Interserve Regulatory News (IRV)

News Release

10 August 2016

Half-Year Results for the six months to 30 June 2016

Strong cash generation and resilient performance in core businesses

Interserve, the international support services and construction group, announces its half-year results for the six months ended 30 June 2016.

Financials

Highlights

· Robust, in-line revenue and earnings performance

· Strong gross operating cash flow1: £128.3 million (2015 H1: £19.9 million)

· Net debt reduced to £275.6 million (2015 FY: £308.8 million); improved year-end net debt guidance of £300-£320 million

· Further growth in interim dividend

· Exiting Energy from Waste business; £70 million exceptional charge unchanged from May announcement

· Good visibility of future workload of £7.6 billion1 (2015 FY: £7.6 billion)

· £1.9 billion of new business won in the period

· Key contract wins with both new and existing customers including the Defence Infrastructure Organisation, Home Office, JLL, Renfe, East Midlands Trains, Emaar (UAE), Majid Al Futtaim Group (UAE) and Hitachi (Qatar).

Chief Executive Adrian Ringrose commented:

"Trading in the first half of the year, across the vast majority of our divisions and our regions, has been good, in markets that offer both opportunities and challenges. We delivered a strong cash performance and grew revenue and Headline operating profit.

We are taking action to exit the Energy from Waste sector. Our assessment of the aggregate impact of exiting this sector is in line with the £70 million exceptional charge we announced in May.

Despite the increased political and macro-economic uncertainty following the UK's EU referendum, our outlook for the current year remains unchanged. This, together with our significantly improved cash flow and healthy future workload, underpins the Board's confidence in our prospects and a further increase in the interim dividend."

- 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

Michael Kinirons, CNC Communications +44 (0) 203 219 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 customers and a great place to work for our people. We offer advice, design, construction, equipment, facilities management and frontline public services. Headquartered in the UK and FTSE listed, we have gross revenues of £3.6 billion and a workforce of circa 80,000 people worldwide.

Interserve website: www.interserve.com

 For Interserve news follow: @interservenews

1This 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 11 to the condensed consolidated financial statements for a reconciliation of these measures to their statutory equivalents and note 7 for calculation of earnings per share. References to workload exclude the workload associated with Exited Business.

2As restated

INTERIM MANAGEMENT REPORT

CHAIRMAN'S STATEMENT

I would like to start by paying tribute to my predecessor, Norman Blackwell, and to thank him for his huge contribution to the Company over his ten years as Chairman.

Overall trading in the first half of 2016 has seen a 2.1 per cent increase in Headline total operating profit and a 1 per cent rise in Headline earnings per share. Our gross operating cash flow has improved substantially, which is reflected by our lower net debt position of £275.6 million (FY 2015: £308.8 million).

UK Support Services, which accounts for the majority of the Group's earnings, performed in line with expectations, delivering strong work winning in both public and private sector services, including the recent five-year contract to support the US Air Force bases in the UK.

Equipment Services continues to show good momentum, particularly in the UK and Far East, increasing revenue by 5 per cent. The strategic review of this division is proceeding as planned and we expect it to conclude later this year.

In the Middle East, our International Construction business had a strong period of work winning - adding work worth £0.2 billion to the order book, and, with revenue growth of 17 per cent, it has been a positive first half. International Support Services also had a very strong first half, delivering revenue growth of 43 per cent.

In our UK Construction business, we continue to win work and trading in the building and fit-out areas remains good.

These first-half results have, of course, been overshadowed by the deterioration in the outlook of our Energy from Waste contracts. As a result of the unique challenges in the Energy from Waste market, including continuing supply chain challenges, we have taken the decision to exit this area of our business. These six contracts are therefore now reported as 'Exited Business'.

Our assessment of the aggregate impact of the Exited Business is in line with the £70 million we announced in May. The significant milestones that effect our exit from these contracts will take place through 2016 and 2017 and we expect the cash outflow associated with these losses to be substantially borne this year. Managing the challenges of exiting from these complex projects is a significant priority, as is ensuring our processes continue to improve given the lessons we have learned. This is further discussed in the Business Review.

Sustainability

Earlier this year we won the PLC Award for 'Achievement in Sustainability', which is a pleasing recognition of our efforts to be a responsible business. It is increasingly being recognised by new customers and stakeholders in government, that good sustainability translates into good management of both risk and reputation and is an increasingly important tool in attracting the best employees and winning new business. Our focus on early career development and apprenticeships will stand the Company in good stead for the implementation of next year's apprenticeship levy, but more importantly helps secure the future sustainability of the business. While our reduction in energy and water use has a direct impact on our cost to operate, our ability to measure the social value we deliver to local communities has already helped us win new business.

Our people

Since joining Interserve I have spent time meeting employees, both office and site-based. It is still early days and there will be further opportunities to meet more people, but my first impressions are of a company with strong values and a commitment to hard work. On behalf of the Board, I would like to acknowledge the dedication and commitment of every one of our 80,000 employees around the world and thank them for their continued hard work.

While the overall measures of safety in the business continue to improve, I report with great sadness that two of our colleagues tragically died in a workplace accident this year in Oman. Our thoughts remain with their families and we will continue to do all we can to guard against such events in the future. Over recent years we have made great strides in terms of health and safety, winning several awards for our work in this field, but there will be no greater impetus for future progress than this tragic event.

Board Changes

As previously announced in May, Steve Dance decided to step down from the Board. Steve has been an important part of the management team and successfully led the Equipment Services division over the past 12 years. I would like to thank him for his significant contribution to the business.

Outlook

Trading in the first half of the year, across the vast majority of our divisions and our regions, has been in line with expectations. Our cash performance has been strong. As outlined above, the previously announced challenges with certain Energy from Waste projects are being worked through and the anticipated aggregate financial impact of completing and closing out this Exited Business is unchanged.

Despite the increased political and macro-economic uncertainty following the EU referendum, we reiterate our guidance for the full year, which is underpinned by our geographical diversity, sectoral breadth and strong order book.

In the medium term, the structural drivers in our markets (a growing and ageing population, the continuing demand for efficiency and the need to upgrade infrastructure) and the specific strengths of our business (strong market positions, low capital intensity, long order books) enable us to look to the future with confidence.

Dividend

Reflecting our performance and prospects, the Board has approved a further increase in the dividend of 2.5 per cent to 8.1 pence per share (H1 2015: 7.9 pence per share), which will be paid on 21 October 2016 to shareholders on the register at the close of business on 16 September 2016.

Glyn Barker, Chairman

10 August 2016

BUSINESS REVIEW

Against the backdrop of mixed trading conditions and increasing uncertainty in a number of markets, the substantial majority of the Group's operations continued to perform well in the first half of the year. Our gross operating cash flow in the period was strong, leading to a £33.2 million reduction in net debt from the end of 2015. We grew revenue and headline total operating profit by 2.4 per cent and 2.1 per cent respectively and won new work in the period with an aggregate whole-life value of £1.9 billion, increasing our future workload at 30 June by 0.9 per cent over the 2015 year-end position. Headline earnings per share grew by 1.0 per cent.

Further to our trading update on 6 May, in which we stated that we expected to make a contract provision of £70 million in respect of the Glasgow Energy from Waste project, the Board has determined that the Group will no longer undertake contracts for the construction of Energy from Waste facilities involving contractual responsibility for process risk. The six relevant contracts in which we carry such exposure are therefore now reported as 'Exited Business'.

1As restated

DIVISIONAL REVIEW

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

SUPPORT SERVICES

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

*Blended underlying margins of associates & subsidiaries

Support Services UK

Support Services UK performed well, winning £1.0 billion of new work during the period, and increasing the division's future workload by 2 per cent. As expected, revenue dipped slightly as the hiatus in government procurement around the 2015 General Election and associated slowdown in bidding opportunities worked its way through the cycle. Encouragingly, retention rates were strong throughout the period and the rate of work winning picked up during the second quarter, as market demand normalised. As anticipated, the operating margin softened by 20 basis points as a consequence of increased payroll costs attributable to the the National Minimum Wage, which came into force in April.

We strengthened our position as one of the Ministry of Defence's (MoD) largest infrastructure partners during the period, winning a five-year contract worth £230 million with the Defence Infrastructure Organisation to provide facilities services to the United States Air Force's UK estate. The addition of this contract means we now manage services at the six United States Air Force (USAF) main bases in the UK and their associated satellite sites, as well as the National Training Estate, services at Welbeck Defence Sixth Form College, the Defence Communications Services Agency and the Permanent Joint Overseas Bases (Falklands, Ascension, Cyprus and Gibraltar).

We were also awarded a five-year contract - under the new Crown Commercial Services' (CCS) facilities management framework - to provide total facilities management services including maintenance, cleaning, catering and security support for the Home Office, across the department's estate. This covers more than 200 sites serving key Home Office departments including the College of Policing, HM Passport Office, UK Border Force and UK Visas and Immigration. Additionally, post-period we secured a two-year extension of our contract to provide security services to the British Broadcasting Corporation (BBC) worth £20 million.

In recent years we have built capability in the provision of frontline public services across healthcare, welfare-to-work, skills and justice. This growing part of the business includes Interserve Healthcare, Interserve Learning & Employment (ILE), and our Community Rehabilitation Companies (CRCs), which provide probation, rehabilitation and 'through-the-gate' services on behalf of the Ministry of Justice (MoJ).

Some 5,000 of our colleagues are involved in the delivery of frontline services direct to the citizen, wherein we generate annualised revenues of some £250 million. During the year we further developed this portion of our business, with our learning and employment business being awarded a contract by the UK's Skills Funding Agency to deliver education and training services to support young people, aged 15 - 24, in the north of England who are not in education, training or employment.

In the justice sector, we continued to perform well and made significant progress in the transformation programme across our CRCs through the introduction of integrated back office services, supporting a streamlined organisational structure and extensive infrastructure upgrade work.

Our position as one of the UK's leading providers of facilities services to the retail sector was reinforced by our success in winning a three-year facilities management services contract, worth £60 million, with commercial and residential property services company JLL. The contract, which includes an option for a two-year extension, will see us provide facilities services at 18 shopping centres across the UK.

During the period we continued to make good progress in the transport sector. We secured a one-year contract extension to provide customer support services for Spanish national train operator, RENFE Viajeros, at 63 stations across Spain. This extension, which is worth £5 million a year, runs until March 2017 and has the potential to be extended for a further year. We also won a two-year contract extension to provide facilities services for East Midlands Trains (EMT), which will see us continue to provide cleaning services for seven EMT offices and 13 stations, as well as trains, until March 2018.

Support Services International

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

The business performed well, largely due to a mix of new contract wins and increasing volumes with existing customers across the region. Revenue (including our share of associates) grew by 43.5 per cent, year-on-year, to £147.2 million (H1 2015: £102.6 million), while Contribution to Total Operating Profit increased by 62.5 per cent to £6.5 million (H1 2015: £4.0 million).

Our oil and gas services business, which accounts for the majority of this division, delivered another robust performance, growing revenue, profit and cash flow strongly from our business critical activities of providing essential maintenance services to national oil companies in Abu Dhabi, Oman and Qatar.

Our positioning in the growing Middle East facilities management market continues to benefit from our ability to leverage our extensive UK experience and long-standing customer relationships in the region. This was exemplified in the period through securing an integrated facilities management contract with Emaar, one of the UAE's largest developers, to provide services at all of its community and retail centres across Dubai. We also won a contract with Meraas (another major UAE developer) to provide integrated FM services at its first roadside food truck park in Dubai. Our joint venture in Saudi Arabia with the Rezayat Group (Interserve Rezayat) won facilities management contracts for around £11 million of services on the Al Waha project - part of the King Abdullah Economic City development.

In Oman, where we have delivered training services for some years, we have expanded our partnership with OHI Group to offer facilities management services throughout the Sultanate.

The division's future workload at the end of June was £205 million (YE 2015: £304 million), reflecting some caution on behalf of our customers around spending commitments. We continue to focus on our own efficiency through reorganising the back office of our businesses, as we adjust to the market and so that we can offer customers the full range of our expertise across the region.

CONSTRUCTION

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

1 Excludes Exited Business

2 Underlying margins of associates

Construction International

Our performance in the Middle East continued to improve, with Contribution to Operating Profit in our associate businesses increasing by 22.4 per cent to £6.0 million (H1 2015: £4.9 million) and margins strengthening to 3.9 per cent (H1 2015: 3.3 per cent). Future workload grew 16.5 per cent to £344 million (YE 2015: £295 million).

Work-winning during the period was encouraging, especially in the UAE, where our success included winning a £75 million contract to expand the City Centre mall in Ajman by Majid Al Futtaim, for whom we have previously worked on numerous projects, including Dubai's Mall of the Emirates. We also won a contract to build a 389-room Premier Inn hotel in Dubai.

In Qatar, we were awarded a new £12 million contract by Hitachi to provide civil works on a desalination plant in Doha and a £15 million field maintenance, technical manpower and equipment supply contract with RasGas, which is due to begin later this year.

The outlook in the region is mixed, with a strong flow of work in the UAE, tempered by a less certain near-term outlook in Qatar. However, strategic development plans such as the UAE's plans for Expo 2020, Qatar's 'Vision 2030' and the ongoing need for infrastructure development, to keep pace with rapid population growth, are all gaining traction and stimulating activity.

Construction UK

Market demand remained good during the period, particularly in regional building and fit-out, reflected in our revenue growth of 8.4 per cent in the first half of the year.

The substantial majority of our UK Construction activity is focused on projects with an average value of less than £10 million, constructing a range of buildings and infrastructure. Our operating model combines a strong regional presence and exposure to framework agreements with infrastructure and public-sector customers, in sectors such as defence, education and healthcare, along with our growing presence in the commercial development and fit-out markets.  Work winning in the period was healthy, with our future workload increasing by 1.9 per cent to £1.4 billion.

Significant contract wins in the period included a £25 million contract to build one of Southern England's biggest leisure developments, the Fleming Park Leisure Centre in Hampshire. We also secured a place on the new £750 million Eastern Highways Alliance Framework, which covers 11 local highways authorities across the East of England.

We have made good progress in the utilities sector, where we were awarded, in joint venture with Doosan Enpure, a £46 million contract by Northumbrian Water to upgrade the Horsley water treatment works in the Tyne Valley. We were also selected by South West Water to form part of a team that will build the infrastructure and pipelines for a new £60 million water treatment plant, which will serve Plymouth and the surrounding area. 

Our fit-out business, Paragon, delivered another strong performance, growing revenue by 24 per cent and winning orders from existing customers such as BMW and new customers including Renault, Greycoat Real Estate, Mishcon De Reya and Kings College School.

Exited Business

We have taken the decision to exit business where we take contractual process risk on the construction of Energy from Waste facilities. The Exited Business comprises six contracts with aggregate whole-life revenues of £430 million that we entered into between mid-2012 and early 2015. We expect to complete our works during 2017 and that the impact of these contracts will be contained within the £70 million exceptional loss provision announced in our May trading update.

Managing the challenges of exiting from these complex projects is a significant priority.

EQUIPMENT SERVICES

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

Our strong growth momentum, achieved through geographic expansion and fleet investment over the last few years, drove revenue growth of 5.5 per cent. Contribution to total operating profit increased by 26.3 per cent to £23.5 million, reflecting strong pricing and utilisation growth across the broad range of global infrastructure markets in which we operate.

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

We again performed well in the Middle East, where a number of large projects that we started work on last year continued, including the East West Highway project in Qatar. Demand also continued to grow in the UAE, where we won work on the Dubai Ports Bridge project and in Saudi Arabia, where we started work on the Jeddah Metro scheme.

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

GROUP SERVICES

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

Group Services' costs during the period were £14.3 million (H1 2015: £12.5 million), reflecting the ongoing investment in back-office capabilities, IT infrastructure, people development and communications.

NET DEBT AND OPERATING CASH FLOW

Net debt at 30 June was £275.6 million (YE2015: £308.8 million). A strong underlying gross operating cash flow of £128.3 million was partially offset by cash outflows associated with the Exited Business (HY2016: £52.8 million).

The £7.0 million net land disposal in the period reflects the progression of arrangements in respect of our Midlands Office consolidation. No profit was recognised on this transaction. Excluding this, net capex was £3.1 million in excess of depreciation, reflecting continuing investment in the Equipment Services hire fleet and Support Services UK.

The strong working capital inflow of £60.2 million (HY 2015: £19.1 million outflow) reflects the impact of settlement of a number of final accounts, an increased focus on cash management throughout the business and the stabilisation of customer payment terms, following several periods of tightening.

PENSIONS

At the end of June the aggregate pension position was an IAS 19 pension deficit of £25.5 million (HY 2015: £34.3 million asset), largely due to the sharp fall in gilt yields and associated reduction in liability discount rates following the EU referendum.

Although the scheme's position has weakened over the last year, due to the factors outlined above, the work we have done in recent years to de-risk the scheme's liability position (the 2014 pension buy-in and making a one-off contribution of £55 million of PFI assets in 2013) has left the scheme in a much stronger position than it would have been in without these actions.

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 28 to 30 of the Strategic Report included in the Group's 2015 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 32 to 34 of the Group's 2015 Annual Report and Financial Statements.

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

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

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

AUDITOR

Grant Thornton UK LLP has been the Group's auditor since 2014. Reappointment will be subject to approval by the shareholders at the next general meeting.

RESPONSIBILITY STATEMENT

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

The directors confirm to the best of their knowledge:

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

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

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

By order of the Board

Adrian Ringrose Tim Haywood

Chief Executive Group Finance Director

10 August 2016

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 2016 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 the 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, Guidance 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 2016 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 LLPStatutory Auditor, Chartered Accountants

London

10 August 2016

Unaudited condensed consolidated income statement

For the six months ended 30 June 2016

#See note 2

Unaudited condensed consolidated statement of comprehensive income

For the six months ended 30 June 2016

#See note 2

Unaudited condensed consolidated balance sheet

At 30 June 2016

# See note 2

Unaudited condensed consolidated statement of changes in equity

For the six months ended 30 June 2016

1The £121.4 million merger reserve represents £16.4 million premium on the shares issued on the acquisition of Robert M. Douglas Holdings Plc in 1991, £32.6 million premium on the shares issued on the acquisition of MacLellan Group Plc in 2006 and £72.4 million premium on the shares placed on the acquisition of Initial Facilities in 2014.

 2The hedging and revaluation reserve includes £24.1 million relating to the revaluation of available-for-sale financial assets within the joint ventures (£18.2 million at December 2015 and £16.1 million at 30 June 2015).

3The 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 and the Interserve Training Trust. The market value of these shares at 30 June 2015 was £1.8 million (£2.6 million at 31 December 2015 and £5.5 million at 30 June 2015).

#See note 2

Unaudited condensed consolidated statement of cash flows

For the six months ended 30 June 2016

Notes to the unaudited interim financial statements

For the six months ended 30 June 2016

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 2016 (the interim financial statements) comprise the results of the Company and its subsidiaries (together referred to as the Group) and the Group's interest in joint ventures and associates.

The directors have considered the Group's financial position with reference to latest forecasts and the actual performance for the half-year period. Whilst the current economic environment continues to be uncertain, the directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future, noting in particular that: the majority of the Group's revenue is derived from long-term contracts; the Group had visibility of £1.8 billion of work scheduled for 2017 at the balance sheet date; and the Group has access to committed debt facilities of $350 million with a weighted average maturity of 8 years and £300 million until at least 2019. 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 2015 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 2016 have been reviewed by Grant Thornton UK LLP but have not been audited (see page 17).

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 2015.

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 2015 and which are available on the Group's website at www.interserve.com. Various presentational changes have been made, as described in note 2(c) below.

In addition, the accounting policies used are consistent with those that the directors intend to use in the Annual Report and Financial Statements for the year ending 31 December 2016. Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual earnings.

(a) Adoption of new and revised standards

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

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

IFRS 15 Revenue from contracts with customers

The new standard will replace IAS 18 Revenue and IAS 11 Construction contracts. It will become effective for accounting periods on or after 1 January 2018, at the earliest.

IFRS 16 Leases

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

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

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

(b) Principal risks

In the directors' view, there have been no changes to the principal risks and uncertainties facing the Group from those described on pages 28 and 30 of the Group's Annual Report and Financial Statements for the year ended 31 December 2015. The directors expect that the Group's profits will continue to be weighted to the second half.

(c) Restatement of comparatives

(i) During the second half of 2015 a number of updates to the provisional assessments of fair value of net assets acquired during 2014 in the acquisition of esg were made. These reduced the provisional assessment by £1.4m, primarily reflecting the fair value of property, plant and equipment (£0.6 million) and the impact of loss-making contracts on which constructive and legal obligations existed at the time of acquisition (£0.8 million). These updates have been reflected in the comparative balance sheet at June 2015, in accordance with IFRS 3.

 (ii) During the second half of 2015 it was identified that balances owed under the US Private Placement loan notes had been incorrectly translated at 30 June 2015 and deferred taxation had not been recognised on the gain on cash flow hedging instruments. The comparatives for June 2015 have been restated to correct this. The effect of this restatement on those financial statements is to increase statutory borrowings by £15.4 million, increase deferred taxation assets by £1.7 million and reduce other comprehensive income by £13.7 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.

(iii) Following the decision to exit from the business of constructing energy from waste facilities, where there was contractual responsibility taken for the process risk, and given the materiality and non-recurring nature of the results from these activities, these results have been presented as Exceptional in nature (see note 4) and excluded from the calculation of Headline Earnings per Share (see note 7). The presentation of comparative information has been restated to be consistent with this presentation. There is no impact on comparative net assets or statutory profit before taxation.  

3. Business and geographical segments

(a) Business segments

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

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

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

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

Costs of central services, including the financial impact of our PFI investments, are shown in "Group Services".

#See note 2

(b) Geographical segments

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

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

# See note 2

4. Exceptional items and amortisation of acquired intangible assets