11 Aug 2009 07:00
HALF-YEAR RESULTS * Double-digit earnings growth * Excellent cash generation, reduced net debt * Improved forward revenue visibility
Interserve, the services, maintenance and building group, announces its half-year results for the six months ended 30 June 2009.
H1 2009 H1 2008 Revenue GBP951.2m GBP913.6m +4.1%Headline profit (1) GBP39.3m GBP36.5m +7.7%Profit before tax GBP40.0m GBP33.7m +18.7%Headline earnings per share (2) 23.1p 19.3p +19.7%Basic earnings per share 24.2p 17.7p +36.7%Net debt GBP85.1m GBP115.4m -26.3%Interim dividend 5.5p 5.3p +3.8%Future workload (3) GBP6.7bn GBP6.4bn +4.7%
Chief Executive Adrian Ringrose commented,
"The half-year was another period of growth and development for Interserve. Benefiting from our long-term strategy we increased profits, reduced net debt and secured further contract wins with a whole-life value in excess of 1 billion that provide improved forward revenue visibility. As a result, we remain confident in our prospects and expect to deliver robust near-term performance and sustain our long-term growth."
----------------------- (1) Headline profit comprises profit before taxation of 40.0m (H1 2008: 33.7m) adjusted for the impact of ( 2.5m) amortisation of intangible assets (H12008: ( 2.5m)); ( 0.2m) amortisation of intangible assets (associates) (H12008: 0.3m); 3.4m exceptional items (H1 2008: nil).(2) Headline earnings per share are based on Headline profit as defined in note1 above (see also note 6 to the unaudited condensed financial statements)(3) Future workload comprises contracted work plus work that has been settled and on which final terms are being agreed (principally PFI projects at preferred bidder stage). It includes our share of work won by our Middle East associates. - Ends -
For further information please contact:
Adrian Ringrose, Chief Executive 0118 932 0123Tim Jones, Group Finance Director 0118 932 0123Matt Jones, Head of Investor Relations 0118 960 2280Elizabeth Morley / Tom Roberts, Maitland 020 7379 5151Interim management reportChairman's statementInterserve performed well in the first half of the year. We benefited from ourstrategy of focusing on long-term, value-added client relationships anddeveloping a balanced business model. As a result, whilst those businessesexposed to the UK private sector suffered as their customers responded to therecession, our overall performance remained solid, boosted by strong trading inthe Middle East and a robust UK public sector result.Although the macro-economic environment has been challenging we aredemonstrating our ability to manage the business through the cycle, deliveringstrong cash conversion of over 100 per cent in the period, implementing costreduction programmes where necessary and winning new work with a whole-lifevalue in excess of 1 billion across all of our target sectors. In the longerterm economic pressures are likely to add further momentum to the market forbundled outsourcing solutions in both the public and private sector. Wecontinue to grow our international footprint and develop further opportunitiesin complementary markets and services during the period. Our positioning in theMiddle East, where we are engaged in construction, equipment hire and sale andmost recently outsourced services enables us to take advantage of the ongoingopportunities in the region by growing existing markets such as Qatar and byentering new ones such as Saudi Arabia, a market with significant potential forInterserve.
The Board recognises the economic impact on the Group of its accumulated pension obligations. During the year significant steps are being taken to address this, as outlined in the Business Review.
Dividend
The Board has approved an increased interim dividend of 5.5p (H1 2008: 5.3p),which will be paid on 26 October 2009 to shareholders on the register at closeof business on 25 September 2009. This reflects the Board's confidence in theability of the Group to deliver long-term growth.
Board
As noted in the 2008 annual report John Vyse retired on 3 April 2009, Nick Keegan retired at the Annual General Meeting on 12 May 2009, whilst David Thorpe joined as a new non-executive director on 1 January 2009.
Prospects
Our principal markets offer good prospects for sustained long-term growth, andwe believe that our business model of concentrating on long-term clientrelationships is a key strength, given the resilience and visibility of futureworkload it brings.In the UK, our outsourcing operations are based on increasing the efficiencyand quality of a broad range of services for our clients. Trading remainsencouraging in the public sector, where customers see outsourcing as a means ofreducing cost and improving service delivery in an uncertain economicenvironment. Many of our private sector clients, particularly those inmanufacturing, retail and financial services, are being affected by therecession and this is currently impacting both margins and activity levels inthese segments.Our construction activities in the UK are focused primarily on the health,education, custodial, defence and infrastructure sectors. Notwithstanding thepossibility of pressure on public sector finances, the UK has an ageing socialinfrastructure on which demands are increasing that will require significantinvestment to replace, upgrade and maintain the existing assets. Consequently,we are confident that our long-term framework agreements will underpin ahealthy pipeline of work for our operations.
In the Middle East our history, diversity, management strength and local partnerships have enabled us to weather the current economic and fiscal challenges and we continue to take advantage of markets which we expect will remain attractive. The region's profits have grown significantly in recent years and we are extending our presence in many other international markets.
With our record future workload, balanced and complementary operations in long-term growth markets, and the ability to explore and develop new markets the Board remains confident that the Group will maintain robust near-term performance and sustain long-term growth.
Lord BlackwellChairman11 August 2009Business reviewStrategyInterserve's vision is to be The Trusted Partner, bringing together all of ouroutsourcing capabilities to create innovative solutions that support long-termcustomer relationships, offering rewarding careers for our staff andunderpinning sustained value creation for shareholders.
Our strategic objectives for fulfilling this vision consist of the following elements:
Develop and maintain long-term client relationships:
Our well-established client relationships have been cultivated over a longperiod of time and have withstood previous business and economic cycles. As aresult, around three-quarters of our revenues are derived from services to thepublic and privatised sectors whose long-term contracts and high level ofrepeat business confer strong visibility during uncertain economic periods.
Strategic progress:
* We established new long-term relationships during the period with Sandwell
Council, NHS Scotland, Ealing Council and Derbyshire Council and extended
existing relationships with the Highways Agency, United Utilities, the
Ministry of Justice and Majid Al Futtaim. This has helped us maintain
strong revenue visibility, such that we currently have coverage of 67 per
cent of anticipated 2010 revenues.
Build a well-balanced Group, active across the asset life cycle:
The balanced nature of the Group's businesses across the asset life cycleenables us to select the best opportunities whichever market or sector they arein. Our culture and organisational flexibility allows us to transfer expertiseacross our activities. It also gives us the potential to grow into new marketsand services where we can provide additional value to our existing clients.
Strategic progress:
* After several years of strong profit growth from our international
operations we are well-balanced geographically, with the UK contributing
approximately 38 per cent of profits and international businesses around 62
per cent (based on the proportion of total operating profit before Group
services).
* We successfully leveraged our project management skills and knowledge to
secure integrated value-added outsourcing contracts with major public sector and private sector clients such as Defra and HSBC. These are new long-term relationships that will provide good revenue visibility and future growth opportunities.
Develop new markets and models:
We have extensive sectoral and geographic reach in our existing businesses; however, our markets are constantly evolving and we seek to develop into related skills, sectors and geographies as part of our growth strategy.
Strategic progress:
* Our successful and long-standing partnerships in the Middle East are
providing opportunities for our Facilities Management business to win new
work in the region, whilst our Equipment Services operation is expanding
its footprint to Saudi Arabia, a market with significant growth potential.
* Our contract with the Foreign and Commonwealth Office has taken our
facilities management capabilities into Europe.
Given that our core skills and capabilities are transferable across sectors andgeographies, we expect more examples of such strategic developments to arise,underpinning our confidence in the Group's future.
Key Performance Indicators
H1 2009 H1 2008 Change Revenue GBP951.2m GBP913.6m +4.1% Headline earnings per share 23.1p 19.3p +19.7% Cash conversion (4) 128.5% 70.1% +58.4% pts Future workload GBP6.7bn GBP6.4bn +4.7% Annualised staff turnover (5) 7.4% 9.0% -1.6% ptsAnnualised all-employee accident incidence rate per 366 455 -19.6% 100,000 workforce -------------------------------- (4) Cash conversion is calculated as the percentage of cash generated byoperations of 37.9m (H1 2008: 19.5m) divided by the sum of: operating profitof 30.4m (H1 2008: 25.3m); plus amortisation of intangible assets of 2.5m(H1 2008: 2.5m); less profit on disposal of property and investments of 3.4m(H1 2008: nil).(5) Staff turnover measures the proportion of managerial, technical andoffice-based staff leaving voluntarily over the course of the period. Thefigures for January-June have been doubled to give an annual equivalent.The half-year was another period of growth and development for Interserve, withheadline earnings per share rising 19.7 per cent to 23.1p (H1 2008: 19.3p) onrevenue of 951.2 million (H1 2008: 913.6 million).Strong cash conversion of 128.5 per cent (H1 2008: 70.1 per cent) resulted in areduction in net debt at 30 June to 85.1 million (31 December 2008: 109.2million). Cash flow in the period was positively impacted by the actions wehave taken to reduce capital expenditure, control working capital and realisevalue from the PFI portfolio.Significant new contract wins across sectors such as health, education, localgovernment, infrastructure and custodial enabled our future workload to risebeyond the record level achieved at the end of 2008 to reach 6.7bn (includingour share of Middle East associates).
Principal risks and uncertainties
The principal risks and uncertainties which could have a material impact uponthe Group's performance over the remaining six months of the 2009 financialyear, together with the mitigation strategies adopted, and which could causethe actual results to differ materially from those expected, have not changedsignificantly from those set out on pages 26 and 27 of the Business Reviewincluded in the Group's 2008 annual report and financial statements.
These risks and uncertainties may be summarised as:
* Market change * Major contracts * Key people * Health & safety regime * Financial risks; and * Damage to reputation. Segmental review
Interserve's divisions create and deliver integrated and single-service solutions that offer real benefits in meeting our clients outsourced service requirements. Increasingly we operate across our divisional structure in multi-disciplined teams to bring customers in various target sectors the benefits of a fully integrated approach.
Our divisions are supported by a Group Services function which provides a rangeof central services and encompasses our PFI bidding activity. Group Servicescosts in the half year were 8.0 million (H1 2008: 8.4 million).Facilities Management (FM) provides a broad range of integrated services to thepublic and private sectors, predominantly in the UK, the vast majority of whichwe provide ourselves.Results summary: H1 2009 H1 2008 ChangeRevenue GBP435.0m GBP393.8m +10.5%Contribution to Total Operating Profit GBP12.3m GBP14.0m
(12.1)%
Margin 2.8% 3.6%
(0.8)% pts
Results were impacted by deteriorating conditions in the private sector, wherereduced volumes, especially in higher margin activities, combined with marginpressure across the board. Notwithstanding near-term trading pressures arisingfrom the recession, outsourcing remains an attractive long-term growth market.Accordingly, we have continued to develop our business infrastructure, andresults in the period have been further impacted by the investment made in ourback-office systems to support recent contract wins in the public sector andthrough the mobilisation of three major government contracts, incurringstart-up costs.This division generated around 75 per cent of its revenues in the period fromthe public and privatised sectors (H1 2008: 70 per cent). Trading in thesesectors remains encouraging, benefiting from the long-term contracts in thedefence, health and government sectors, and we invested in our back-officesystems and in a new national customer service centre during the period tosupport recent and future contract wins. Four key clients are now beingserviced from this customer service centre, which currently manages over 9,000calls a week, and we expect others will join them progressively over time.The remaining 25 per cent of the division serves our industrial and commercialclients, mainly in the automotive, retail, petrochemical, access and aviationsectors. Many of our clients have been adversely impacted by the currenteconomic climate and have responded by reducing demand, particularly for highermargin activities. We have taken appropriate cost reduction measures and willcontinue to closely monitor the cost base given continuing uncertainty in theoutlook for these sectors.
Among the new contracts won during the period were:
* Ealing Council: a ten-year contract worth over 5 million per annum,
providing a range of services in buildings across the borough.
* Leeds Partnerships NHS Foundation Trust: a 19-year contract worth over 2.5
million a year to deliver facilities management at seven sites in Leeds
providing a range of mental health services. These are owned and operated
by Equitix in a PFI project on behalf of the Leeds Partnerships NHS
Foundation Trust.
* Alstom: a three-year contract to deliver integrated support services across
four sites for the heavy engineering division of Alstom.
* Argos: a two-year contract to be the supplier of cleaning and associated
services across Argos's 745 UK stores.
* British Medical Association (BMA): a three-year extension to our contract
to provide cleaning and porterage services at the Grade II listed BMA
House, building on our ten-year relationship with the BMA.
* Northern Ireland Schools PPP projects: three 25-year contracts to provide
facilities management services to schools across Northern Ireland. These
contracts are expected to begin during 2011.
We made good progress with the mobilisation of three major contracts in thegovernment sector. These contracts are attractive, long-term revenue streams;however, start-up costs associated with setting up a European infrastructureand with back office investment impacted profitability in the period. Duringthe period we welcomed staff transferring from four European Embassies(Amsterdam, Budapest, Geneva and The Hague) to our Foreign and Commonwealth(FCO) contract that first went live last December. On 1st July the remainingfive locations joined the contract, taking the number of embassies using ourservices to the full complement of fourteen. Elsewhere the 500 million DefraSustainable Workplace Management contract went live on 1st April, followed bythe Ealing Council contract later in the month.Our sustainability credentials were enhanced further with the award of the"Sustainability in Real Estate Award" at the CoreNet Global UK Awards dinner inFebruary 2009. Since the launch of Interserve's RENEWABLES guide to sustainablework practice in June 2008 it has been highly commended by the EnvironmentAgency and has contributed to our top 20 ranking in the Observer's Good CompanyGuide. Interserve also won the Sustainability Award at the British Institute ofFacilities Management Awards 2008, as part of its joint venture, PriDE, withSouthern Electric Contracting (SEC). We believe that sustainability know-how isbecoming an important differentiator. Our progress, summarised above, positionsus well to capitalise on this emerging growth driver.Specialist Services offers facilities services such as security, mechanical andelectrical (M&E) design, installation and maintenance and technical services(such as heating, ventilation and air conditioning, lift maintenance andasbestos surveying and remediation). These are usually delivered in discretepackages, with around two-thirds of its revenues generated from the privatesector, but are also often included as part of a bundled offering to clients ofthe Facilities Management or Project Services divisions.Results summary: H1 2009 H1 2008 ChangeRevenue GBP76.8m GBP88.5m (13.2)%
Contribution to Total Operating Profit GBP(1.6)m GBP2.0m
n/a
Margin (2.1)% 2.3%
(4.4)% pts
The division's performance was affected by a continuation of the tough tradingconditions experienced since last autumn, notably a slowdown in client spendingin the M&E installation sector and a tightening of margins in manned guarding,where our client base is dominated by the financial sector in the City ofLondon. This disappointing result has also been impacted by investment infurther cost reduction measures implemented during the period. Combined withpreviously announced plans, we expect these measures to deliver annualised costsavings of approximately 3 million from 2010.Specialist Services continues to support our clients throughout the Group.Notable examples include security systems for Mapeley, and M&E services forHadley Learning Community, Plymouth Schools and the Adult Mental Health unit inWrexham. The division's engineering capabilities are also being utilised on theHolme House prison contract, Malvern Hospital project and on the recently wonSandwell BSF project. On the Defra contract Specialist Services is alreadyassisting by providing security guarding and passenger lift maintenance, whilstour consulting operation is involved in looking at energy management solutionssuch as utility bill validation and management, adaptation to climate changesurveys, energy audits and reviews.In the private sector we have won a contract to provide merchandising securitysystem to Tesco Express stores across the UK and Ireland, whilst we have alsosecured work for major capital plant replacement works at the Bank of England.During the period our security operation entered into a strategic partnershipwith Global Aware International (GAI) for the use of Global Integrated IncidentResponse Planning (GIIRP), a software application designed to prepare anorganisation for any terrorist or emergency threat. Interserve has three years'exclusivity for its distribution in the UK. We are confident that this additionto our capabilities will further develop our security offering and help usoffer a more rounded solution for our clients.Project Services is a leading construction business providing professionalservices to enable the creation of a broad range of buildings andinfrastructure. First half trading was solid in the UK and strong in the MiddleEast, producing a contribution to Total Operating Profit of 18.1 million (H12008: 15.2 million).Results summary: H1 2009 H1 2008 ChangeRevenue (UK only) GBP406.4m GBP406.6m -Contribution to Total Operating Profit GBP18.1m GBP15.2m +19.1%- UK GBP7.1m GBP7.2m (1.4)%- International associates GBP11.0m GBP8.0m +37.5%Margin (UK only) 1.7% 1.8% (0.1)% pts
In the UK we secured work across a number of our target sectors, developing new client relationships and building on existing ones. Notable contract wins included:
* Education: Preferred bidder on the Sandwell BSF project, worth 280 million
in construction and facilities management revenues.
* Health: A position as one of the five Principal Supply Chain Partners on
the 600 million NHS Scotland Frameworks Scotland healthcare programme,
complementing our existing healthcare framework agreements in England and
Wales.
* Custodial: A 110 million contract to design and build a prison at Belmarsh
East for the Ministry of Justice. * Commerce: A 14 million contract at Turnberry Hotel and Golf Resort to refurbish the resort in time for The Open. * Infrastructure:
+ A place on the Highways Agency's 400 million framework agreement for the maintenance and repair of highways in the east and south-east of England. It lasts for two years with a possible two-year extension. + Shortly after the period end our KMI Plus joint venture was awarded a 250 million five-year extension to an existing framework for the delivery of United Utilities' treatment plant capital programme.
* Waste: Preferred bidder, in conjunction with United Utilities, for the 500
million Derbyshire waste-treatment contract. Interserve will undertake the
design and build of the waste processing plant and other facilities.
* Local government: We were awarded a place on Construction Framework South
West soon after the period end. This 500 million four-year arrangement has
been developed by Devon County Council to deliver construction projects in
excess of 1 million, including local authority buildings, emergency
services, further education colleges and universities.
We continued to receive accolades from industry bodies during the period,including further recognition for our Leeds BSF team as they were awardedIntegrated Supply Chain of the Year at the annual Building Awards hosted byBuilding Magazine. The Thames Gateway desalination plant, being built in jointventure with Acciona, was voted the Most Sustainable Project at the AnnualAwards Ceremony of Global Water Intelligence, the international waterindustry's most prestigious publication. It is also pleasing to note that UKProject Services was named the "Best Building Contractor with over 500employees" in the Best Places to Work in Construction 2009 awards organised byContract Journal, and has recently been awarded the maximum five-star rating inthe Recognised for Excellence scheme by the British Quality Foundation.In the Middle East our diversity across the region, both sectoral andgeographic, together with the strength of our local partnerships has enabledour associate companies to deliver an excellent first-half performance, despitetougher trading conditions in Dubai. The presentation of results from ourMiddle East associates incorporates a change in the basis of taxation of ourassociate companies in Qatar. Whilst there is no impact to the Group earningsper share it has resulted in a reduction in reported operating profits fromassociate companies, matched by an equal reduction in the Group tax charge. Theimpact on Project Services associate companies' reported operating profits inthe period was 3.2 million. Favourable currency movements benefited results by 2.7 million.
Our associate companies continued to secure new contracts during the period, including:
* Qatar: + A contract for the construction and fit-out of major petrochemical tanker maintenance facilities.
+ Two separate contracts at Ras Laffan Industrial City, with Baker Hughes
and ORYX, which will make use of the new fabrication facility we built
in 2008.
+ A contract to construct pipeline stations across ten separate locations
for Punj Lloyd, worth approximately 20 million.
* UAE:
+ A 50 million contract to build an extension and metro link at the Mall
of the Emirates, a mall originally built by our associate company in 2005. + Construction of the New Exhibition Halls at the Dubai World Trade
Centre, providing a further one million square feet of exhibition space
and building on the previous work we have done for this customer. * Oman: + Construction of a 10 million court building for the Ministry of Justice. + A contract to build a three-storey building for the Oman Dental College.
Equipment Services is a global leader in the supply of specialised equipment (formwork and falsework) used in creating major concrete structures, often requiring complex specification and design work.
Results summary: H1 2009 H1 2008 ChangeRevenue GBP80.4m GBP79.2m +1.5%
Contribution to Total Operating Profit GBP20.4m GBP13.7m
+48.9%
Margin 25.4% 17.3%
8.1% pts
The division performed very strongly, posting a record first-half contribution to Total Operating Profit of 20.4 million. This result benefited from the impact of a weak sterling, though constant currency growth nevertheless measured an excellent 15.3 per cent.
Cash conversion within the division exceeded 100% in the period resulting fromcontinued focus on reducing working capital, limiting net capex andtransferring under-utilised assets from geographies of low utilisation to areaswith higher demand.The Middle East region was the primary driver of the strong divisionalperformance, with profit in the region almost doubling on a constant currencybasis. In particular we produced excellent growth in Abu Dhabi, where majorprojects included the Yas Island development, where our equipment is being usedon the bridge structures and the hotel complex at the new Formula One racetrack, and our work on the Saadiyat Island Expressway bridge, the largestbridge built to date in the UAE. In Dubai, our Megashor towers and otherequipment have been used in building the elevated structures supporting the newMetro, which will transport up to 27,000 passengers per hour to Jebel Aliairport on project completion, whilst in Oman our equipment was used in theconstruction of a new 70 metre high dam to supply water to a million people inMuscat. We are progressing with the registration of our company in Saudi Arabiaand expect to commence trading during the second half of 2009.Australasia produced a solid performance, due largely to robust trading in theinfrastructure sector which helped offset a weaker commercial market. Majorprojects worked on included the new A$268 million Rectangular Stadium inMelbourne which is being built for Victoria State Government and where ourMegashor towers and Alshor Plus propping solutions are being used to supportthe construction of the structure and roof.Trading conditions in Europe were, as expected, challenging during the period.Our UK operation showed resilience given the environment, benefiting fromOlympics-related work and cost reduction programmes which helped offset a weakcommercial sector, but there has been a significant slowdown across keyEuropean markets such as Spain and Ireland. We have taken action to lower thecost base in these territories and move under-utilised equipment to moreattractive markets, but the near-term prospects in these countries remainchallenging.PFI Investments H1 2009 H1 2008 Change
Contribution to Total Operating Profit GBP1.8m GBP1.5m +20.0% Interest received on subordinated
GBP2.4m GBP2.1m +14.3%debt investments GBP4.2m GBP3.6m +16.7%The period under review has been another active one with respect to our PFIportfolio. Despite the more challenging environment for securing funding wereached financial close on four preferred bidder projects during the period,all in Northern Ireland: the Enniskillen acute hospital in south-west NorthernIreland and three schools projects, in Down, Connor and Downpatrick. Oncebuilt, the projects will provide our facilities management business with steadyrevenue streams for over 25 years.Since the beginning of the year we have been awarded preferred bidder status ontwo new projects. In January our joint venture with United Utilities wasselected as the preferred bidder for a 500 million waste-treatment contract inDerbyshire. This is a significant step as it takes our sustainability expertiseand construction skills into an important new sector which will offer furtheropportunities going forward. It also represents an evolution in ourrelationship with United Utilities, a client for whom we have worked forseveral years in the construction of water- and wastewater-treatmentfacilities.We were selected as preferred bidder by Sandwell Council for their BuildingSchools for the Future project, worth more than 280 million in constructionand facilities management revenues to Interserve. We have recently reachedfinancial close on this project and have begun work at two pilot sites, withthe buildings scheduled to be fully operational in 2011. In total, over 20schools in the borough are expected to benefit from the scheme.Separately, cash amounting to 15 million has been released from the portfoliovia the sale of our interests in the Sheffield Schools project and therepayment of the majority of our subordinated debt in the landmark UniversityCollege London Hospital project. Going forward we expect further cashgeneration from the mature projects in the portfolio, which will assist in thefunding of new projects.As at 30 June 2009 we had 33 signed PFI contracts (30 June 2008: 28), of which22 are operational projects and eleven under construction, with two more atpreferred bidder stage (30 June 2008: three). Our total investment commitmenton the signed contracts was 75.6 million (30 June 2008: 64.5 million), ofwhich 39.1 million (30 June 2008: 43.9 million) had already been made. Thetwo preferred bidder projects awarded during the period will involve investmentof around 15 million.
Looking ahead we are short-listed on a number of projects in the education and waste sectors and we expect to make further progress in developing our PFI portfolio and generating value from it during the remainder of 2009 and beyond.
Pension scheme
Progress towards agreement of the funding position and deficit recovery of theInterserve Pension Scheme continues. Whilst the entire process is unlikely tobe completed before the end of the year, we continue to anticipate that thefunding shortfall as at the end of 2008 will be in the region of 250 million.A number of actions have been completed during the period, designed to reduceboth the funding shortfall and the risk in accrued liabilities:
* The Board has decided to close the defined benefit scheme to future accrual
for all non-passport members from the end of this year. * A full investment strategy review has been completed, and initial conclusions implemented, in conjunction with the Trustee of the Scheme.
This will reduce investment risk through greater asset diversification and
matching of inflation and interest volatility with Scheme liabilities.
These actions will be reflected as an exceptional credit of approximately 20 million to the Group 2009 income statement.
During the second half of the year negotiations towards agreement of thefunding shortfall will be progressed. It is anticipated that this will includeboth a revised schedule of increased company contributions into the Scheme andthe use of alternative assets in order to mitigate the current and future cashrequirement on the Group.Market prospectsUK:Demand in the majority of our UK markets remains robust. Our customers, inparticular central and local governments, are increasingly under pressure toreduce budgets, to improve efficiencies and to maximise the effectiveness oftheir available resources given the current challenging economic environment.At the same time, they continue to face rising demand from a growing and ageingpopulation to improve the delivery of existing services. We are well-positionedto help them given our strong capabilities across a broad range of markets, ourproven track record in delivering change, and our ability to create innovativesolutions. With our focus on sectors that are operationally, legally andpolitically essential we continue to expect good opportunities.In the private sector we expect the recent challenging demand outlook tocontinue and competition to remain intense, putting pressure on margins andimpacting current year performance in our facilities services businesses.Against this backdrop we have taken action to reduce our cost base in theaffected market segments and will continue to be vigilant with respect to costsgoing forward. Recent wins with HSBC, Argos and Alstom, however, demonstrateour ability to continue to win work in this environment.The Building Schools for the Future (BSF) programme is set to continue to offeropportunities in the education sector and we are actively bidding for futurework to augment our existing Leeds BSF and Sandwell BSF projects. The currentgovernment is committed to refurbishing or rebuilding 50 per cent of allprimary schools over the next 15 years. Irrespective of the political party inpower, an ageing infrastructure will have to be tackled and hence we expect theeducation sector to remain an attractive long-term market. With a position onthe health framework agreements in England, Wales and, more recently, Scotlandwe continue to see good opportunities in this sector and note that all mainpolitical parties have to date committed to maintaining robust spending onhealthcare in response to an ageing UK population.In the custodial sector, where we have a strong track record and uniqueconstruction expertise, there are ongoing opportunities under both PFI andpublic-sector procurement initiatives. The National Offender ManagementService's capacity programme aims to create approximately 12,000 additionalprison places by 2014, representing a doubling of the pace of expansion of thelast ten years. The government announced in April that it would abandon plansfor the large `titan' prisons and instead will look to meet the additionalcapacity requirements via five 1500-place PFI prisons. Competitions for theseare expected in the next two years, providing a good pipeline of prospects. Indefence, we will continue to work closely with Defence Estates to delivervalue-for-money outsourcing solutions and maximise efficiency in a challengingenvironment.Elsewhere there are a number of new local authority framework agreements, wherecounty and district councils, and other public bodies, are joining forces toextend the benefits of collaborative working. With our strong regional networkand familiarity with these methods of procurement we are achieving success inthis market, with recent wins in Ealing and Devon being testament to this, andare pursuing several other opportunities.
Middle East & International:
Our international operations continue to be dominated by our strong position inthe Gulf. We believe this region will remain a rewarding place in which totrade over the coming years, aided by our diverse geographical and sectoralexposure and well-established local partnerships. The rest of our internationaloperations, which are active across Australasia, the Far East, Europe, SouthAfrica and South America, are likely to continue to face more challengingmarket conditions as the equipment services they provide are dependent on thestrength of the local construction market. We have been taking action tomitigate the anticipated lower demand levels by reducing costs and capitalexpenditure where necessary, and will continue to review the specific situationin each territory going forward.Our largest market, Qatar, is expected to record the highest economic growthrate in the Gulf Cooperation Council (GCC) over the coming years. Thegovernment has outlined a continuation of its expansionary fiscal policy,which, together with its support of the more subdued banking and real estatesectors, is expected to ensure relatively attractive growth rates aremaintained. We believe that our offering, which now encompasses construction,equipment services and outsourcing services, will be well-positioned to winfurther work in this environment.After several years of frenetic activity trading conditions in Dubai have,latterly, become more challenging. Nevertheless our businesses have maintainedstrong client relationships, won new work and developed an encouraging pipelineof opportunities. Whilst the market is unlikely to regain its previousconfidence in the near-term the Emirate's Grand Vision remains intact, albeitit will likely develop at a more sustainable pace than previously planned. Weare also continuing to take advantage of the burgeoning market in nearby AbuDhabi, increasing our presence there across the full range of our capabilities.Prospects for Oman remain promising though the strong economic growth of recentyears has been softened by a falling oil price. However the government isaccelerating its long-term strategy aimed at diversifying the economy away froma reliance on oil production by boosting its industrial and services sectors.Much of the investment in the industrial sector will centre on the Sohar Portcomplex where we have been active for a number of years.
The establishment of trading operations for our equipment services business in Saudi Arabia is progressing according to plan and we expect the business to begin making a contribution from late 2009.
Outlook
With our record future workload, balanced and complementary operations inlong-term growth markets, and the ability to explore and develop new markets weremain confident that the Group will maintain robust near-term performance andsustain long-term growth.Responsibility statement
The directors confirm to the best of their knowledge:
a. the condensed set of financial statements has been prepared in accordance
with IAS 34; and
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 4.27R; and
c. the interim management report includes a fair review of the information
required by DTR 4.2.7R and DTR 4.2.8R of the Disclosure and Transparency
Rules of the Financial Services Authority.
By order of the BoardAdrian Ringrose Tim JonesChief Executive Group Finance Director11 August 2009.
INDEPENDENT REVIEW REPORT TO INTERSERVE PLC
We have been engaged by the company to review the condensed set of financialstatements in the half-yearly financial report for the six months ended 30 June2009 which comprises the consolidated income statement, the consolidatedstatement of comprehensive income, the consolidated balance sheet, theconsolidated statement of changes in equity, the consolidated statement of cashflows and related notes 1 to 12. We have read the other information containedin the half-yearly financial report and considered whether it contains anyapparent misstatements or material inconsistencies with the information in thecondensed set of financial statements.This report is made solely to the company in accordance with InternationalStandard on Review Engagements (UK and Ireland) 2410 "Review of InterimFinancial Information Performed by the Independent Auditor of the Entity"issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone otherthan the company, for our review work, for this report, or for the conclusionswe 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 Services Authority.
As disclosed in note 2, the annual financial statements of the group areprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of financial statements included in this half-yearly financialreport has been prepared in accordance with International Accounting Standard34, "Interim Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview.Scope of ReviewWe conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410 "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making inquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof 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 tobelieve that the condensed set of financial statements in the half-yearlyfinancial report for the six months ended 30 June 2009 is not prepared, in allmaterial respects, in accordance with International Accounting Standard 34 asadopted by the European Union and the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority.Deloitte LLPChartered Accountants and Statutory AuditorsLondon, United Kingdom11 August 2009Unaudited condensed consolidated income statementFor the six months ended 30 June 2009 Six months ended 30 June 2009 Six months ended 30
June 2008 Year ended 31 December 2008
-------------------------------
------------------------------- --------------------------------
Before Before Exceptional Before exceptional Exceptional Exceptional exceptional exceptional Exceptional items and items and items and items and items and items and amortisation amortisation amortisation amortisation amortisation amortisation of acquired of acquired of acquired of acquired of acquired of acquired intangible intangible intangible intangible intangible intangible asssets assets Total assets
assets Total assets assets Total
GBPmillion GBPmillionGBPmillion GBPmillion
million million GBPmillion GBPmillion million
------------------------------------- -------------------------------- ---------------------------------Continuing operations Revenue 951.2 - 951.2 913.6 - 913.6 1,800.0 - 1,800.0Cost of sales (837.9) - (837.9) (809.4) - (809.4) (1,576.8) - (1,576.8)Gross profit 113.3 - 113.3 104.2 - 104.2 223.2 - 223.2 Administration (83.8) - (83.8) (76.4) - (76.4) (163.8) - (163.8)expenses Amortisation of - (2.5) (2.5) - (2.5) (2.5) - (5.0) (5.0)acquired intangible assets Total (83.8) (2.5) (86.3) (76.4) (2.5) (78.9) (163.8) (5.0) (168.8)administration expenses Profit on disposal - 3.4 3.4 - - - - - -of property and investments Operating profit 29.5 0.9 30.4 27.8 (2.5)
25.3 59.4 (5.0) 54.4
Share of results 13.5 - 13.5 10.2 - 10.2 28.6 - 28.6 Amortisation of - (0.2) (0.2) - (0.3) (0.3) - (0.3) (0.3)acquired intangible assets Total share of 13.5 (0.2) 13.3 10.2 (0.3) 9.9 28.6 (0.3) 28.3result of associatesand joint ventures (note 5) Total operating 43.0 0.7 43.7 38.0 (2.8) 35.2 88.0 (5.3) 82.7profit Investment revenue 15.0 - 15.0 19.2 - 19.2 39.9 - 39.9 Finance costs (18.7) - (18.7) (20.7) - (20.7) (42.7) - (42.7) Profit before tax 39.3 0.7 40.0 36.5 (2.8)
33.7 85.2 (5.3) 79.9
Tax (charge)/ credit (8.9) 0.7 (8.2) (10.8) 0.8 (10.0) (23.6) 1.4 (22.2)(note 4) Profit for the period 30.4 1.4 31.8 25.7 (2.0)
23.7 61.6 (3.9) 57.7 ------------------------------------------------ ------------------------------ ------------------------------
Attributable to: Equity holders 28.9 1.4 30.3 24.1 (2.0) 22.1 58.3 (3.9) 54.4of the parent Minority 1.5 - 1.5 1.6 - 1.6 3.3 - 3.3interest 30.4 1.4 31.8 25.7 (2.0)
23.7 61.6 (3.9) 57.7 -------------------------------------------------- ------------------------------ -----------------------------
Six months Six months Year ended 31 ended 30 June ended 30 June December 2008 2009 2008 Earnings per share (note 6) p p p Basic 24.2 17.7 43.5
--------------------------------------------------------------------------------
Diluted 23.6 17.4
42.7
--------------------------------------------------------------------------------
Dividend per share: 2009 proposed and 5.5 5.3
17.0
2008 paid (note 7)
--------------------------------------------------------------------------------
Unaudited condensed consolidated statement of comprehensiveincome For the six months ended 30 June 2009
Six months Six months Year ended ended 30 ended 30 31 December June 2009 June 2008 2008 GBPmillion GBPmillion GBPmillion Profit for the period 31.8 23.7 57.7Other comprehensive income
Exchange differences on translation of foreign operations (26.1)
2.7 48.8Gains/(losses) on available-for-sale financial assets (excluding joint ventures) 0.2 0.3 (1.3)Gains/(losses) on cash flow hedges (joint ventures) 46.9 3.6 (79.1)(Losses)/gains on available-for-sale financial (assets (joint ventures) (32.0) (30.9) 109.2Actuarial losses on defined benefit pension schemes (54.4) (32.6) (80.7)Deferred tax on items taken directly to equity (note 4) 11.0 16.7 14.2Other comprehensive income net of tax (54.4)
(40.2) 11.1
Total comprehensive income (22.6) (16.5) 68.8----------------------------------------------------------------------------------------------Attributable to: Equity holders of the parent (24.1) (18.1) 65.5Minority interest 1.5 1.6 3.3 (22.6) (16.5) 68.8----------------------------------------------------------------------------------------------Unaudited condensed consolidatedbalance sheetAt 30 June 2009 30 June 30 June 31 December 2009 2008 2008 GBPmillionGBPmillion GBPmillion Non-current assets Goodwill 228.9 228.8 228.9Other intangible assets 33.5 33.4 33.4Property, plant and equipment 143.6 124.4 156.8Interests in joint ventures 117.7 68.7 114.0Interests in associated undertakings 69.0 40.5 72.5Investments - 0.1 -Deferred tax asset 35.5 13.0 19.2 628.2 508.9 624.8 Current assets Inventories 21.6 21.0 27.8Trade and other receivables 395.3 420.1 372.1Cash and deposits 70.4 52.2 61.3 487.3 493.3 461.2 Total assets 1,115.5 1,002.2 1,086.0Current liabilities Bank overdrafts (13.7) (21.2) (3.1)Trade and other payables (492.7) (512.1) (466.0)Current tax liabilities (16.4) (11.3) (13.8)Short-term provisions (15.5) (8.7) (14.0) (538.3) (553.3) (496.9) Net current liabilities (51.0) (60.0) (35.7) Non-current liabilities Bank loans (140.0) (145.0) (165.5)Trade and other payables (4.8) (7.4) (5.1)Non-current tax liabilities (9.1) (8.4) (9.1)Long-term provisions (22.6) (24.2) (24.0)Retirement benefit obligation (205.1) (110.5) (153.1) (381.6) (295.5) (356.8) Total liabilities (919.9) (848.8) (853.7) Net assets 195.6 153.4 232.3
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Equity Share capital 12.5 12.5 12.5Share premium account 112.7 112.7 112.7Merger reserve 49.0 49.0 49.0Hedging and translation reserves 92.9 22.0 108.3Investment in own shares (0.5) (0.5) (0.5)Retained earnings (73.2) (44.2) (51.8)Equity attributable to equity holders of the parent 193.5 151.6 230.3 Minority interest 2.1 1.8 2.0 Total equity 195.6 153.4 232.3
--------------------------------------------------------------------------------
Unaudited condensed consolidated statement of changes in equity For the six months ended 30 June 2009
Hedging Attributable Capital and Investment to equity Share Share redemption Merger translation in own Retained holders of Minority capital premium reserve reserve reserves
shares earnings the parent interest Total
GBPmillion million GBPmillion million GBPmillion GBPmillion million GBPmillion million million Balance at 31 December 2007 12.5 111.9 0.1 49.0 38.7 (0.5) (30.1) 181.6 1.6 183.2 Total comprehensive income - - - - (16.7) (1.4) (18.1) 1.6 (16.5)Dividends paid - - - - - - (14.0) (14.0) (1.4) (15.4)Shares issued - 0.8 - - - - - 0.8 - 0.8Share-based payments - - - - - - 1.3 1.3 - 1.3 Balance at 30 June 2008 12.5 112.7 0.1 49.0 22.0 (0.5) (44.2) 151.6 1.8 153.4Total comprehensive income - - - - 86.3 - (2.7) 83.6 1.7 85.3Dividends paid - - - - - - (6.6) (6.6) (1.5) (8.1)Purchase of company shares - - - - - (0.2) - (0.2) - (0.2)Company shares used to settle share based obligations - - - - - 0.2 (0.2) - - -Share-based payments - - - - - - 1.9 1.9 - 1.9 Balance at 31 December 2008 12.5 112.7 0.1 49.0 108.3 (0.5) (51.8) 230.3 2.0 232.3Total comprehensive income - - - - (15.2) - (8.9) (24.1) 1.5 (22.6)Dividends paid - - - - - - (14.6) (14.6) (1.4) (16.0)Disposal of available-for-sale financial asset and related cash flow hedges recycled through the income statement - - - - (0.2) - - (0.2) - (0.2)Shares issued - - - - - - - - - -Share-based payments - - - - - - 2.1 2.1 - 2.1Balance at 30 June 2009 12.5 112.7 0.1 49.0 92.9 (0.5) (73.2) 193.5 2.1 195.6---------------------------------------------------------------------------------------------------------------------
Unaudited condensed consolidated statement of cash flows For the six months ended 30 June 2009
Six Six months months ended ended Year ended 30 June 30 June 31 December 2009 2008 2008 GBPmillionGBPmillion GBPmillion Operating activities Total operating profit 43.7 35.2 82.7 Adjustments for: Amortisation of acquired intangible assets 2.5 2.5
5.0
Depreciation of property, plant and equipment 12.4 10.8 22.6 Gain on disposal of property and investments (3.4) -
-
Pension payments in excess of the income statement charge (6.8) (5.2)
(10.7)
Share of results of associates and joint ventures (13.3) (9.9) (28.3)Non-cash charge relating to share-based payments 2.1 1.3 3.5Gain on disposal of property, plant and equipment (3.3) (4.5) (9.0)Operating cash flows before movements in working capital 33.9 30.2
65.8
Decrease/(increase) in inventories 4.4 (5.0)
(7.5)
(Increase)/decrease in receivables (28.4) (50.2)
11.2
Increase/(decrease) in payables 28.0 44.5 (10.9)Cash generated by operations 37.9 19.5 58.6Taxes paid (6.5) (8.1) (14.0)Net cash from operating activities 31.4 11.4 44.6 Investing activities Interest received 2.8 2.9 7.3Dividends received from associates and joint ventures 5.2 7.7
13.5
Proceeds on disposal of property, plant and equipment
6.6 10.2 20.2 Capital expenditure (14.5) (21.7)
(54.8)
Purchase of subsidiary undertaking - (0.3)
(0.3)
Investment in joint ventures - PFI investments (3.0) (5.0) (8.2) Disposal of investment
7.2 -
0.1
Receipt of loan repayment - PFI investments 7.6 0.2 0.4 Receipt of loan repayment - associated
undertakings 0.1 - 0.3 Net cash generated/(used) in investing activities 12.0 (6.0) (21.5) Financing activities Interest paid (2.0) (4.4) (10.2)Dividends paid to equity shareholders (14.6) (14.0)
(20.6)
Dividends paid to minority shareholders (1.5) (1.3)
(2.9)
Issue of shares - 0.8
0.8
(Decrease)/increase in bank borrowings (25.5) (18.0)
2.5
Movement in obligations under finance leases (0.1) (0.7) (0.2) Redemption of loan notes
- (1.0)
(1.0)
Net cash used in financing activities (43.7) (38.6)
(31.6)
Net decrease in cash and cash equivalents (0.3) (33.2) (8.5)
Cash and cash equivalents at beginning of period 58.2 64.5 64.5
Effect of foreign exchange rate changes (1.2) (0.3)
2.2
Cash and cash equivalents at end of period 56.7 31.0 58.2 -------------------------------------------------------------------------------
Cash and cash equivalents comprise Cash and deposits 70.4 52.2 61.3Bank overdrafts (13.7) (21.2) (3.1) 56.7 31.0 58.2
-------------------------------------------------------------------------------
Reconciliation of net cash flow to movement in net debt
Net decrease in cash and cash equivalents (0.3) (33.2) (8.5) Decrease/(increase) in bank borrowings
25.5 18.0
(2.5)
Movement in obligations under finance leases 0.1 0.7 0.2 Redemption of loan notes
- 1.0
1.0
Change in net debt resulting from cash flows 25.3 (13.5) (9.8) Effect of foreign exchange rate changes
(1.2) (0.3)
2.2
Movement in net debt during the period 24.1 (13.8) (7.6)Net debt - opening (109.2) (101.6) (101.6)Net debt - closing (85.1) (115.4) (109.2)
Notes to the unaudited Interim Financial Statements For six months ended 30 June 2009
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 thesix months ended 30 June 2009 (the Interim Financial Statements) comprise theCompany and its subsidiaries (together referred to as the Group) and theGroup's interest in joint ventures and associates.The directors have considered the Group's financial position with reference tolatest forecasts and the actual performance for the half-year period. Whilstthe current economic environment continues to be uncertain, the directorsbelieve that the Group has adequate resources to continue in operationalexistence for the foreseeable future, being a period of at least 12 months,noting in particular that: the majority of the Group's revenue is derived fromlong-term contracts; the Group had visibility of 67 per cent of anticipated2010 revenues at the half-year period and; the Group has access to committeddebt facilities totalling 250 million until at least May 2011. Accordingly,the Group continues to adopt the going concern basis in preparing thehalf-yearly condensed financial statements.A copy of the statutory accounts for the year ended 31 December 2008 has beendelivered to the Registrar of Companies. The auditors' report on those accountswas unqualified and did not contain statements made under section 237(2) or (3)of the Companies Act 1985.
The Interim Financial Statements for the six months ended 30 June 2009 have been reviewed but have not been audited (see page 19).
2. Accounting policies
The Interim Financial Statements have been prepared in accordance with IAS 34Interim Financial Reporting, the recognition and measurement criteria ofInternational Financial Reporting Standards (IFRSs) as adopted by the EuropeanUnion, and the disclosure requirements of the Listing Rules. The InterimFinancial Statements do not include all information required for full annualfinancial statements, and should be read in conjunction with the Annual Reportand Financial Statements for the year ended 31 December 2008.The accounting policies and methods of computation followed in the InterimFinancial Statements are consistent with those as published in the Group'sAnnual Report and Financial Statements for the year ended 31 December 2008 andwhich are available on the Company's website at www.interserve.com, except forthe adoption in the period of:
* IFRS 8 - Operating Segments, which had no material impact on these Interim
Financial Statements.
* IAS 1 - Presentation of Financial Statements (September 2007), which has
resulted in the inclusion of the condensed consolidated statement of
changes in equity as a primary statement. The adoption of this standard has
not changed the recognition or measurement of specific transactions or
events.
In addition these accounting policies used are consistent with those that thedirectors intend to use in the Annual Report and Financial Statements for theyear ending 31 December 2009.
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:
Standard Accounting periods starting after
-------------------------------------------------------------------------
IFRIC 12 - Service concession arrangements 29-Mar-09
IFRIC 16 - Hedges of a Net Investment in a Foreign Operation 01-Jul-09 IFRIC 17 - Distributions of Non-cash Assets to Owners
01-Jul-09IFRIC 18 - Transfers of Assets from Customers 01-Jul-09
The introduction of these standards and interpretations are not expected to materially impact the Group.
The principal risks and uncertainties facing the Group are those described onpages 26 to 27 of the Group's Annual Report and Financial Statements for theyear ended 31 December 2008. The seasonality of the group results is notexpected to differ significantly from prior years.
3. Business and geographical segments
The Group is organised into five operating divisions, as set out below. The Group internally reviews and allocates resources to each of these operating divisions and each has a divisional managing director that reports into and forms part of the executive board.
* Facilities Management: provision of outsourced support services to public-
and private-sector clients.
* Specialist Services: mechanical and electrical design, installation and
maintenance; asbestos surveying and remedial work; security services; and
specialist cleaning operations. * Project Services: design, construction and maintenance of buildings and infrastructure * Equipment Services: design, hire and sale of formwork, falsework and associated access equipment.
* PFI Investments: transaction structuring and management of the Group's PFI
activities. The Joint ventures - PFI Investments segmental figures
represent the Group's share of its PFI special purpose companies.
Segment information about these operating divisions is presented below.
Revenue Result ----------------------- ------------------------ Six Six Six Six months months Year months months Year ended ended ended ended ended ended 30 June 30 June 31 December 30 June 30 June 31 December 2009 2008 2008 2009 2008 2008 GBPmillion million GBPmillionGBPmillion million GBPmillion Facilities Management 435.0 393.8 793.3 12.3 14.0 32.8Specialist Services 76.8 88.5 168.2 (1.6) 2.0 1.0Project Services 406.4 406.6 770.8 18.1 15.2 39.7Equipment Services 80.4 79.2 171.7 20.4 13.7 29.6Joint ventures - PFI Investments - - - 1.8 1.5 2.8Group Services - - - (8.0) (8.4) (17.9)Inter-segment elimination (47.4) (54.5) (104.0) - - - 951.2 913.6 1,800.0 43.0 38.0
88.0
-------------------------------------------------------------------------------------
Profit on disposal of property and 3.4 -
-
investments Amortisation of acquired intangible assets (2.7) (2.8) (5.3) 43.7 35.2 82.7Investment revenue 15.0 19.2 39.9Finance costs (18.7) (20.7) (42.7)Profit before tax 40.0 33.7 79.9Tax (8.2) (10.0) (22.2)Profit after tax 31.8 23.7 57.7 Net assets / (liabilities) 30 June 30 June 31 December 2009 2008 2008 GBPmillion GBPmillion GBPmillion Facilities Management (54.6) (30.7) (48.5)Specialist Services (8.1) (7.0) (6.6)Project Services (111.2) (104.0) (73.4)Equipment Services 137.6 123.5 156.0Joint ventures - PFI Investments 117.7
68.7 114.0
81.4 50.5 141.5Group Services, goodwill and acquired intangible assets 197.2 216.5 198.0 278.6 267.0 339.5 Net debt (85.1) (115.4) (109.2) Net assets (excluding minority interest) 193.5 151.6 230.3-----------------------------------------------------------------------------------------
Geographical segments
Facilities Management and Specialist Services are predominantly based in theUnited Kingdom. The Project Services division is located in the United Kingdomand manages the investments in associates in the Middle East. EquipmentServices has operations in all of the geographic segments listed below.
The table below provides an analysis of the Group's sales by geographical market, irrespective of the origin of the goods/services.
Revenue by geographical market Total operating profit ------------------------------
-------------------------
Six Six Six Six months months Year months months Year ended ended ended ended ended ended 30 June 30 June 31 December 30 June 30 June 31 December 2009 2008 2008 2009 2008 2008 GBPmillion million GBPmillionGBPmillion million#GBPmillion# United Kingdom 922.9 901.7 1,748.0 19.2 25.7 51.9Rest of Europe 14.0 14.2 32.2 0.4 2.3 4.3Middle East & Africa 40.4 29.0 75.1 27.2 14.0 42.1Australasia 15.8 16.8 33.6 4.8 4.6 8.6Far East 2.9 4.2 7.7 (0.4) (0.4) (1.8)Americas 2.6 2.2 7.4 (0.2) 0.2 0.8Group services - - - (8.0) (8.4) (17.9)Inter-segment elimination (47.4) (54.5) (104.0) - - - 951.2 913.6 1,800.0 43.0 38.0
88.0
--------------------------------------------------------
Profit on disposal of property and investments 3.4 -
-
Amortisation of acquired intagible assets (2.7) (2.8) (5.3) 43.7 35.2 82.7 --------------------------# The results of Joint ventures - PFI Investments have been reclassified intothe United Kingdom. Net assets / (liabilities) 30 June 30 June 31 December 2009 2008 2008 GBPmillion million GBPmillion United Kingdom 165.8 114.1 162.6 Rest of Europe 18.7 19.4 23.3 Middle East & Africa 115.2 68.3 117.6 Australasia 15.2 15.3 14.9 Far East 5.8 10.0 8.3 Americas 4.2 4.2 4.5 Group Services, goodwill and acquired intangible assets 267.8 264.6 274.4 592.7 495.9 605.6 Deferred tax asset 35.5 13.0 19.2 Total non-current assets 628.2 508.9 624.8
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4. Income tax expense Six Six months months Year ended 30 ended 30 ended 31 June June December 2009 2008 2008 GBPmillion GBPmillion GBPmillion UK taxation 7.4 7.1 13.4Overseas taxation 1.8 2.1 4.6Deferred taxation (1.0) 0.8 4.2 8.2 10.0 22.2
-------------------------------------------------------
Effective tax rate 20.5% 29.7% 27.8%The effective corporation tax charged represents the best estimate of theweighted average annual corporation tax rate expected for the full financialyear. No account has been taken in these Interim Financial Statements of the2009 Finance Act that was substantially enacted on 8 July 2009, after thebalance sheet date. It is estimated that as a result of this change in taxlegislation deferred tax liabilities of 5m on unremitted earnings fromoverseas associates should be released in the full year financial statements.In addition to the income tax charged to the income statement, the followingdeferred tax charges/(credits) have been recorded directly in equity in theperiod: Six months Six months Year ended ended 30 ended 30 31 June 2009 June 2008 December 2008 GBPmillion GBPmillion GBPmillion
Tax on actuarial loss on pension liability (15.2) (9.1) (22.6) Tax on gain/(loss) on
available-for-sale financial assets 0.1 -
(0.4)
Tax on fair value adjustment on cash flow hedges 13.1 1.1 (22.1) Tax on the fair value adjustments on
(9.0) (8.7)
30.5
available for sale financial assets within the PFI special purpose companies Tax on the intrinsic value of - - 0.4share-based payments (11.0) (16.7) (14.2)
-----------------------------------------------------------------------------------
5. Share of results and net assets of joint venture and associated undertakings
Share of results from joint venture and associated undertakings were as follows: Six months ended 30 June 2009 Six months ended 30 June 2008 Year to 31 December 2008 Joint ventures Total Joint ventures Total Joint ventures Total
Project Facilities - PFI Project Facilities - PFI Project Facilities - PFI Services Management Investments Services Management Investments Services Management Investments
GBPmillionGBPmillionGBPmillion million GBPmillionGBPmillionGBPmillion million million millionGBPmillion million
Revenues 164.3 47.7 73.1 285.1 124.2 38.2 30.0
192.4 284.2 83.1 134.5 501.8--------------------------------------------- ------------------------------------- ---------------------------------Operating 14.2 1.0 1.7 16.9 8.0 1.0 1.5 10.5 25.2 1.8 3.8 30.8profitNet interest 0.4 - 1.1 1.5 0.1 - 0.6 0.7 0.2 - 1.4 1.6receivable/(payableTaxation (3.6) (0.3) (1.0) (4.9) (0.1) (0.3) (0.6) (1.0) (0.9) (0.5) (2.4) (3.8)Our share of 11.0 0.7 1.8 13.5 8.0 0.7 1.5 10.2 24.5 1.3 2.8 28.6profit after taxAmortisation (0.2) - - (0.2) (0.3) - - (0.3) (0.3) - - (0.3)of acquiredintangibleassetsProfit 10.8 0.7 1.8 13.3 7.7 0.7 1.5 9.9 24.2 1.3 2.8 28.3beforedividendsDividends (3.8) (1.0) (0.4) (5.2) (6.8) (0.7) (0.2) (7.7) (12.4) (0.7) (0.4)(13.5)Retained 7.0 (0.3) 1.4 8.1 0.9 - 1.3 2.2 11.8 0.6 2.4 14.8profits
The joint venture and associate undertakings are located in the United Kingdom except for the Project Services associates which are located in the Middle East.
6. Earnings per share
The calculation of earnings per share is based on the following data:
Earnings Six Six Year months months ended 31 ended 30 ended 30 December June 2009 June 2008 2008 GBPmillion GBPmillion GBPmillion Earnings for the purposes of basic 30.3 22.1
54.4
earnings per share, being net profit attributable to equity holders of the parent Profit on disposal of property and (3.4) - -investments Amortisation of acquired 2.7 2.8 5.3intangibles Tax effect of above adjustments (0.7) (0.8)
(1.4)
Headline earnings 28.9 24.1
58.3
-------------------------------------------------------------------------------
Earnings for the purposes of 30.3 22.1
54.4
diluted earnings per share
-------------------------------------------------------------------------------
Weighted average number of shares Six months Six months Year ended ended 30 ended 30 31 June 2009 June 2008 December 2008 Number Number Number thousand thousand thousand
Weighted average number of ordinary 125,057 124,861 124,936 shares for the purposes of basic and
headline earnings per share Effect of dilutive potential ordinary shares: Share based payments 3,566 2,364 2,396
Weighted average number of ordinary 128,623 127,225 127,332 shares for the purposes of diluted
earnings per share
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Notes to the unaudited Interim Financial Statements - continued
For six months ended 30 June 2009
6. Earnings per share (continued)
Earnings per share Six months Six Year ended ended 30 months 31 June 2009 ended 30 December June 2008 2008 pence pence pence Headline earnings per share 23.1 19.3 46.7
------------------------------------------------------------------------------
Basic earnings per share 24.2 17.7
43.5
------------------------------------------------------------------------------
Diluted earnings per share 23.6 17.4
42.7
------------------------------------------------------------------------------
7. Dividends Six Six months Year months ended 30 ended 31 Dividend ended 30 June 2008 December per share June 2009 2008 pence GBPmillion GBPmillion GBPmillion Final dividend for the year 11.2 - 14.0 14.0ended 31 December 2007 Interim dividend for the 5.3 - - 6.6year ended 31 December 2008 Final dividend for the year 11.7 14.6 - -ended 31 December 2008 Amount recognised as 14.6 14.0 20.6distribution to equity holders in the period
--------------------------------------------------------------------------------
The proposed interim dividend of 5.5p per share, amounting to 6.9m, was approved by the directors on 11 August 2009 and has therefore not been included as a liability as at 30 June 2009.
8. Defined benefit retirement schemes
The following table sets out the key IAS 19 assumptions used to assess the present value of the defined benefit obligation.
Six months Six months Year ended ended 30 ended 30 31 December June 2009 June 2008 2008Retail price inflation 3.5% pa 3.9% pa 2.90% paDiscount rate 6.2% pa 6.5% pa 6.30% paPension increases in payment: LPI/RPI 3.4%/3.5% 3.7%/3.9% 2.70%/2.90%Fixed 5% 5.0% 5.0% 5.0%3% or RPI if higher 3.7% 3.9% 3.5%(capped at 5%) General salary increases 4.25 - 5.00% pa 4.65 - 5.40% pa 3.65 - 4.40% pa
The amount included in the balance sheet arising from the Group's obligations in respect of the various pension schemes is as follows:
30 June 30 June 31 December 2009 2008 2008 GBPmillion GBPmillion GBPmillion Present value of defined 597.5 557.6 534.2benefit obligation Fair value of scheme assets (392.4) (447.1) (381.1)Liability recognised in the 205.1 110.5 153.1balance sheet
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The amounts recognised in the income statement are as follows:
Six months Six months Year ended ended 30 ended 30 31 December June 2009 June 2008 2008 GBPmillion GBPmillion GBPmillion Employer's part of current 6.0 7.3 14.6service cost Interest cost 16.7 16.3 32.5Expected return on scheme assets (12.2) (16.3) (32.6)Total expense recognised in 10.5 7.3 14.5the income statement
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Actuarial gains and losses are recognised in full in the period in which theyoccur. They are recognised directly in equity and presented in the statement ofrecognised income and expense.9. Share capital Six months Six months Year ended ended 30 ended 30 31 December June 2009 June 2008 2008 Shares Shares Shares thousand thousand thousand At 1 January 125,016 124,751 124,751Exercised share - based payments 352 241
265
At the end of the period 125,368 124,992
125,016
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10. Related parties
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
Key management compensation is disclosed on pages 52 to 60 in the Annual Report and Financial Statements for the year ended 31 December 2008.
During the period, Group companies entered into the following transactions with related parties who are not members of the Group:
Six Six Year months months ended 31 ended 30 ended 30 December June 2009 June 2008 2008 GBPmillion GBPmillion GBPmillion Sales of goods and Joint ventures - PFI 109.1 109.0 213.2services Investments Associates 76.4 62.0 125.9
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Purchases of goods Joint ventures - PFI - - -and services Investments Associates 1.3 0.8 2.3
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Amounts owed by Joint ventures - PFI - 0.9 0.9related parties Investments Associates 3.1 2.6 2.1
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Amounts owed to Joint ventures - PFI - - -related parties Investments - Associates 0.2 0.2 0.3
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Sales and purchases of goods and services to related parties were made on normal trading terms.
The amounts outstanding per the above table are unsecured and will be settledin cash. No guarantees have been given or received on these amounts. Noprovisions have been made for doubtful debts in respect of the amounts owed byrelated parties.11. Contingent liabilities
Other contingent liabilities of the Group have not materially changed from those published in the Annual Report and Financial Statements for the year ended 31 December 2008.
12. Post balance sheet events
On 7 August 2009 the Board approved the closure of the defined benefit schemeto future accrual for all non-passport members from the end of 2009. This willbe reflected in a reduction in pension liabilities of approximately 20million.Headline profit comprises profit before taxation of 40.0m (H1 2008: 33.7m)adjusted for the impact of ( 2.5m) amortisation of intangible assets (H1 2008:( 2.5m)); ( 0.2m) amortisation of intangible assets (associates) (H1 2008: 0.3m); 3.4m exceptional items (H1 2008: nil).
Headline earnings per share are based on Headline profit as defined in note 1 above (see also note 6 to the unaudited condensed financial statements)
Future workload comprises contracted work plus work that has been settled andon which final terms are being agreed (principally PFI projects at preferredbidder stage). It includes our share of work won by our Middle East associates.Cash conversion is calculated as the percentage of cash generated by operationsof 37.9m (H1 2008: 19.5m) divided by the sum of: operating profit of 30.4m(H1 2008: 25.3m); plus amortisation of intangible assets of 2.5m (H1 2008: 2.5m); less profit on disposal of property and investments of 3.4m (H1 2008:nil).
5 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.
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