient facilities to ensure access to funding for our current and anticipated future requirements, determined from budgets and medium-term plans.

 

We have two main funding sources:

 

· a $350 million US private placement put in place following the 2014 acquisition of Initial. These loan instruments have a weighted average maturity of mid 2024; and

 

· committed revolving bank facilities totalling £300 million, which run until February 2019.

 

Our aggregate finance facilities therefore stand at circa £536 million with £300 million of this available until February 2019 and the remainder available, on average, until mid-2024.

 

Market price risk

 

The objectives of our interest rate policy are to match funding costs with operational revenue performance and to ensure that adequate interest cover is maintained, in line with Board-approved targets and banking covenants.

 

Our borrowings under the US private placement are denominated in US dollars and subject to fixed interest rates. These are fully hedged back into a sterling fixed rate with FX swaps lasting for the duration of the loan period.

 

Our other borrowings are principally denominated in sterling and mostly subject to floating rates of interest linked to LIBOR. We have in place interest rate caps and swaps which limit interest rate risk. The weighted average duration to maturity of these instruments is approximately two years and six months.

 

 

Foreign currency risk

 

Transactional currency translation

The revenues and costs of our trading entities are typically denominated in their functional currency. Where a material trade is transacted in a non-functional currency, the entity is required to take out instruments through the centralised Treasury function to offset the currency exposure. The instruments used will normally be forward currency contracts. The impact of retranslating any entity's non-functional currency balances into its functional currency was not material.

 

Consolidation currency translation

We do not hedge the impact of translating overseas entities' trading results or net assets into the consolidation currency.

 

The impact of changes in the year-end exchange rates, compared to the rates used in preparing the 2014 consolidated financial statements, has led to an increase in consolidated net assets of £7.4 million (2014: £12.8 million increase).

 

Going concern

 

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report and Governance sections. Our financial position, cash flows, liquidity position and borrowing facilities and details of financial risk management are described above.

 

The majority of our revenue is derived from long-term contracts, which provides a strong future workload and good forward revenue visibility. We have access to committed debt facilities totalling £536 million until a range of dates that extend to at least February 2019. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully.

 

After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, representing, at least, a period of twelve months from the date of this report. For this reason, they consider it appropriate to continue to adopt the going concern basis in preparing the financial statements.

 

Viability Statement

 

The directors have assessed the viability of the Group over a three-year period to December 2018, taking account of the Group's current position and the potential impact of the principal risks documented in the Strategic Report. The choice of a three-year period accords with the strategic planning horizon considered in the Group's planning process. Based on this assessment, over the period assessed, the directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities.

 

In making this statement the directors have considered the resilience of the Group, taking account of its current position, the principal risks facing the business in severe but reasonable scenarios, and the effectiveness of any mitigating actions. This assessment has considered the potential impacts of these risks on the business model, future performance, solvency and liquidity over the period. The presence and effectiveness of internal audit and other review processes has also been assessed; these are discussed in more detail within the Governance section of the 2015 Annual Report.

 

The directors have determined that the three-year period to December 2018 is an appropriate period over which to provide the viability statement. In making this assessment the directors have taken account of a number of factors including:

 

· the Group's strong financial position with £536 million of bank facilities, with the earliest expiration not until February 2019;

· potential mitigation to any cash outflows including possible restrictions on dividends and capex;

· the diversified nature of the Group's client base;

· the long-term secured nature of the Group's work with £4.6 billion of work already secured in the order book until the end of 2018; and

· the Group's commitment to a long-term and balanced approach to doing business, as exemplified by our SustainAbilities agenda and our business plan.

 

 

 

The Strategic Report, comprising the 'Our Strategy', 'Operations at a Glance', 'Our Business Model', 'Where We Operate', 'Protecting our Business', 'Performance', 'Operational Review', 'Our People', 'Principal Risks and Uncertainties' and 'Financial Review' sections, was approved by the Board of Directors on 24 February 2016 and signed on its behalf by:

 

 

 

A M Ringrose T P Haywood

Director Director

 

 

 

Consolidated income statement

For the year ended 31 December 2015

 

 

Year ended 31 December 2015

Year ended 31 December 2014

Before exceptional items and amortisation of acquired intangible assets

Exceptional items and amortisation of acquired intangible assets

Total

Before exceptional items and amortisation of acquired intangible assets

Exceptional items and amortisation of acquired intangible assets

Total

Notes

£million

£million

£million

£million

£million

£million

Continuing operations

Revenue including share of associates and joint ventures

3,628.9

-

3,628.9

3,305.3

-

3,305.3

Less: Share of associates and joint ventures

(424.3)

-

(424.3)

(392.3)

-

(392.3)

Consolidated revenue

3

3,204.6

-

3,204.6

2,913.0

-

2,913.0

Cost of sales

(2,781.9)

-

(2,781.9)

(2,583.7)

-

(2,583.7)

Gross profit

422.7

-

422.7

329.3

-

329.3

Administration expenses

(313.5)

-

(313.5)

(228.7)

-

(228.7)

Amortisation of acquired intangible assets

-

(31.0)

(31.0)

-

(24.4)

(24.4)

Exceptional items

4

-

(4.8)

(4.8)

-

(19.8)

(19.8)

Total administration expenses

(313.5)

(35.8)

(349.3)

(228.7)

(44.2)

(272.9)

Operating profit

109.2

(35.8)

73.4

100.6

(44.2)

56.4

Share of result of associates and joint ventures

22.6

-

22.6

16.6

-

16.6

Amortisation of acquired intangible assets

-

(0.1)

(0.1)

-

(0.1)

(0.1)

Total share of result of associates and joint ventures

22.6

(0.1)

22.5

16.6

(0.1)

16.5

Total operating profit

131.8

(35.9)

95.9

117.2

(44.3)

72.9

Investment revenue

5

4.7

-

4.7

5.0

-

5.0

Finance costs

6

(21.1)

-

(21.1)

(16.0)

-

(16.0)

Profit before tax

115.4

(35.9)

79.5

106.2

(44.3)

61.9

Tax (charge)/credit

7

(15.7)

6.4

(9.3)

(18.7)

6.7

(12.0)

Profit for the year

99.7

(29.5)

70.2

87.5

(37.6)

49.9

Attributable to:

Equity holders of the parent

98.4

(29.5)

68.9

83.0

(37.6)

45.4

Non - controlling interests

1.3

-

1.3

4.5

-

4.5

99.7

(29.5)

70.2

87.5

(37.6)

49.9

Earnings per share

9

Basic

47.5p

32.2p

Diluted

47.2p

31.7p

 

Consolidated statement of comprehensive income

For the year ended 31 December 2015

 

Notes

Year ended 31

December 2015

Year ended 31

December 2014 #

£million

£million

Profit for the year

70.2

49.9

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

Actuarial gains/(losses) on defined benefit pension schemes

5.6

(15.7)

Deferred tax on above items taken directly to equity

7

(1.1)

3.1

4.5

(12.6)

Items that may be reclassified subsequently to profit or loss:

Exchange differences on translation of foreign operations

7.4

12.8

Gains on cash flow hedging instruments (excluding joint ventures)

19.8

5.6

Recycling of cash flow hedge reserve to profit and loss account

(10.8)

(18.1)

Deferred tax on above items taken directly to equity

7

(1.8)

0.5

Net impact of items relating to joint-venture entities

(9.1)

11.6

5.5

12.4

Other comprehensive income net of tax

10.0

(0.2)

Total comprehensive income

80.2

49.7

Attributable to:

Equity holders of the parent

78.8

45.1

Non-controlling interests

1.4

4.6

80.2

49.7

 

# - restated (note 15)

Consolidated balance sheet

At 31 December 2015

 

31 December 2015

31 December 2014 #

31 December 2013

Notes

£million

£million

£million

Non-current assets

Goodwill

428.6

427.1

248.0

Other intangible assets

91.6

117.3

38.6

Property, plant and equipment

218.1

194.7

155.9

Interests in joint-venture entities

40.9

42.7

20.6

Interests in associated undertakings

91.0

77.2

73.9

Retirement benefit surplus

11

17.2

-

-

Deferred tax asset

1.3

1.7

21.0

888.7

860.7

558.0

Current assets

Inventories

40.1

48.6

30.7

Trade and other receivables

774.9

679.4

486.1

Derivative financial instruments

25.1

5.3

-

Cash and deposits

86.1

82.1

79.7

926.2

815.4

596.5

Total assets

1,814.9

1,676.1

1,154.5

Current liabilities

Borrowings

(15.5)

(5.5)

(27.4)

Trade and other payables

(788.0)

(754.0)

(592.3)

Current tax liabilities

(6.1)

(1.0)

(5.3)

Short-term provisions

(27.4)

(35.7)

(18.1)

(837.0)

(796.2)

(643.1)

Net current assets/(liabilities)

89.2

19.2

(46.6)

Non-current liabilities

Borrowings

(406.1)

(362.8)

(90.0)

Trade and other payables

(15.9)

(14.8)

(13.5)

Long-term provisions

(43.3)

(33.5)

(29.9)

Retirement benefit obligation

11

-

(4.8)

(7.7)

(465.3)

(415.9)

(141.1)

Total liabilities

(1,302.3)

(1,212.1)

(784.2)

Net assets

512.6

464.0

370.3

Equity

Share capital

12

14.5

14.4

12.9

Share premium account

116.5

115.3

115.0

Capital redemption reserve

0.1

0.1

0.1

Merger reserve

121.4

121.4

49.0

Hedging and revaluation reserve

2.0

3.9

2.4

Translation reserve

42.3

35.0

22.3

Investment in own shares

(1.5)

(3.0)

(2.9)

Retained earnings

205.2

165.3

161.6

Equity attributable to equity holders of the parent

500.5

452.4

360.4

Non-controlling interests

12.1

11.6

9.9

Total equity

512.6

464.0

370.3

 

# - restated (note 15)

Consolidated statement of changes in equity

Share capital

Share premium

Capital redemption reserve

Merger reserve (1)

Hedging and revaluation reserve (2)

Translation reserve

Investment in own shares (3)

Retained earnings

Attributable to equity holders of the parent

Non-

controlling interests

Total

£million

£million

£million

£million

£million

£million

£million

£million

£million

£million

£million

Balance at 1 January 2014

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 year

-

-

-

-

-

-

-

45.4

45.4

4.5

49.9

Other comprehensive income

-

-

-

-

17.1

12.7

-

(14.5)

15.3

0.1

15.4

Total comprehensive income

-

-

-

-

17.1

12.7

-

30.9

60.7

4.6

65.3

Dividends paid

-

-

-

-

-

-

-

(31.5)

(31.5)

(2.9)

(34.4)

Shares issued

1.5

0.3

-

72.4

-

-

-

-

74.2

-

74.2

Purchase of Company shares

-

-

-

-

-

-

(1.3)

-

(1.3)

-

(1.3)

Company shares used to settle share-based payment obligations

-

-

-

-

-

-

1.2

(0.1)

1.1

-

1.1

Share-based payments

-

-

-

-

-

-

-

4.4

4.4

-

4.4

Transactions with owners

1.5

0.3

-

72.4

-

-

(0.1)

(27.2)

46.9

(2.9)

44.0

Balance at 31 December 2014 (as previously stated)

14.4

115.3

0.1

121.4

19.5

35.0

(3.0)

165.3

468.0

11.6

479.6

Other comprehensive income restatements (note 15)

-

-

-

-

(15.6)

-

-

-

(15.6)

-

(15.6)

Balance at 31 December 2014 (restated)

14.4

115.3

0.1

121.4

3.9

35.0

(3.0)

165.3

452.4

11.6

464.0

Profit for the year

-

-

-

-

-

-

-

68.9

68.9

1.3

70.2

Other comprehensive income

-

-

-

-

(1.9)

7.3

-

4.5

9.9

0.1

10.0

Total comprehensive income

-

-

-

-

(1.9)

7.3

-

73.4

78.8

1.4

80.2

Dividends paid

-

-

-

-

-

-

-

(33.7)

(33.7)

(1.0)

(34.7)

Shares issued

0.1

1.2

-

-

-

-

-

-

1.3

-

1.3

Acquisition

-

-

-

-

-

-

-

-

-

0.1

0.1

Company shares used to settle share-based payment obligations

-

-

-

-

-

-

1.5

(0.6)

0.9

-

0.9

Share-based payments

-

-

-

-

-

-

-

0.8

0.8

-

0.8

Transactions with owners

0.1

1.2

-

-

-

-

1.5

(33.5)

(30.7)

(0.9)

(31.6)

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

(1) 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 the acquisition of Initial Facilities in 2014.

 

(2) The hedging and revaluation reserve includes £18.2 million relating to the revaluation of available for sale financial assets within the joint ventures (2014: £27.6 million).

 

(3) 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 number of shares held at 31 December 2015 was 494,748 (2014: 860,484), with the market value of these shares at 31 December 2015 being £2.6 million (2014: £4.8 million).

Consolidated cash flow statement

For the year ended 31 December 2015

Year ended 31 December 2015

Year ended 31 December 2014

Notes

£million

£million

Operating activities

Total operating profit

95.9

72.9

Adjustments for:

Amortisation of acquired intangible assets

31.0

24.4

Amortisation of capitalised software development

1.3

3.7

Depreciation of property, plant and equipment

34.8

35.6

Other non-cash exceptional items

1.8

1.4

Pension payments in excess of the income statement charge

(16.1)

(18.2)

Share of results of associates and joint ventures

(22.5)

(16.5)

Charge relating to share-based payments

0.5

3.4

Gain on disposal of plant and equipment - hire fleet

(12.7)

(12.1)

Gain on disposal of plant and equipment - other

(0.2)

(0.1)

Operating cash flows before movements in working capital

113.8

94.5

(Increase)/decrease in inventories

8.8

(13.4)

(Increase)/decrease in receivables

(97.9)

(73.6)

Increase/(decrease) in payables

35.6

33.7

Cash generated by operations before changes in hire fleet

60.3

41.2

Capital expenditure - hire fleet

(37.5)

(47.0)

Proceeds on disposal of plant and equipment - hire fleet

15.9

16.7

Cash generated by operations

38.7

10.9

Taxes paid

(6.8)

(10.2)

Net cash from operating activities

31.9

0.7

Investing activities

Interest received

4.4

4.7

Dividends received from associates and joint ventures

13.6

17.8

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

1.6

0.9

Capital expenditure - non-hire fleet

(31.2)

(24.9)

Purchase of business

-

(243.7)

Investment in joint-venture entities

(6.7)

(10.4)

Receipt of loan repayment - Investments

0.1

0.3

Net cash used in investing activities

(18.2)

(255.3)

Financing activities

Interest paid

(21.1)

(16.0)

Dividends paid to equity shareholders

8

(33.7)

(31.5)

Dividends paid to non-controlling interests

(1.0)

(2.9)

Proceeds from issue of shares and exercise of share options

2.1

75.2

Purchase of own shares

-

(1.3)

Proceeds from US private placement

-

207.2

Increase in bank loans

32.5

47.5

Movement in obligations under finance leases

1.4

(0.1)

Net cash from financing activities

(19.8)

278.1

Net increase/(decrease) in cash and cash equivalents

(6.1)

23.5

Cash and cash equivalents at beginning of period

76.6

52.3

Effect of foreign exchange rate changes

0.1

0.8

Cash and cash equivalents at end of period

70.6

76.6

Cash and cash equivalents comprise

Cash and deposits

86.1

82.1

Bank overdrafts

(15.5)

(5.5)

70.6

76.6

Reconciliation of net cash flow to movement in net debt

Net increase/(decrease) in cash and cash equivalents

(6.1)

23.5

Proceeds from US private placement

-

(207.2)

Increase in bank loans

(32.5)

(47.5)

Movement in obligations under finance leases

(1.4)

0.1

Change in net debt resulting from cash flows

(40.0)

(231.1)

Effect of foreign exchange rate changes

0.1

0.8

Movement in net debt during the period

(39.9)

(230.3)

Net cash/(debt) - opening

(268.9)

(38.6)

Net cash/(debt) - closing

(308.8)

(268.9)

 

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2015

 

1. General information

 

Interserve Plc (the Company) is a company incorporated in the United Kingdom. The financial information in this announcement, which was approved by the Board of Directors on 24 February 2016, does not constitute the Company's statutory financial statements for the years ended 31 December 2015 or 2014 but is derived from these accounts.

 

Statutory accounts for 2014 have been delivered to the Registrar of Companies and those for 2015 will be delivered following the Company's annual general meeting. The auditors have reported on these accounts; their reports were unqualified and did not contain statements under section 498(2), (3) or (4) of the Companies Act 2006. The Company expects to publish its statutory accounts that comply by the end of March 2016.

 

2. Accounting policies

 

These financial statements have been prepared on a historical cost basis, except for the revaluation of certain financial instruments.

 

The annual financial statements have been prepared on a going concern basis in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation and with those parts of the Companies Act 2006 that are applicable to companies reporting under IFRS. 

 

The accounting policies and methods of computation followed in these financial statements are consistent with those as published in the Group's Annual Report and Financial Statements for the year ended 31 December 2014 which are available on the Company's website at www.interserve.com. In addition, the accounting policies used are consistent with those that the directors have used in the Annual Report and Financial Statements for the year ending 31 December 2015.

 

3. Business and geographical 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 those relating to managing our PFI investments and central bidding activities, are shown in "Group Services".

 

 

 

 

 

 

 

 

 

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2015

 

Business segments

 

Revenue including share of associates and joint ventures

Consolidated revenue

Result

2015

2014

2015

2014

2015

2014

£million

£million

£million

£million

£million

£million

Support Services - UK

1,881.5

1,786.0

1,834.4

1,679.9

92.2

81.4

Support Services - International

224.3

157.2

170.4

117.5

8.2

7.4

Support Services

2,105.8

1,943.2

2,004.8

1,797.4

100.4

88.8

Construction - UK

1,040.8

970.7

1,040.8

970.7

0.1

15.4

Construction - International

279.0

207.9

-

-

13.0

10.8

Construction

1,319.8

1,178.6

1,040.8

970.7

13.1

26.2

Equipment Services

211.0

195.5

211.0

195.5

41.9

26.6

Group Services

53.9

46.7

9.6

8.1

(23.6)

(24.4)

Inter-segment elimination

(61.6)

(58.7)

(61.6)

(58.7)

-

-

3,628.9

3,305.3

3,204.6

2,913.0

131.8

117.2

Amortisation of acquired intangible assets

(31.1)

(24.5)

Exceptional items (note 4)

(4.8)

(19.8)

Total operating profit

95.9

72.9

Investment revenue

4.7

5.0

Finance costs

(21.1)

(16.0)

Profit before tax

79.5

61.9

Tax

(9.3)

(12.0)

Profit for the year

70.2

49.9

 

 

 

Segment assets

Segment liabilities

Net assets/ (liabilities)

2015

2014 #

2015

2014 #

2015

2014 #

£million

£million

£million

£million

£million

£million

Support Services - UK

402.0

392.0

(344.2)

(360.4)

57.8

31.6

Support Services - International

112.1

89.2

(57.1)

(26.6)

55.0

62.6

Support Services

514.1

481.2

(401.3)

(387.0)

112.8

94.2

Construction - UK

266.1

214.7

(318.7)

(321.9)

(52.6)

(107.2)

Construction - International

62.1

50.8

-

-

62.1

50.8

Construction

328.2

265.5

(318.7)

(321.9)

9.5

(56.4)

Equipment Services

262.3

237.4

(48.2)

(47.3)

214.1

190.1

1,104.6

984.1

(768.2)

(756.2)

336.4

227.9

Group Services, goodwill and acquired intangible assets

609.0

601.5

(136.1)

(108.1)

472.9

493.4

1,713.6

1,585.6

(904.3)

(864.3)

809.3

721.3

Net debt

(308.8)

(268.9)

Net assets (excluding non-controlling interests)

500.5

452.4

 

# - restated (note 15)

 

Notes to the Consolidated Financial Statements - continued

For year ended 31 December 2015

 

Depreciation and amortisation

Additions to property, plant and equipment and intangible assets

 

2015

2014

2015

2014

£million

£million

£million

£million

Support Services - UK

12.0

13.4

15.7

21.9

Support Services - International

3.7

3.0

3.9

3.8

Support Services

15.7

16.4

19.6

25.7

Construction - UK

2.6

2.3

3.6

2.1

Construction - International

-

-

-

-

Construction

2.6

2.3

3.6

2.1

Equipment Services

17.2

20.0

36.0

42.5

35.5

38.7

59.2

70.3

Group Services

31.7

25.1

9.4

1.6

67.2

63.8

68.6

71.9

 

Notes to the Consolidated Financial Statements - continued

For the year ended 31 December 2015

 

Geographical segments

 

The Support Services and Construction divisions are located in the United Kingdom and 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

Consolidated

Total operating

and joint ventures

Revenue

profit

2015

2014

2015

2014

2015

2014

£million

£million

£million

£million

£million

£million

United Kingdom

2,897.5

2,741.0

2,850.4

2,634.9

97.9

98.8

Rest of Europe

49.4

42.5

49.4

42.5

(0.1)

(0.3)

Middle East and Africa

612.1

454.1

279.2

206.5

46.1

32.1

Australasia

24.1

31.4

24.1

31.4

3.8

5.7

Far East

24.7

21.3

24.7

21.3

8.5

5.8

Americas

28.8

27.0

28.8

27.0

(0.8)

(0.5)

Group Services

53.9

46.7

9.6

8.1

(23.6)

(24.4)

Inter-segment elimination

(61.6)

(58.7)

(61.6)

(58.7)

-

-

3,628.9

3,305.3

3,204.6

2,913.0

131.8

117.2

Amortisation of acquired intangible assets

(31.1)

(24.5)

Exceptional items (note 4)

(4.8)

(19.8)

95.9

72.9

 

 

Non-current assets

2015

2014 #

£million

£million

United Kingdom

108.7

103.2

Rest of Europe

3.5

4.0

Middle East and Africa

177.4

152.6

Australasia

13.4

15.7

Far East

12.7

12.1

Americas

26.4

24.5

Group Services, goodwill and acquired intangible assets

528.1

546.9

870.2

859.0

Retirement benefit surplus

17.2

-

Deferred tax asset

1.3

1.7

888.7

860.7

 

# - restated (note 15)

 

 

 

 

 

 

Notes to the Consolidated Financial Statements - continued

For the year ended 31 December 2015

 

4. Exceptional items

 

 

2015

2014

£million

£million

Transaction costs on acquisitions

(0.2)

(8.2)

Integration costs on acquisitions

(2.8)

(10.2)

Earnout arrangements on the acquisition of Paragon Management UK Ltd

(1.8)

(1.4)

Exceptional items

(4.8)

(19.8)

 

The earnout arrangement in respect of Paragon Management UK Ltd is accounted for as remuneration for post-combination services in accordance with the requirements of IFRS 3, as continued employment of the participants is a condition of the arrangement.

 

Tax credits of £0.6 million (2014: £2.2 million) have been recognised on the exceptional integration costs on acquisitions noted above. No tax credits have been recognised on transactions costs or earnout arrangements.

 

5. Investment revenue

 

2015

2014

£million

£million

Bank interest

3.1

3.3

Interest income from joint-venture investments

1.2

0.8

Net return on defined benefit pension assets (note 11)

0.3

0.3

Other interest

0.1

0.6

4.7

5.0

 

6. Finance costs

 

2015

2014

£million

£million

Bank loans and overdrafts

(21.1)

(16.0)

(21.1)

(16.0)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to the Consolidated Financial Statements - continued

For the year ended 31 December 2015

 

7. Tax

 

2015

2014

£million

£million

Current tax - UK

7.0

2.8

Current tax - overseas

5.9

4.3

Deferred tax

(3.6)

4.9

Tax charge for the year A

9.3

12.0

 

Tax charge before prior period adjustments

9.4

11.9

Prior period adjustments -charges/(credits)

(0.1)

0.1

A

9.3

12.0

 

Profit before tax

Subsidiary undertakings' profit before tax B

57.2

53.6

Non tax-deductible transaction costs

(0.2)

(8.2)

Group share of profit after tax of associates and joint ventures

22.5

16.5

79.5

61.9

Effective tax, excluding one-offs, on subsidiary profits before tax (A/B)

16.3%

22.4%

 

UK corporation tax is calculated at 20.25 per cent (2014: 21.5 per cent) of the estimated taxable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

 

The total charge for the year can be reconciled to the profit per the income statement as follows:

 

2015

2014

 

£million

%

£million

%

Profit before tax

79.5

61.9

Tax at the UK income tax rate of 20.25% (2014: 21.5%)

16.1

20.2%

13.3

21.5%

Tax effect of expenses not deductible in determining taxable profit

0.5

0.6%

1.5

2.4%

Non-taxable exceptional items

0.4

0.5%

2.8

4.5%

Tax effect of share of results of associates

(3.2)

(4.0%)

(3.0)

(4.8%)

Effect of overseas tax rates and unrelieved losses

(4.4)

(5.5%)

(2.7)

(4.4%)

Prior period adjustments

(0.1)

(0.1%)

0.1

0.2%

Tax charge and effective tax rate for the year

9.3

11.7%

12.0

19.4%

 

In addition to the income tax charged to the income statement, the following deferred tax charges/(credits) have been recorded directly to equity in the year:

 

2015

2014 #

£million

£million

Tax on actuarial losses/gains on pension liability

1.1

(3.1)

Tax on movements in cash flow hedging instruments

4.0

1.1

Tax on exchange movements on hedged financial instruments

(2.2)

(3.6)

Tax on the intrinsic value of share-based payments

0.9

2.0

Total

3.8

(3.6)

 

# - restated (note 15)

 

 

 

 

 

 

 

 

 

Notes to the Consolidated Financial Statements - continued

For the year ended 31 December 2015

 

8. Dividends

 

Dividend per share

2015

2014

Pence

£million

£million

Final dividend for the year ended 31 December 2013

14.7

-

20.8

Interim dividend for the year ended 31 December 2014

7.5

-

10.7

Final dividend for the year ended 31 December 2014

15.5

22.2

-

Interim dividend for the year ended 31 December 2015

7.9

11.5

-

Amount recognised as distribution to equity holders in the period

33.7

31.5

Proposed final dividend for the year ended 31 December 2015

16.4

23.8

 

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

 

9. Earnings per share

 

Calculation of earnings per share is based on the following data:

 

2015

2014

£million

£million

Earnings

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

68.9

45.4

Adjustments:

Exceptional items

4.8

19.8

Amortisation of acquired intangible assets

31.1

24.5

Tax effect of above adjustments

(6.4)

(6.7)

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

98.4

83.0

Number of shares

2015

2014

Number

Number

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

144,936,757

141,136,892

Effect of dilutive potential ordinary shares:

Share options and awards

942,442

2,109,620

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

145,879,199

143,246,512

Earnings per share

2015

2014

Pence

Pence

Basic earnings per share

47.5

32.2

Diluted basic earnings per share

47.2

31.7

Headline earnings per share

67.9

58.8

Diluted headline earnings per share

67.5

57.9

 

Notes to the Consolidated Financial Statements - continued

For the year ended 31 December 2015

 

10. Acquisitions

2014 acquisitions of Initial Facilities and esg

During 2014, the Group acquired Initial Facilities and esg, and the fair value of the assets acquired were provisionally assessed at that time and reported in the 2014 Annual Report. Since the year end, these provisional assessments have been updated by £25.7 million to reflect: the fair value of property, plant and equipment (£0.6 million); the reassessment of the level of acquired intangible assets (£5.8 million) and associated deferred taxation (-£1.2 million); and the impact of loss making contracts on which constructive and legal obligations existed at the time of the acquisitions of Initial Facilities and esg respectively (£20.5 million). These updates have been reflected in the comparative balance sheet at December 2014, in accordance with IFRS 3.

 

Initial Facilities

esg

Total

Assets acquired

£million

£million

£million

Property, plant and equipment

6.6

2.6

9.2

Intangible assets

87.8

13.3

101.1

Cash balances

25.3

4.5

29.8

Inventories

3.3

-

3.3

Trade and other receivables

107.7

5.2

112.9

Trade and other payables

(96.8)

(13.5)

(110.3)

Other liabilities

(22.6)

(11.9)

(34.5)

Deferred tax

(15.6)

(2.4)

(18.0)

Net assets

95.7

(2.2)

93.5

Goodwill

150.0

27.9

177.9

Consideration

245.7

25.7

271.4

Net cash outflow on acquisition

220.4

21.2

241.6

 

A further £2.1 million of cash was paid in 2014 relating to the 2013 acquisition of Adyard.

 

 

 

 

Notes to the Consolidated Financial Statements - continued

For the year ended 31 December 2015

 

11. Retirement benefit schemes

 

The following table sets out the key IAS 19 assumptions used to assess the present value of the defined benefit obligation.

 

2015

2014

2013

Significant actuarial assumptions

Retail price inflation

3.10% pa

3.10% pa

3.40% pa

Discount rate

3.80% pa

3.60% pa

4.50% pa

Post-retirement mortality (life expectancy in years)

Male currently aged 65

87.6

87.5

87.4

Female currently aged 65

89.4

89.5

89.4

Male aged 65 in 20 years' time

89.3

89.3

89.2

Female aged 65 in 20 years' time

90.9

90.1

90.9

Other related actuarial assumptions

Consumer price index

2.10% pa

2.10% pa

2.40% pa

Pension increases in payment:

LPI/RPI

3.00%/3.10%

3.00%/3.10%

3.30%/3.40%

Fixed 5%

5.00% pa

5.00% pa

5.00% pa

3% or RPI if higher (capped at 5%)

3.60% pa

3.60% pa

3.70% pa

General salary increases

2.60% pa

2.10 - 2.60% 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:

 

2015

2014

2013

£million

£million

£million

Present value of defined benefit obligation

880.9

924.9

826.9

Fair value of schemes' assets

(898.1)

(920.1)

(819.2)

(Asset)/liability recognised in the balance sheet

(17.2)

4.8

7.7

 

The amounts recognised in the income statement are as follows:

 

2015

2014

£million

 

£million

 

Employer's part of current service cost

7.2

8.0

Administration costs

1.9

1.6

Bulk transfer

-

(0.1)

Losses/(gains) on settlements

(1.1)

-

Net interest expense

(0.3)

(0.3)

Total expense recognised in the income statement

7.7

9.2

 

The current service cost and administration costs are included within operating profit. The interest cost is included within financing costs.

 

 

 

 

 

 

Notes to the Consolidated Financial Statements - continued

For the year ended 31 December 2015

 

12. Share capital

Shares

Share capital

thousands

£million

As at 1 January 2014

129,053.7

12.9

Equity placing

12,897.8

1.3

Share awards issued in 2014

1,966.1

0.2

At 31 December 2014

143,917.6

14.4

Share awards issued in 2015

1,289.9

0.1

At 31 December 2015

145,207.5

14.5

 

13. Related parties

 

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. During the period, Group companies entered into the following transactions with related parties who are not members of the Group:

 

Sales of goods

Purchases of goods

Amounts due from

Amounts owed

and services

and services

related parties

to related parties

2015

2014

2015

2014

2015

2014

2015

2014

£million

£million

£million

£million

£million

£million

£million

£million

Joint-venture entities

120.7

2.5

-

-

3.7

0.4

-

-

Associates

47.8

137.6

1.1

0.8

12.0

21.2

0.7

0.5

 

Sales and purchases of goods and services to related parties were made on normal trading terms.

 

The amounts outstanding shown in the above table are unsecured and will be settled in cash. No guarantees have been given or received on these amounts. No provisions have been made for doubtful debts in respect of the amounts owed by related parties.

 

14. Contingent liabilities

 

The Company and its subsidiaries are, from time to time, parties to legal proceedings and claims which arise in the ordinary course of business. Appropriate provision has been made in these accounts for all material uninsured liabilities resulting from proceedings that are, in the opinion of the directors, likely to materialise.

 

The Company and certain subsidiary undertakings have, in the normal course of business, given performance guarantees and provided indemnities to third parties in relation to performance bonds and other contract related guarantees. These relate to the Group's own contracts and to the Group's share of the contractual obligations of certain joint ventures and associated undertakings. The Group acts as guarantor for the following:

 

Maximum guarantee

Amounts utilised

2015

2014

2015

2014

£million

£million

£million

£million

Joint venture and associates

Borrowings

14.9

16.2

-

0.6

Bonds and guarantees

224.3

205.1

132.8

115.9

239.2

221.3

132.8

116.5

 

Notes to the Consolidated Financial Statements - continued

For the year ended 31 December 2015

 

15. Restatement of comparatives

 

i. During the measurement period a number of updates to provisional assessments of fair value of net assets acquired during 2014 in the acquisition of Initial Facilities and esg were made and have been reflected in the comparative balance sheet at December 2014 in accordance with IFRS 3 (see note 10).

 

ii. During 2015 it was identified that balances owed under the US Private Placement loan notes had been incorrectly translated at 31 December 2014 and deferred taxation had not been recognised on the gain on cash flow hedging instruments. The comparatives for 2014 have been restated to correct this. The effect of this restatement on those financial statements is to increase statutory borrowings by £18.1 million, increase deferred taxation assets by £2.5 million and reduce other comprehensive income by £15.6 million, primarily as a result of recycling the cash flow hedge reserve to the profit and loss account to match the foreign exchange impact of retranslation of the loan notes. There is no impact on the income statement or the reported net debt.

 

 

16. Reconciliation of non-statutory measures

 

The Group uses a number of non-statutory measures to monitor the performance of its business. This note reconciles these measures to individual lines in the financial statements.

 

(a) Headline pre-tax profit

2015

2014

2013

£million

£million

£million

Profit before tax

79.5

61.9

68.1

Adjusted for:

Amortisation of acquired intangible assets

31.0

24.4

8.8

Share of associates amortisation of acquired intangible assets

0.1

0.1

0.1

Exceptional items

4.8

19.8

4.1

Headline pre-tax profit

115.4

106.2

81.1

 

(b) Operating cash flow

2015

2014

2013

£million

£million

£million

Cash generated by operations

38.7

10.9

43.2

Adjusted for:

Pension contributions in excess of income statement charge

16.1

18.2

18.5

Exceptional items cash impact

3.0

18.4

2.1

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

1.6

0.9

0.2

Capital expenditure - non-hire fleet

(31.2)

(24.9)

(22.1)

Operating cash flow

28.2

23.5

41.9

 

(c) Free cash flow

2015

2014

2013

£million

£million

£million

Operating cash flow

28.2

23.5

41.9

Adjusted for:

Pension contributions in excess of income statement charge

(16.1)

(18.2)

(18.5)

Taxes paid

(6.8)

(10.2)

(5.7)

Dividends received from associates and joint ventures

13.6

17.8

13.7

Interest received

4.4

4.7

3.5

Interest paid

(21.1)

(16.0)

(7.8)

Effect of foreign exchange rate change

0.1

0.8

(1.0)

Free cash flow

2.3

2.4

26.1

 

 

 

 

 

Notes to the Consolidated Financial Statements - continued

For the year ended 31 December 2015

 

(d) Operating cash conversion

 

2015

 

2014

 

2013

£million

£million

£million

Operating cash flow

28.2

23.5

41.9

Operating profit, before exceptional items and amortisation of acquired intangible items

109.2

100.6

69.4

Full-year operating cash conversion

25.8%

23.4%

60.4%

Three-year rolling operating cash flow

93.6

123.0

163.6

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

279.2

223.0

165.8

Operating cash conversion, three-year rolling average

33.5%

55.2%

98.7%

 

(e) Gross operating cash conversion

2015

2014

2013

£million

£million

£million

Operating cash flow

28.2

23.5

41.9

Dividends received from associates and joint ventures

13.6

17.8

13.7

Gross operating cash flow

41.8

41.3

55.6

Operating profit before exceptional items and amortisation of acquired intangible assets

109.2

100.6

69.4

Share of results of associates and joint ventures, before exceptional items and amortisation of acquired intangible assets

22.6

16.6

17.3

Total operating profit before exceptional items and amortisation of acquired intangible assets

131.8

117.2

86.7

Full-year gross operating cash conversion

31.7%

35.2%

64.1%

Three-year gross operating cash flow

138.7

174.3

217.7

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

335.7

282.3

236.4

Gross operating cash conversion, three-year rolling average

41.3%

61.7%

92.1%

 

 

(f) Gross revenue

2015

2014

2013

£million

£million

£million

Consolidated revenue

3,204.6

2,913.0

2,192.6

Share of revenues of associates and joint ventures

424.3

392.3

389.3

Gross revenue

3,628.9

3,305.3

2,581.9

 

(g) Operating margins

2015

2014

2013

£million

£million

£million

Total operating profit before exceptional items and amortisation of acquired intangible assets

131.8

117.2

86.7

Gross revenue

3,628.9

3,305.3

2,581.9

Total operating margin

3.6%

3.5%

3.4%

 

 

 

 

 

 

 

Non-statutory accounts

 

The information in this annual results announcement does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006 (the "Act"). The statutory accounts for the year ended 31 December 2015 will be delivered to the Registrar of Companies in England and Wales in accordance with section 441 of the Act. The auditor has reported on those accounts. Its report was unqualified and did not contain a statement under section 498(2), (3) or (4) of the Act.

 

Annual report

 

The Company's annual report and accounts for the year ended 31 December 2015 is expected to be posted to shareholders by the end of March 2016. Copies of both this announcement and the annual report and accounts will be available to the public at the Company's registered office at Interserve House, Ruscombe Park, Twyford, Reading, Berkshire RG10 9JU and through the Company's website at www.interserve.com.

 

Cautionary statement

 

Statements made in these Annual Financial Results ("Results") reflect the knowledge and information available at the time of their preparation. The Results contain forward-looking statements in respect of the Group's operations, performance, prospects and financial condition. By their nature, these statements involve uncertainty. In particular, outcomes often differ from plans or expectations expressed through forward-looking statements and such differences may be significant. Assurance cannot be given that any particular expectation will be met. No responsibility is accepted to update or revise any forward-looking statement resulting from new information, future events or otherwise. Liability arising from anything in the Results shall be governed by English Law. Nothing in the Results should be construed as a profit forecast.

 

Responsibility statement of the directors in respect of the annual results announcement

 

The Annual Report contains the following statements regarding responsibility for the financial statements and Directors' Report included in the annual report:

 

"The directors confirm that, to the best of their knowledge:

 

a) the parent company and Group financial statements in this Annual Report, which have been prepared in accordance with UK GAAP, including the requirements of FRS 101 Reduced Disclosure Framework and IFRS, respectively, give a true and fair view of the assets, liabilities, financial position and profit of the parent company and of the Group taken as a whole; 

(b) the management report required by paragraph 4.1.8 R of the FCA's Disclosure and Transparency Rules (contained in the Strategic Report and the Directors' Report) includes a fair review of the development and performance of the business and the position of the parent company and the Group taken as a whole, together with a description of the principal risks and uncertainties that they face; and

c) the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's position and performance, business model and strategy."

 

 

 

By order of the Board

 

 

 

A M Ringrose T P Haywood

Chief Executive Group Finance Director

 

24 February 2016

- END -

 

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