Interserve Regulatory News (IRV)

News Release

6 August 2014

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

Strong performance and good strategic progress

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

Highlights

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

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

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

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

· Acquired businesses performing well and integrations on track

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

Chief Executive Adrian Ringrose commented:

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

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

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

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

- Ends -

For further information please contact:

Rhys Jones/Robin O'Kelly 0118 960 0123

Interserve

Richard Campbell/Michael Kinirons

Capital MSL 0203 219 8816

About Interserve

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

www.interserve.com @interservenews

Contractor of the Year 2014 (Construction News)

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

Interim Management Report

Chairman's Statement

STRATEGIC DEVELOPMENT

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

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

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

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

SUSTAINABILITY

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

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

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

BOARD CHANGES

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

PROSPECTS

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

DIVIDEND

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

Lord Blackwell

Chairman

6 August 2014

BUSINESS REVIEW

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

DIVISIONAL REVIEW

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

SUPPORT SERVICES

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

*Combined underlying margins of subsidiaries and associates

Support Services UK

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

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

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

Highlights in the period included:

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

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

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

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

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

Acquisition Update

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

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

Support Services International

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

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

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

Highlights in the period included:

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

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

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

CONSTRUCTION

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

*Underlying margins of associates

Construction UK

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

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

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

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

Highlights in the period included:

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

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

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

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

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

Construction International

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

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

Highlights in the period included:

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

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

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

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

EQUIPMENT SERVICES

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

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

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

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

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

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

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

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

Highlights in the period included:

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

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

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

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

INVESTMENTS

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

Highlights in the period included:

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

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

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

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

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

GROUP SERVICES

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

FINANCIAL HIGHLIGHTS

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

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

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

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

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

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

Key performance indicators (KPIs)

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

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

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

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

5. 2010 base: 377.

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

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

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

OUTLOOK

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

PRINCIPAL RISKS AND UNCERTAINTIES

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

These risks and uncertainties arise from:

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

• The termination or unsatisfactory execution of major contracts.

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

• Failure to recruit or retain key people.

• Failure to manage health and safety adequately.

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

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

• The consequences of climate change.

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

AUDITOR

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

RESPONSIBILITY STATEMENT

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

The directors confirm to the best of their knowledge:

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

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

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

By order of the Board

Adrian Ringrose Tim Haywood

Chief Executive Group Finance Director

6 August 2014

Independent review report to the members of Interserve Plc

Introduction

We have reviewed the condensed set of financial statements in the half-yearly financial report of Interserve Plc for the six months ended 30 June 2014 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows and related notes. We have read the other information contained in the half yearly financial report which comprises only the Chairman's Statement and Business Review and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company's members, as a body, in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information performed by the Independent Auditor of the Entity'. Our review work has been undertaken so that we might state to the company's members those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our review work, for this report, or for the conclusion we have formed.

Directors' responsibilities

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

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

Our responsibility

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

Scope of review

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

GRANT THORNTON UK LLPAUDITOR

London6 August 2014

Unaudited condensed consolidated income statement

For the six months ended 30 June 2014

Unaudited condensed consolidated statement of comprehensive income

For the six months ended 30 June 2014

Unaudited condensed consolidated balance sheet

At 30 June 2014

Unaudited condensed consolidated statement of changes in equity

For the six months ended 30 June 2014

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

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

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

Unaudited condensed consolidated statement of cash flows

For the six months ended 30 June 2014

Notes to the unaudited interim financial statements

For six months ended 30 June 2014

1. General information

Interserve Plc (the Company) is a company incorporated in the United Kingdom. The half-year results and condensed consolidated financial statements for the six months ended 30 June 2014 (the interim financial statements) comprise the results of the Company and its subsidiaries (together referred to as the Group) and the Group's interest in joint ventures and associates.

The directors have considered the Group's financial position with reference to latest forecasts and the actual performance for the half-year period. Whilst the current economic environment continues to be uncertain, the directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future, being a period of at least 12 months from the date of signing of the interim statements, noting in particular that: the majority of the Group's revenue is derived from long-term contracts; the Group had visibility of £1.6 billion of work scheduled for 2015 at the balance sheet date; and the Group has access to committed debt facilities of $350 million with a weighted average maturity of 10 years and £250 million until at least 2016. Accordingly, the Group continues to adopt the going concern basis in preparing the interim financial statements.

A copy of the statutory accounts for the year ended 31 December 2013 has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain statements made under sections 498(2) or (3) of the Companies Act 2006.

The interim financial statements for the six months ended 30 June 2014 have been reviewed by Grant Thornton UK LLP but have not been audited (see page 15).

2. Accounting policies and principal risks

The interim financial statements have been prepared in accordance with IAS 34 Interim financial reporting, the recognition and measurement criteria of International Financial Reporting Standards (IFRSs) as adopted by the European Union and the disclosure requirements of the Listing Rules. The financial information set out in this interim report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The interim financial statements do not include all information required for full annual financial statements and should be read in conjunction with the Annual Report and Financial Statements for the year ended 31 December 2013.

Other than the adoption of the new standards mentioned below, the accounting policies and methods of computation followed in the interim financial statements are consistent with those published in the Group's Annual Report and Financial Statements for the year ended 31 December 2013 and which are available on the Group's website at www.interserve.com.

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

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

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 34 and 35 of the Group's Annual Report and Financial Statements for the year ended 31 December 2013. The directors expect that the Group's profits will continue to be weighted to the second half.

3. Business and geographical segments

(a) Business segments

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

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

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

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

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

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

(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.

4. Exceptional items