Interserve Regulatory News (IRV)

News Release

14 August 2013

Half-Year Results for the six months to 30 June 2013

Strong performance and good growth prospects

Interserve, the international support services and construction group, announces its half-year results for the six months ended 30 June 2013.

Highlights

· Record Group revenues of more than £1 billion (+8.6%) in mixed market conditions.

· Over £1.5 billion of new contracts, increasing future workload to £6.7 billion (FY 2012: £6.3 billion).

· Key contract wins with both new and existing clients including three NHS Trusts in and around Leicester, East Thames Group, the Royal Navy, Magnox, Jaguar Land Rover, the Haymarket development in Edinburgh, the Lusail Tower in Qatar and the Emirates Engine Maintenance Centre in Dubai.

· Acquisition integrations proceeding well, opening up additional opportunities with new and existing clients.

· Strong balance sheet with the capacity to support future growth.

Chief Executive Adrian Ringrose commented:

"We have delivered record revenues and further improved our overall margin in the face of a challenging operating environment based, in particular, on a strong performance in our UK Support Services division. Although performance in International Construction was mixed, we reported strong results within our Equipment Services division, a leading indicator of future construction demand as market conditions begin to improve. We also continued to deliver a resilient performance in UK Construction.

"Strategically, we have made significant progress during the period, successfully structuring and integrating further acquisitions, expanding our service offering and footprint in the oil and gas sector, the interior fit-out market and the delivery of key front-line services.

"Our financial position remains strong which, together with our growing future workload, underpins the Board's confidence in our ability to deliver our medium-term strategy, reiterating guidance for 2013 and increasing the interim dividend to 6.8 pence."

- Ends -

For further information please contact:

Matt Hickman, Investor Relations Manager 0118 960 2280

Robin O'Kelly, Director of Communications 0118 960 0123

Steffan Williams/Ian Brown/Michael Kinirons, Capital MSL 0207 307 5334

About Interserve

Interserve's vision is to redefine the future for people and places. It is one of the world's foremost support services and construction companies, operating in the public and private sectors in the UK and internationally, offering advice, design, construction, equipment, facilities management and front-line services. Interserve is based in the UK and is listed in the FTSE 250 index. The Group employs some 50,000 people worldwide and in 2012 generated gross revenue of £2.4 billion.

www.interserve.com

Notes

* This news release and the Interim Management Report include a number of non-statutory measures, to reflect the impact of non-trading and non-recurring items. See note 15 to the condensed consolidated financial statements on page 35 for a reconciliation of these measures to their statutory equivalents.

Interim management report

Chairman's statement

The business performed well in the first half of 2013, delivering revenue and profit growth despite mixed market conditions. In line with our strategy, we have extended our market reach by adapting our offer and making targeted acquisitions, whilst also continuing to develop and deepen existing client relationships. The continuing increase in our future workload gives us confidence that the longer-term drivers in our business remain strong.

In the UK, we have continued to grow both the scale and the breadth of our support services operations through new client relationships with the NHS in Leicestershire and Rutland, Dixons Group and Meggitt, as well as successfully extending existing contracts with the Defence Infrastructure Organisation, the Home Office and the Department for Work and Pensions. We have also successfully integrated our newly-acquired healthcare business (Advantage Healthcare) which is performing well. 

The changing demographics of the population, together with the pressing need for significant investment in energy, transport and environmental infrastructure will continue to be important drivers of construction demand. We believe that we are well-placed to help Government tackle these issues. At the same time we are also successfully growing our private-sector client base, exemplified by contracts secured in the period to build Jaguar Land Rover's engine manufacturing plant in Wolverhampton and our joint-venture agreement to re-develop the Haymarket site in Edinburgh.

Internationally, we continue to make steady progress in developing our facilities management business in the Middle East and have substantially increased our oil and gas services capability, with an acquisition in Oman and a further one announced in the UAE. Combined with our existing oil and gas services business in Qatar, we are developing a significant pan-regional network in this growth sector and are progressively broadening the range of services we offer in this important region.

Whilst our Middle East construction businesses continue to experience challenging market conditions, we are well-placed to take advantage of an improving outlook. Early signs of this are starting to emerge in the UAE, with Equipment Services also now seeing early-cycle demand in Qatar. Elsewhere, this division is beginning to see stronger demand in both North and South America and the Far East, offset by the Australian market which is receding from the peaks experienced in the last few years.

We recognise that, as a major employer and service provider, we have an important social role linked to our commercial success. In March we launched SustainAbilities, our strategy for managing our impact on the communities we serve, on wider society and on the environment. This plan, in which we have set ourselves various objectives and targets through to 2020, is already shaping our day-to-day operations - demonstrating thought leadership and differentiating our offering. For example, our commitment to the development of skills and training of our people has led us to enter into partnership with Leicester College. Having successfully mobilised our major contract for three NHS trusts in Leicestershire and Rutland, we are now providing learning opportunities for up to 2,000 of our people working on the local NHS estate.

We are committed to the fundamental importance of the health and safety of our workforce and others affected by our operations. I am delighted that we have again been recognised by the Royal Society for the Prevention of Accidents (RoSPA) at its annual awards, winning some eight gold medals, 17 gold awards, four silver awards and receiving a prestigious President's Award. Our focus on health and safety applies to all our businesses across the world. Madina, our Qatari oil and gas services business, achieved a remarkable milestone in March, completing 25 million man hours without any Lost Time Injuries.

The Group retains a strong financial position driven by cash conversion, low levels of average net debt, a much-reduced pension deficit and backed by substantial banking facilities. We are confident in our capacity to build on our growth momentum in the medium term both through organic expansion - for example, funding the increasing levels of capital expenditure fuelled by demand growth in Equipment Services and in our newly-acquired oil and gas services businesses - and through selective acquisitions.

Board responsibilities

Following the retirements of David Trapnell and David Paterson from the Board, I am delighted that Les Cullen has now taken up the role of Senior Independent Director and has been succeeded in turn by Anne Fahy as Chairman of the Audit Committee. Amongst the Executive Directors, Dougie Sutherland now has responsibility for UK Construction, with International Construction reporting directly to Adrian Ringrose.

Dividend

Reflecting our current earnings growth and continued confidence in the outlook, the Board has approved a further increase in the dividend of 6.3 per cent to 6.8 pence per share (half-year 2012: 6.4 pence per share) which will be paid on 23 October 2013 to shareholders on the register at the close of business on 20 September 2013.

Lord Blackwell

Chairman

14 August 2013

Business review

Segmental review

Support Services

Our Support Services business focuses on the management and delivery of a broad range of outsourced services to both public and private-sector clients in the UK and internationally. Increasingly, we provide front-line services in the areas of welfare and healthcare-at-home in the UK and are expanding our services to the oil and gas industry internationally.

* Including share of associates of £17.8 million (H1 2012: £15.5 million).

** Operating margin for our International business is calculated on an operating profit comprising post-tax profit of £2.4 million (H1 2012: £1.6 million) plus interest and tax of £0.2 million (H1 2012: £0.1 million).

Support Services UK performed strongly, achieving revenue growth of 4.4 per cent. The operating margin increased to 4.2 per cent (H1 2012: 3.4 per cent) reflecting the developing service mix and benefits derived from improved operational efficiencies and investment in the scalability of our support infrastructure.

Organic profit growth (+7 per cent) came from our focus on extending existing relationships, together with major contract wins in the nuclear, defence, healthcare, central and local government sectors. The balance of our growth came from our recent acquisitions in the welfare and healthcare sectors. Contribution to Total Operating Profit at £25.3 million was 29 per cent greater than H1 2012 (£19.6 million).

Future workload for the division increased to £5.4 billion at the half year (FY 2012: £5.2 billion).

Approximately two-thirds of divisional revenue comes from the public sector and the balance from the private sector. Major clients include the Ministry of Defence, Magnox, DEFRA, NHS, the Foreign and Commonwealth Office, Scottish Power, East Thames Group, Sainsbury's, Carphone Warehouse and Alliance Boots.

We continue to work with our clients to help them effect change and improve efficiency in their business models. We set out innovative solutions to meet their challenges through service reconfiguration, productivity improvement, investment in skills and technology and our ability to innovate and to apply our knowledge of best practice across a breadth of sectors and industries.

Increasingly, our offering includes front-line services most, notably in the areas of healthcare-at-home and welfare-to-work. We also continue to invest in other public service sectors such as justice and rehabilitation, where we see the potential for significant revenue growth in the medium term.

Highlights in the period included:

· Successfully mobilising our seven-year contract, valued up to £700 million, to provide estate management, rationalisation and modernisation for three NHS Trusts in and around Leicester.

· Commencing our repairs and maintenance service for East Thames Group's 13,500 households through a seven-year contract.

· Further development of our Defence business through a new contract to provide FM and back-office services at five Royal Navy shore establishments in the South West of England.

· Work-winning success with clients including Magnox, Meggitt, Alder Hey Children's NHS Foundation Trust, London Borough of Lambeth and the London Borough of Southwark.

· Contract extensions with clients including HM Revenues & Customs and the Home Office.

Support Services International grew strongly, due to the contribution of the newly-acquired TOCO operations. Revenues (including share of associates) increased to £40.6 million (H1 2012: £15.5 million) with contribution to Total Operating Profit increasing by 50 per cent to £2.4 million (H1 2012: £1.6 million). Future workload increased to £159 million at the half year (FY 2012: £51 million).

Our principal focus is on the Middle East oil and gas industry where we deliver project management, operational services (such as rig-moving), fabrication, maintenance, turnaround services and training in Qatar and Oman. We see strong growth potential in this segment, which is an area of focus for acquisitive growth.

In January we acquired The Oman Construction Company (TOCO), which specialises in oilfield maintenance and logistics services. TOCO is being successfully integrated into the Group and we are investing in the business's prime operational assets as well as in IT and business process improvements.

Since the acquisition completed, TOCO has delivered strong work-winning, adding contracts valued at circa. £34 million to its work. In July we announced our agreement to acquire Topaz Oil and Gas Limited (Topaz) in the UAE providing fabrication, construction and on and off-shore maintenance and rig repair services from Abu Dhabi and Fujairah. These acquisitions will together provide the Group with additional capabilities and a pan-regional presence as we look to expand our customer base in this service line.

Our FM business in the Middle East has performed well in the period, providing hard and soft facilities management services to many building types, including schools, military establishments, commercial premises, leisure and residential properties in the UAE, Qatar and Oman.

Highlights in the period included:

· TOCO was awarded an oilfield services contract worth circa. £30 million over three years for a major oil and gas company to construct and maintain pipelines, flow-lines and well-heads in Northern Oman.

· TOCO also received a one-year extension to its contract worth £4.4 million to provide materials handling and logistics for a major oil and gas operating company in Oman.

· Madina won a long-term turnaround main mechanical services contract at Shell Pearl GTL Qatar in addition to three existing long-term contracts, including construction, maintenance and training.

· Khansaheb secured contracts for the provision of facilities management services to Habib Bank in Dubai and estate management at Monte Carlo Beach Club in Abu Dhabi, Dubai.

Construction

Our businesses provide advice, design, construction and fit-out services for buildings and infrastructure in the UK and across international markets. Our focus is on forming mutually-beneficial, long-term relationships delivering repeat business through commercial structures such as framework agreements and PFI projects.

* Defined in note 6 to the unaudited condensed financial statements on page 29 as Group share of profit after tax.

** Operating margin is based on operating profit of £4.6 million (H1 2012: £7.4 million) as defined in note 6 to the unaudited condensed financial statements on page 29.

UK Construction performed strongly, delivering both revenue and profit growth against the backdrop of continued subdued market conditions. Revenue, boosted by significant activity for private-sector customers such as Jaguar Land Rover, was 5.8 per cent ahead of the equivalent period in 2012, with margins maintained at the top end of our medium-term expectations at 1.9 per cent. Future workload remained stable at £0.95 billion (FY 2012: £0.94 billion).

Approximately two-thirds of our revenue is derived from framework agreements and/or repeat business relationships. We continue to source our activity from a broad range of our traditional sectors (health, education, utilities) and in the current challenging market conditions we have also made further progress in diversifying our revenue sources and exploring new segments and products.

We have developed a significant new revenue stream in the construction of energy from waste (EfW) plants. In addition to the major EfW scheme in Glasgow (secured in 2012) where all consents have now been achieved and pre-construction work is underway, our joint venture with Babcock & Wilcox Vølund A/S was appointed to undertake the design, procurement and construction of an EfW plant in Peterborough, with a contract value to Interserve of £15 million.

We have combined our construction and project investment skills to secure a sizeable development opportunity in the Haymarket area of Edinburgh (announced in April), through which we will undertake circa. £150 million of construction works and invest an initial £10.5 million of equity.

In May we acquired Paragon Management, a specialist fit-out and refurbishment business, extending our capabilities in London and the South East. Since acquisition, Paragon has already secured £6 million worth of business from HM Courts and Tribunal Service framework agreement.

The division remains at the forefront of utilising and adopting industry innovations including the construction of Passivhaus energy efficiency standard buildings in both the private and public sectors, the use of BIM (Building Information Modelling) and applying PodSolve modular construction techniques in industrial settings.

Highlights in the period included:

· Education: completions of Leeds East Academy (for E-Act, the first PodSolve designed school in the UK), University of Edinburgh main library, Oldbury Academy in the West Midlands, Sutton Academy, Rainford High Technology College and De La Salle School (all in St Helens). New awards also came from Middlesbrough College and Portsmouth Charter Academy.

· Health: completions of Frome Medical Centre (including installation of the UK's first automated pharmaceutical dispensing system), Kettering General Hospital, Langdon Hospital in Dawlish and new awards under the Procure21+ and other frameworks including Mid Cheshire Hospitals NHS Foundation Trust and Hywel Dda Health Board.

· Defence: completion of Parker VC military personnel rehabilitation centre at HMS Drake in Plymouth.

· Industry: extending our relationship with Jaguar Land Rover for the construction of its i54 Engine Manufacturing Plan in Wolverhampton.

· Infrastructure: new awards from Viridor, United Utilities, South West Water Services, South East Water, Affinity Water, Cornwall County Council and the Highways Agency.

Construction International continued to experience subdued market conditions overall, resulting as expected in reduced performance compared with the same period last year, albeit our future workload remained stable at £0.2 billion. 

Whilst continuing with our cost-management focus in the face of these near-term challenges, we continue to believe that the Middle East offers significant potential and we are now starting to see emerging evidence of an upturn in activity in some parts of the region, as reflected by early cycle activity for our Equipment Services business.

The construction upturn is most noticeable in the UAE where we are winning work through new developments in the commercial and leisure sectors, together with the recommencement of developments that had previously been moth-balled. We expect this increase in activity to drive headcount growth of 1,000 (from approximately 5,400).

Qatar, which was our biggest market in the region, has the potential to be so again as activity ramps up to meet the country's significant development plans. Slow progress in contract awards has hampered market activity generally; however, recent progress in this regard with significant civil engineering contracts for primary infrastructure investment (in rail and roads) is an encouraging leading indicator for the building work on which our businesses focus. 

In Oman we continue to compete for a steady stream of infrastructure projects (in ports and roads) and hope to benefit both in this segment and in Support Services from increasing levels of investment in the oilfields.

During the period we have maintained our capacity, continued to focus on cost-efficiency and have undertaken a number of organisational changes. At the same time we have also continued to introduce and adapt innovative and attractive technologies such as our Bionest product which provides a cost-effective and environmentally attractive solution to waste-water recycling - one of the region's major challenges.

In 2010 we made a measured entry into the Indian construction market through a joint venture with Srinivasa Shipping and Property Development Limited (SSPDL). In the intervening period, progress has been difficult as the market has not developed as we had hoped and, after a period of challenging trading conditions, we have taken the decision to exit this venture. As a consequence, we are writing-off our investment in this business, resulting in an exceptional, non-cash charge of £5.0 million.

Highlights in the period included:

· Qatar: a contract for the construction of the 26-floor Lusail Tower and installation of a desalination plant at the Ras Abu Fontas power and water station.

· UAE: contracts for the Office of HM Crown Prince of Dubai (leisure), EMAAR Boulevard (restaurants), Majid Al-Futtaim (retail), Chalhoub Group (retail), Government of Fujairah (roads) and Dubai Festival Club (retail). In addition, we were awarded a contract from General Electric International to construct the new GE Emirates Engine Maintenance Centre in Dubai, won contracts to carry-out extensive fit-out works to the Four Seasons Hotel, part of Bright Start Beach Resort, along with road and infrastructure work for Meraas.

· Oman: work completed for Daewoo Engineering and Construction on the Sur Independent Power Project, including civil engineering works on the construction of the largest seawater intake structure in the Sultanate.

Equipment Services

Our Equipment Services business operates globally, designing, hiring and selling formwork and falsework solutions for infrastructure and building projects. The RMD Kwikform brand is known for innovative products and strong design engineering capability.

The division showed strong overall progress, growing revenues across a variety of market conditions. The operating margin grew 190 basis points compared with the same period in 2012 as pricing strengthened and operating efficiency further improved through ongoing fleet logistics management. As expected, net capital expenditure started to rise during the period as we increased investment in new fleet to meet growing demand.

We continued to increase our reach in emerging and growth markets through new or expanded capabilities in the Philippines, Singapore, Colombia, South Africa, Iraq and the USA. In addition, we supplied projects in new geographies such as Mozambique and Kurdistan.

We performed well in the Middle East, benefitting from strong demand in the Kingdom of Saudi Arabia and early signs of upturn in Qatar (in relation to the infrastructure projects referred to in International Construction).

Demand weakened somewhat in Australia (from historically high levels) as a number of significant natural resource projects were delayed. Elsewhere in the Asia-Pacific region demand remained stable. Market conditions in the UK and Europe remained challenging, although we continue to benefit from the restructuring action taken in earlier periods.

We continue to invest in new product development to update our equipment fleet. An example of this is our recently launched Ascent system, a guided climbing formwork and screen product for casting and encapsulating tall building cores, which is being used on the construction of a new 160,000m2 'super' casino at the NEC in Birmingham, UK.

Highlights in the period included:

· Formwork and falsework on the largest constructed coal bunker in South Africa with a storage capacity of 45,000 tonnes at the Grootegeluk mine situated 300km north-west of Johannesburg. 

· Our heavy-duty Megashor shoring system is being used by Nass Contracting to support the construction of Bahrain's largest-ever precast section flyover, known as the Isa Gate Flyover, spanning 1.8km.

· Sale and hire of equipment for use on the construction of a network of bridges in The Kingdom of Saudi Arabia, linking Jubail to the new industrial city of Ras Al Kahair.

· Self-climbing wall formwork system, Tru-lift, used on the 100 metre tall air- traffic control tower at the new Muscat International Airport in Oman, the largest construction project ever undertaken in the Sultanate.

· The use of RMD Kwikform's Ascent safety screen on the construction of a new 25-storey residential tower block in Canada Water, London.

Investments

This division of the Group undertakes transaction structuring and management of PFI activities. Results in respect of PFI activities are summarised below.

As a result of realising £174 million of value from the disposal in late 2012 and early 2013 of the majority of our PFI assets, we continue to explore new opportunities in public/private finance, such as the Priority Schools Building Programme. Additionally, we are seeking to explore innovative project finance opportunities in the UK such as the Haymarket development (see section on UK Construction) and a number of similar opportunities in the Middle East.

Highlights in the period included:

· Completion of the disposal of PFI assets into the Interserve Pension Scheme, thereby reducing the Group's pension deficit and resulting in an exceptional profit of £3.6 million in the period.

· Financial close achieved on Alder Hey Children's NHS Foundation Trust.

· Phase One of the Help for Heroes accommodation on the Armada PFI contract in Plymouth completed and successfully integrated into our existing contract.

· St Helens Building Schools for the Future project is now fully operational.

Group Services

All central costs, including those related to our financing and central bidding activities, are disclosed within the Group Services segment. Group Services' costs in H1 2013 were £10.5 million (H1 2012: £10.4 million).

Key performance indicators (KPIs)

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

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

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

1. Future workload comprises forward orders and pipeline. Forward orders are those for which we have secured contracts in place and pipeline covers contracts for which we are in bilateral negotiations and on which final terms are being agreed. We include our share of work to be undertaken by our international associates.

2. See note 15 on page 35 for a definition of operating cash conversion.

3. Staff turnover measures the proportion of managerial, technical and office-based staff leaving voluntarily over the course of the period. The figures for January-June have been doubled to give an annual equivalent.

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

5. 2010 base: 377.

Outlook

We reiterate our full-year guidance for further progress in 2013, driven by revenue and margin growth in Support Services and Equipment Services, stable performance in UK Construction and the successful integration of our recent acquisitions, off-setting slightly weaker performance in International Construction.

Whilst we anticipate ongoing challenging market conditions for International Construction in the near term, a generally improving outlook in most segments, our revenue momentum and growing future workload, underpinned by our robust financial position, reinforce the Board's confidence in our ability to deliver our medium-term strategy.

Principal risks and uncertainties

The principal risks and uncertainties which could have a material impact upon the Group's performance, together with the mitigation strategies adopted, have been reviewed and have not changed significantly from those set out on pages 22 and 23 of the Business Review included in the Group's 2012 Annual Report and Financial Statements.

These risks and uncertainties arise from:

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

· The termination or unsatisfactory execution of major contracts.

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

· Failure to recruit or retain key people.

· Failure to manage health and safety adequately.

· The financial risks discussed in the Financial Review on pages 29 to 30 of the Group's 2012 Annual Report and Financial Statements.

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

· Climate change.

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

Auditor

Deloitte LLP has been the Group's auditor for a number of years. In line with guidance from the Financial Reporting Council and the Competition Commission, it is our intention that a tender process be undertaken to select our auditor from 2014.

Responsibility statement

A list of current directors and their functions is maintained on the Group website: www.interserve.com.

The directors confirm to the best of their knowledge:

a) the condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union

b) the interim management report includes a fair review of the important events during the first six months and description of the principal risks and uncertainties for the remaining six months of the year, as required by DTR 4.2.7R of the Disclosure and Transparency Rules of the Financial Conduct Authority (DTR); and

c) the interim management report includes a fair review of the information required by DTR 4.2.8R.

By order of the Board

Adrian Ringrose Tim Haywood

Chief Executive Group Finance Director

14 August 2013

Independent Review Report to Interserve Plc

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flow and related notes 1 to 16. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

14 August 2013

Unaudited condensed consolidated income statement

For the six months ended 30 June 2013

Unaudited condensed consolidated statement of comprehensive income

For the six months ended 30 June 2013

Unaudited condensed consolidated balance sheet

At 30 June 2013

Unaudited condensed consolidated statement of changes in equity

For the six months ended 30 June 2013

The £49.0 million merger reserve represents £16.4 million premium on the shares issued on the acquisition of Robert M. Douglas Holdings Plc in 1991 and £32.6 million premium on the shares issued on the acquisition of MacLellan Group Plc in 2006.

The investment in own shares reserve represents the cost of shares in Interserve Plc held by the trustees of the How Group, Bandt and Interserve Employee Benefit Trusts. The market value of these shares at 30 June 2013 was £5.8 million (£2.5 million at 31 December 2012 and £4.0 million at 30 June 2012).

The accumulated balance of translation differences, incorporated within the hedging and translation reserve above, amounts to £43.5 million at 30 June 2013 (£35.2 million at 31 December 2012 and £41.4 million at 30 June 2012).

Unaudited condensed consolidated statement of cash flows

For the six months ended 30 June 2013

Notes to the unaudited interim financial statements

For six months ended 30 June 2013

1. General information

Interserve Plc (the Company) is a company incorporated in the United Kingdom. The half-year results and condensed consolidated financial statements for the six months ended 30 June 2013 (the interim financial statements) comprise the results of the Company and its subsidiaries (together referred to as the Group) and the Group's interest in joint ventures and associates.

The directors have considered the Group's financial position with reference to latest forecasts and the actual performance for the half-year period. Whilst the current economic environment continues to be uncertain, the directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future, being a period of at least 12 months from the date of signing of the interim statements, noting in particular that: the majority of the Group's revenue is derived from long-term contracts; the Group had visibility of £1.3 billion of work scheduled for 2014 at the balance sheet date; and the Group has access to committed debt facilities totalling £225 million and €25 million until at least 2015. Accordingly, the Group continues to adopt the going concern basis in preparing the interim financial statements.

A copy of the statutory accounts for the year ended 31 December 2012 has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain statements made under sections 498(2) or (3) of the Companies Act 2006.

The interim financial statements for the six months ended 30 June 2013 have been reviewed by Deloitte LLP but have not been audited (see page 16).

2. Accounting policies and principal risks

The interim financial statements have been prepared in accordance with IAS 34 Interim financial reporting, the recognition and measurement criteria of International Financial Reporting Standards (IFRSs) as adopted by the European Union and the disclosure requirements of the Listing Rules. The financial information set out in this interim report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The interim financial statements do not include all information required for full annual financial statements and should be read in conjunction with the Annual Report and Financial Statements for the year ended 31 December 2012.

Other than the adoption of the new standards mentioned below, the accounting policies and methods of computation followed in the interim financial statements are consistent with those published in the Group's Annual Report and Financial Statements for the year ended 31 December 2012 and which are available on the Group's website at www.interserve.com.

In addition, these accounting policies used are consistent with those that the directors intend to use in the Annual Report and Financial Statements for the year ending 31 December 2013. Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual earnings.

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

Amendments to IA S1 Presentation of financial statements

The amendments to IAS1 titled Presentation of Items of Other Comprehensive Income have increased the required level of disclosure within the statement of comprehensive income, by separating items that will not be reclassified subsequently to profit or loss from those that could be reclassified. The presentation of items of other comprehensive income has been restated. There is no impact on profit or loss and total comprehensive income.

IAS 19 (revised) Employee benefits

The key impact of IAS 19 (revised) is the removal of the separate assumptions for expected return on plan assets and discounting of scheme liabilities, replacing them with one single discount rate for the net deficit.

These interim financial statements are the first in which the Group has adopted IAS 19 (revised), which has been applied retrospectively. As the Group has always recognised actuarial gains and losses immediately, there is no effect on prior periods' defined benefit obligation and balance sheet disclosure. For the six months ended 30 June 2013, the consolidated income statement is £2.6 million lower and the statement of comprehensive income is £2.6 million higher than it would have been prior to the adoption of IAS 19 (revised). For the six months ended 30 June 2012, the consolidated income statement is £1.2 million lower and the statement of comprehensive income is £1.2 million higher than it would have been prior to the adoption of IAS 19 (revised), and for the year ended 31 December 2012, the consolidated income statement is £2.5 million lower and the statement of comprehensive income is £2.5 million higher than it would have been prior to the adoption of IAS 19 (revised).

IFRS 7 (amended) Financial instruments: disclosures

IFRS 13 Fair value measurement

The adoption of IFRS 7 (amended) and IFRS 13 has resulted in increased disclosure in the interim accounts of financial assets and liabilities measured at fair value (see note 10).

IAS 12 (amended) Deferred tax: recovery of underlying assets

IFRS 1 (amended) First-time Adoption of International Financial Reporting Standards - Government Loans

These do not materially impact the Group.

At the date of authorisation of these interim financial statements the following standards and interpretations were in issue but not yet effective, and therefore have not been applied in these interim financial statements:

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

Except for IFRS 9 above, the directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group.

In the directors' view, there have been no changes to the principal risks and uncertainties facing the Group from those described on pages 22 to 23 of the Group's Annual Report and Financial Statements for the year ended 31 December 2012. The directors expect that the Group's profits will continue to be weighted to the second half.

3. Business and geographical segments

(a) Business segments

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

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

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

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

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

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

(b) Geographical segments

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

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