10 Aug 2011 07:00
HALF-YEAR RESULTS ANNOUNCEMENT SIX MONTHS ENDED 30 JUNE 2011
Interserve, the international support services and construction group, announces its half-year results for the six months ended 30 June 2011.
H1 2011 H1 2010 Change Revenue £928.0m £944.5m (1.7)% Headline profit * £33.0m £30.0m +10.0% Profit before tax £30.1m £27.3m +10.3% Headline earnings per share * 22.8p 17.5p +30.3% Basic earnings per share 21.2p 15.9p +33.3% Net debt £35.8m £53.1m (32.6)% Interim dividend 6.0p 5.6p +7.1% Strong performance
- First-half headline profit up 10.0 per cent
- First-half free cash flow generation of £44.1 million
- Interim dividend up 7.1 per cent
Strong financial position
- Net debt reduced to £35.8 million at 30 June 2011 (H1 2010: £53.1 million)
- Further marked reduction in pension deficit (net of taxation) to £22.1 million
(H1 2010: £75.8 million)
Confidence in Group's prospects
- Encouraged by progress in the first half, maintaining guidance for 2011
- Over £1 billion of contract wins announced to date in 2011
- £1.1 billion of workload for 2012, within a substantial total future workload
of £5.4 billion
- Capability to double earnings per share over five years
Chief Executive Adrian Ringrose commented, "Interserve has performed well, delivering headline profit growth despite challenging market conditions. Support Services generated strong growth which, accompanied by a robust performance from Construction, more than offset the ongoing cyclical pressures in Equipment Services.
"Encouraged by the progress achieved in the first six months of the year and a growing bid portfolio, we maintain our guidance for 2011 and reiterate our belief that we have the capability to double earnings per share over five years.
"This confidence, underpinned by strong cash conversion, is reflected in theBoard's announcement of an increase in the interim dividend in line with ourprogressive dividend policy." - Ends -
For further information please contact:
Adrian Ringrose, Chief Executive 0118 932 0123 Tim Haywood, Group Finance Director 0118 932 0123 Matt Jones, Head of Investor Relations 0118 960 2280 Liz Morley / Tom Eckersley, Maitland 020 7379 5151
About Interserve
Interserve's vision is to be The Trusted Partner of all our stakeholders. Weare one of the world's foremost support services and construction companies,operating in the public and private sectors in the UK and internationally. Weoffer advice, design, construction, equipment and facilities managementservices for society's infrastructure. We are based in the UK, have revenue of£1.9 billion and a workforce of 50,000 people worldwide.
* Note
This news release and the Interim Management Report include a number ofnon-statutory measures, to reflect the impact of non-trading and non-recurringitems. See note 12 to the consolidated financial statements on page 30 for areconciliation of these measures to their statutory equivalents.Interim management reportChairman's statement
Headline profits of £33.0 million in the first half were 10 per cent above theprior-year result of £30.0 million, a good result given the continuinguncertain economic environment. Support Services delivered a strongperformance, growing profits by 76 per cent year-on-year as it continued tobuild on the turnaround that began in the second half of 2010. Constructiondelivered a robust performance and maintained above-trend margins though, asanticipated, increased competition in its key markets resulted in its marginbeginning to recede from the record level achieved in 2010. Equipment Servicescontinued to encounter cyclical weakness in many of its markets, exacerbated bythe civil disturbances in Bahrain, Oman and North Africa.The Group maintains a strong financial position following another period ofexcellent cash conversion which has resulted in net debt reducing to £35.8million as at 30 June 2011 (30 June 2010: £53.1 million). There has been amarked reduction in the pension deficit, benefitting from a range of actionspreviously taken and improved market conditions as at 30 June 2011, with theshortfall of £22.1 million (net of tax) 71 per cent lower than as at 30 June2010. The next formal triennial valuation of the pension scheme is due as at 31December 2011, with the results of this and any consequent impact on ourcurrent deficit funding plan expected during 2012.
Dividend
Reflecting our confidence in the Group's prospects and our strong cash generation, the Board is announcing a 7 per cent increase in the interim dividend. An interim dividend of 6.0p (H1 2010: 5.6p) will be paid on 25 October 2011 to shareholders on the register at close of business on 23 September 2011.
Board
As previously announced, Patrick Balfour retired from the Board on 18 May 2011following our Annual General Meeting, and on behalf of the Board I would liketo thank Patrick for his extremely valuable contribution over the last eightyears. He has been succeeded as Senior Independent Director by David Trapnell,with David Thorpe taking over as Chairman of the Remuneration Committee.
Prospects
In 2011 we expect that our margin enhancement programme in Support Serviceswill continue to deliver improving performance which, in combination with anexpected upturn in Equipment Services, should mitigate our expectations oftougher trading conditions for Construction following its strong performance in2010. Hence we are maintaining our guidance for 2011.Beyond 2011, whilst conscious of the continuing risks to global economicrecovery, we consider that our particular mix of markets and geography offergood prospects for sustained medium-term growth at attractive margins. Webelieve that our strategy of concentrating on long-term client relationships inour core sectors of expertise is a key strength, given the visibility of futureworkload it brings, and were particularly pleased by the extension of oursuccessful partnership with the Defence Infrastructure Organisation during theperiod. We are also proving our ability to capture emerging opportunities inoutsourcing and infrastructure, as demonstrated by our joint venture with TheRehab Group winning two contracts on the Department for Work and Pensions' WorkProgramme.In the UK we anticipate structural growth and the development of outsourcingover the coming years, particularly in the public sector where the benefits ofoutsourcing as a means of reducing cost and improving service delivery will beessential in enabling the UK government to meet its expenditure objectives.Whilst the UK construction market will likely experience a softening in thenear term, the medium-term drivers remain positive as an increasing and ageingpopulation puts additional pressure on the country's infrastructure.Our international reach is a major strength and our strategy includes theexport of our skills and capabilities to high-growth international markets.Around a third of Group profits are currently derived from outside the UK,predominantly from our established markets in the Middle East and Australia. Weare looking to build on this strong base and develop our international presencefurther, with Qatar and India in particular likely to form key drivers of ourmedium-term growth ambitions. Lord BlackwellChairman10 August 2011Business reviewStrategic growth
Our vision is to be The Trusted Partner of all our stakeholders, bringing together our capabilities to create innovative solutions that support long-term relationships with customers, offering rewarding careers for staff and underpinning sustained value creation for shareholders.
We have a proven strategy that has led to a doubling of earnings per shareduring the period 2005 - 2010, despite the challenging economic backdrop of thepast two years. We believe that a continuation of this strategy, coupled withattractive demand drivers in our markets and the financial strength tosupplement organic growth with acquisitions, gives us the capability to deliveranother doubling of earnings per share over five years. Strategies Drivers Outcomes Build strong core businesses Attractive UK demand Substantial future
based on long-term, environment despite workload: value-added client short-term pressures: relationships - Strong revenue visibility - Structural growth in afforded by a future outsourcing workload in excess of £5bn - Rising population, increasing pressure on ageing infrastructure - Drive for public sector efficiencies Expand internationally High growth Strong earnings growth: international markets: - Organic revenue growth - Extend our full range above 5% per annum over of services across medium term existing markets - Margin trends over medium - Enter new growth term: markets with attractive economic fundamentals Outsourcing c. 5% - Operate in a range of UK construction c. 2% markets to diversify and reduce cyclical risk International construction c. 7% Equipment services c. 15% Capture emerging Organic growth Strong cash conversion, opportunities for supplemented by supporting: increasingly integrated selective, accretive solutions acquisitions - Selective, accretive acquisitions - Progressive dividend policy - Elimination of pension deficit
Key Performance Indicators (KPIs)
We use a set of financial and non-financial KPIs to measure critical aspects ofthe Group's performance. These KPIs are aligned with (a) achieving the Group'sstrategic objectives of delivering a substantial future workload and generatingstrong earnings growth and cash conversion; and (b) the Group's key behaviouralgoals, specifically regarding our employees and the health and safety ofeveryone working both directly and indirectly for Interserve.KPI Unit Target H1 H1 Change 2011 2010 Workload for next At the half-year: visibility year £billion over 50% of next year's 1.1 1.2 (8.3)% revenue (consensus) Headline earnings Pence Double headline EPS over the 22.8 17.5 +30.3%per share (EPS) five years to 2015 Operating cash conversion (1), % 100% over medium term 149.1 107.7 +41.4%pts3-year rolling average Annualised staff % Below 10% 7.5 8.7 (1.2)%ptsturnover(2) Annualised Per Halve the rate by 2020 all-employee 100,000 376 379 (0.8)%accident incidence workforce from a 2010 base rate The future workload(3) at the end of the period stood at £5.4 billion,comprising £4.5 billion of forward orders and £0.9 billion relating topipeline. Of this future workload, £0.9 billion relates to the rest of 2011 and£1.1 billion relates to 2012, giving us visibility over 55 per cent ofconsensus revenues for 2012, consistent with our KPI and similar to the levelexperienced at the same stage last year.Headline earnings per share rose by 30 per cent in the first half of 2011, withgrowth of 10 per cent at the headline profit level augmented by a lowereffective tax rate arising from an exercise to optimise the tax treatment ofcash flows from our Middle East operations. We delivered further progress inSupport Services, a robust performance from Construction and a lower netinterest charge. These favourable effects were partially offset by continuingchallenging conditions for Equipment Services.Cash generation was strong, with net debt falling to £35.8 million as at 30June (H1 2010: £53.1 million). Cash conversion of 182 per cent in the periodwas positively impacted by continued tight control over working capital andcapital expenditure. On a three-year rolling average basis operating cashconversion is 149 per cent, above our KPI target.Being accident-free is one of our five key behavioural goals and maintaining asafe and healthy environment is fundamental to our success, so it isencouraging that we have been able to maintain a historically low UKall-employee incidence rate during the first half. It is also pleasing to seethat our efforts over recent years in improving this non-financial KPI wererewarded during the period with the receipt of two Presidents Awards and 24Gold Awards at the 2011 RoSPA Occupational Health and Safety Awards.
(1) See note 12 on page 30 for a definition of operating cash conversion.
(2) 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.
(3) Future workload comprises forward orders and pipeline, and includes ourshare of work won by associates, joint ventures and joint arrangements. Forwardorders are those for which we have secured contracts in place. Pipeline coverscontracts for which we are in bilateral negotiations and on which final termsare being agreed.
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 2011 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 28 and 29 of the Business Reviewincluded in the Group's 2010 annual report and financial statements.
These risks and uncertainties may be summarised as:
- Market change- Major contracts- Key people- Health and safety regime- Financial risks- Damage to reputationSegmental reviewOur divisions create and deliver integrated and single-service solutions thatoffer real benefits in meeting our clients' service requirements. They aresupported by a Group Services function which provides a range of centralservices and encompasses our financing and project finance bidding activities.Group Services' costs in the half year were £10.2 million (H1 2010: £10.1million).
Support Services
Support Services provides a broad range of outsourced solutions to the public and private sectors, predominantly in the UK, the majority of which we integrate and deliver ourselves.
Results summary: H1 2011 H1 2010 Change Revenue £538.0m £538.2m - Total Operating Profit £15.7m £8.9m +76.4% Operating margin 2.9% 1.7% + 1.2% ptsSupport Services delivered a significantly-improved contribution to TotalOperating Profit of £15.7 million (H1 2010: £8.9 million) and a margin of 2.9per cent (H1 2010: 1.7 per cent) in the period, primarily reflecting thecontinued benefits of the margin improvement programme. This strong growth inboth operating profit and margin builds on the progress that began during thesecond half of 2010, and the division remains on track to improve its marginsubstantially over the coming years towards the medium-term target of circafive per cent.Revenues were stable compared with the prior-year period. The divisiongenerates almost 40 per cent of its revenues from the private sector anddouble-digit growth during the period from this customer base offset reduceddiscretionary spend from the public sector. The division's future workload hasalso remained stable during the period, with new contract wins including atwo-year extension from our long-standing client the Defence InfrastructureOrganisation to its South East Regional Prime contract, an integratedfacilities management contract with the Department for Transport, a maintenancecontract with the London Borough of Lewisham and private-sector contract winswith, amongst others, William Hill, CE Electric, Alstom and BAE Systems.As a result, the division had a future workload of £4.0 billion at the end ofJune, of which over 85 per cent represented secured forward orders. Includedwithin this workload is £0.4 billion of work scheduled for the second half of2011 and a further £0.6 billion scheduled for delivery in 2012. This futureworkload is underpinned by a healthy bid portfolio of almost £8 billion, upfrom just over £6 billion a year ago. We are particularly active bidding in thedefence, health, local and central government and private sectors.The government's recent Open Public Services White Paper formalises its desireto reform the provision of public services in the UK, increasing theaddressable market for those outsourcing businesses that can demonstrate anability to devise innovative ways of delivering public services. Our success inpartnering with the charity The Rehab Group to win two contracts on theDepartment for Work and Pensions' Work Programme illustrates that we can meetthis challenge and demonstrates our ability to capture the opportunities thatare beginning to emerge.Overall, the demand drivers for this division remain attractive. Our customersare under pressure to reduce budgets, improve efficiencies and maximise theeffectiveness of their available resources in the current challenging economicenvironment. Our government clients in particular continue to face risingdemand from a growing and ageing population to improve the delivery of existingservices. We are well positioned to help all of our customers given our strongcapabilities across a broad range of markets, our proven track record indelivering change and our ability to create innovative solutions. As a result,we expect this business to generate good medium-term growth. Moreover we havethe necessary investment in place to support this growth, having put in place aNational Service Centre, an improved back-office infrastructure and a number ofprocurement initiatives to drive additional benefits from the division'sincreasing scale.
Construction (previously Project Services)
Construction delivers a broad range of buildings and infrastructure from an extensive network of regional offices, both in the UK and internationally (notably in the Middle East).
First-half trading was solid in both the UK and international segments,producing a divisional contribution to Total Operating Profit of £20.1 million(H1 2010: £23.5 million).Results summary: H1 2011 H1 2010 Change Divisional result: Revenue including share of associates £484.1m £512.4m (5.5)% Total Operating Profit £20.1m £23.5m (14.5)% UK: Revenue £364.8m £380.8m (4.2)% Total Operating Profit £10.2m £10.9m (6.4)% Operating margin 2.8% 2.9% (0.1)% pts International associates: Revenue £119.3m £131.6m (9.3)% Total Operating Profit* £9.9m £12.6m (21.4)% Operating margin** 8.9% 10.3% (1.4)% pts
* Defined in note 5 to the unaudited condensed financial statements as Group share of profit after tax.
** Operating margin is based on operating profit of £10.6 million (H1 2010: £ 13.5million) as defined in note 5 to the unaudited condensed financial statements.
In the UK over half of the business's activity is generated via long-terminfrastructure and framework contracts which deliver a relatively predictableflow of work. The UK business' future workload of around £1.1 billion hasremained stable compared with the strong year-end position. Included withinthis workload is £0.3 billion of work scheduled for the second half of 2011 anda further £0.4 billion scheduled for delivery in 2012. Signs of an anticipatedmoderation in public sector spending are reflected in the revenue decline but,against this challenging backdrop, performance in the UK was very good,generating a margin of 2.8 per cent which remains above both our historicalrange and our view of medium-term sustainable margins.The health, education and infrastructure sectors continue to be importantsources of work for our UK business. In health our presence on all threenational framework agreements across England, Wales and Scotland has yieldedcontract wins for both new builds and extensions/refurbishments and the sectorrepresented around a quarter of our revenue in the period. We remain busy oneducation projects at Leeds, Sandwell and St Helens, whilst the Academiesprogramme has the potential to become an important source of work. Ininfrastructure we have improved our already strong position in the waterutility segment via places on framework contracts with Northumbrian Water,Veolia Water and South East Water. We are actively targeting a broad range ofsectors, including energy, waste and retail, to offset some of the potentialshortfall in work in the coming years from our traditional public sectorsegments.In the International segment our diversity across the Middle East and India,both in sectoral and geographic terms, together with the strength of our localpartnerships, has enabled our associate companies to deliver another solidfirst-half performance and remit a healthy flow of dividends that exceeded 100per cent of profits. We continued to secure new contracts during the periodacross all our major markets, maintaining the region's future workload at asimilar level to the year-end position (around £0.3 billion). In our two largermarkets of Qatar and the UAE there was negligible contagion from the 'ArabSpring' protests, and although Oman experienced some disruption it had littledirect impact on our operation in the country.In our most important international market, Qatar, new contracts were securedin both services and construction activities. Our services workload wasbolstered by, amongst others, an extension to our maintenance contract withRasGas, whilst our construction business was awarded its first majorstate-school building contracts in the country, leveraging our UK expertise toenter a new sector for us in Qatar. We are continuing to expand our seniormanagement team in the country and are developing new business streams,including a specialist interior fit-out operation and a joint venture that ismarketing an environmentally-friendly wastewater treatment solution. Wecontinue to believe that Qatar will play a key role in the Group's medium-termgrowth ambitions.
In the UAE we were awarded a major contract to build a shopping mall in Fujairah for our long-standing client Majid Al Futtaim and won further work in Dubai including road-building contracts and an additional project at Dubai International Airport. We expect the UAE to remain a relatively attractive market over the medium term, given the growth potential of Abu Dhabi and Fujairah, albeit with lower margins than those enjoyed during the Dubai construction boom.
In Oman we won work across a range of sectors, including projects at theMukhaizna oilfield, further substation construction at Barka and thedevelopment of residential villas. In our newest international market, India,the outlook is attractive and we look forward to growing the business from itscurrent small base as we expand both its geographical and sectoral reach in amarket that is increasingly seeking Western standards and expertise.
Equipment Services
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 2011 H1 2010 Change Revenue £74.3m £68.4m +8.6% Total Operating Profit £5.9m £7.7m (23.4)% Operating margin 7.9% 11.3% (3.4)% ptsThe division continued to experience challenging market conditions during thefirst half, which resulted in a reduced contribution to Total Operating Profitof £5.9 million. This mainly related to ongoing cyclical weakness ininfrastructure spending in many of its markets but was also exacerbated by thecivil disturbances in Bahrain, Oman and North Africa. Both of these factorswere particularly acute in the early part of the period, since when marketconditions have improved.
Australasia is a key region for the division, contributing strongly to the divisional performance and continuing to offer attractive opportunities, largely due to healthy demand in the mining and infrastructure sectors. Major projects in the period included a large desalination plant in Victoria, and major tunnels at the Gorgon LNG complex and the Sino Iron Ore Mine, both in Western Australia.
The Middle East region remains an important market, as we operate in the UAE,Qatar, Saudi Arabia, Bahrain and Oman and, on an export basis, North Africa,the Levant and other neighbouring countries. Trading in the region has beenslower than expected during the first half, notably due to the 'Arab Spring'impacting Bahrain, Oman and exports to North Africa (in particular, Libya).However our Saudi Arabian operation has continued to develop well in a marketthat remains active and we look forward to continued growth from this business.During the first half of 2011 our equipment was used on the extension to theRitz Carlton Hotel in Dubai and the development of an energy centre andmulti-storey car park in Doha.Trading conditions in Europe continued, as expected, to be difficult during theperiod. Our UK operation delivered a resilient performance within a toughenvironment, working on projects such as Llandough Hospital and StourbridgeInterchange. We are pleased with the market's reception to our latest product,'Megastair', a stair and access solution that will be used on the two new QueenElizabeth aircraft carriers being built at Rosyth, Scotland - a further exampleof the innovation and engineering expertise that differentiates our business.In Spain and Ireland trading remained very quiet and we have taken furtheraction to lower our cost base and move some equipment to more attractivemarkets.The integration of our systems and processes into the North American operationthat we acquired last November has progressed well, and although the market hasbeen quieter than anticipated there are now some early signs of positivemomentum. We remain confident that the operation will play an important role inthe division's growth during the second half of 2011 and beyond.Looking forward, we expect continued progress in Saudi Arabia and would look toour other major markets in the Middle East, the UAE and Qatar, to resume growthas projects reach the award phase, though the opportunities for our exportbusiness in the wider Gulf and Levant region are likely to remain muted in thewake of the civil disturbances. Our businesses in Australasia, the Far East andSouth America are expected to perform well, we plan to enter the Indian market,and we anticipate an improvement from our North American business during thesecond half as activity levels increase.
Investments
Investments directs all of the Group's project finance activities, leading thebid process and managing our portfolio of equity investments in such projects.Results summary: H1 2011 H1 2010 Change Total Operating Profit £2.4m £1.8m +33.3%
Interest received on subordinated debt investments £1.7m £1.0m +70.0%
Total contribution to Group results £4.1m £2.8m
+46.4%
Our portfolio continues to make a healthy contribution to Group earnings, with a total contribution to pre-tax profit of £4.1 million (H1 2010: £2.8 million).
As at 30 June 2011 we had 21 signed contracts (30 June 2010: 20), of which 18are now operational and three under construction, with the addition to theportfolio during the twelve-month period reflecting the attainment of financialclose on a schools programme for St Helens Council. Five projects reached theimportant milestone of entering their operational phase during the period (theTunbridge Wells hospital and schools in Derry, Down and Connor, Downpatrick andSandwell), whereby our Support Services division will assume responsibility forthe delivery of facilities management services on these sites.We continued to invest into our portfolio during the period, making equityinjections of nearly £10 million into the projects at Tunbridge Wells, Sandwelland Derry. This has increased our portfolio value and reduced our futureinvestment commitment to £20.6 million as at 30 June 2011. Over the mediumterm we expect our portfolio to be cash neutral, with new investments beingfunded by disposals of mature projects.With our considerable expertise and track record in delivering, operating andfinancing using project finance structures we believe we are well placed tobenefit from the further evolution of similar funding arrangements for publicinfrastructure investments. We are shortlisted on a number of projects, notablyin the health sector, and we expect to make further progress in generatingvalue from our portfolio.
Outlook
Encouraged by the progress achieved in the first six months of the year, we aremaintaining our guidance for 2011. We expect second-half trading to be drivenby further margin improvement in Support Services together with an expectedupturn in Equipment Services, the combination of which is expected to offsetfurther gradual margin decline in our Construction activities.Looking further ahead, we continue to believe that we have the capability todouble earnings per share over five years, given our proven strategy, ourattractive mix of end markets in outsourcing and infrastructure and our strongfinancial position.Responsibility statement
The names and functions of the directors of Interserve Plc are as listed in theGroup's Annual Report for 2010. A list of current directors is maintained onthe Group website: www.interserve.com.
The directors confirm to the best of their knowledge:
a) the condensed set of financial statements has been prepared in accordance
with IAS 34 as adopted by the European Union; 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
4.2.7R of the Disclosure and Transparency Rules of the Financial Services 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 BoardAdrian Ringrose Tim Haywood Chief Executive Group Finance Director10 August 2011
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 June2011 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 thatwe might state to the Company those matters we are required to state to them inan independent 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' responsibilitiesThe half-yearly financial report is the responsibility of, and has beenapproved by, the directors. The directors are responsible for preparing thehalf-yearly financial report in accordance with the Disclosure and TransparencyRules 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 Review
We 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 2011 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 Kingdom10 August 2011Unaudited condensed consolidated income statementFor the six months ended 30 June 2011 Six months ended 30 June 2011 Six months ended 30 June 2010 Before Before exceptional Exceptional exceptional Exceptional items and items and items and items and amortisation amortisation amortisation amortisation of acquired of acquired of acquired of acquired intangible intangible intangible intangible assets assets Total assets assets Total £ £ £ £ £ £ million million million million million million Continuing operations Revenue including share of associates and joint ventures 1,176.9 - 1,176.9 1,165.3 - 1,165.3 Less: Share of associates and joint ventures (248.9) - (248.9) (220.8) - (220.8) Consolidated revenue 928.0 - 928.0 944.5 - 944.5 Cost of sales (832.9) - (832.9) (862.1) - (862.1) Gross profit 95.1 - 95.1 82.4 - 82.4 Administration expenses (73.8) - (73.8) (65.4) - (65.4) Amortisation of acquired intangible assets - (2.7) (2.7) - (2.5) (2.5) Total administration expenses (73.8) (2.7) (76.5) (65.4) (2.5) (67.9) Operating profit 21.3 (2.7) 18.6 17.0 (2.5) 14.5 Share of results of associates and joint ventures 12.6 - 12.6 14.8 - 14.8 Amortisation of acquired intangible assets - (0.2) (0.2) - (0.2) (0.2) Total share of result of associates and joint ventures (note 5) 12.6 (0.2) 12.4 14.8 (0.2) 14.6 Total operating profit 33.9 (2.9) 31.0 31.8 (2.7) 29.1 Investment revenue 20.7 - 20.7 18.1 - 18.1 Finance costs (21.6) - (21.6) (19.9) - (19.9) Profit before tax 33.0 (2.9) 30.1 30.0 (2.7) 27.3 Tax (charge)/ credit (note 4) (3.0) 0.9 (2.1) (6.0) 0.7 (5.3) Profit for the period 30.0 (2.0) 28.0 24.0 (2.0) 22.0 Attributable to: Equity holders of the parent 28.7 (2.0) 26.7 22.0 (2.0) 20.0 Minority interest 1.3 - 1.3 2.0 - 2.0 30.0 (2.0) 28.0 24.0 (2.0) 22.0 Year ended 31 December 2010 Before exceptional Exceptional items and items and amortisation amortisation of acquired of acquired intangible intangible assets assets Total £million £million £million Continuing operations Revenue including share of associates and joint ventures 2,315.4 - 2,315.4 Less: Share of associates and joint ventures (443.4) - (443.4) Consolidated revenue 1,872.0 - 1,872.0 Cost of sales (1,693.4) - (1,693.4) Gross profit 178.6 - 178.6 Administration expenses (135.2) - (135.2) Amortisation of acquired intangible assets - (5.0) (5.0) Total administration expenses (135.2) (5.0) (140.2) Operating profit 43.4 (5.0) 38.4 Share of results of associates and joint ventures 31.0 - 31.0 Amortisation of acquired intangible assets - (0.5) (0.5) Total share of result of associates and joint ventures (note 5) 31.0 (0.5) 30.5 Total operating profit 74.4 (5.5) 68.9 Investment revenue 36.1 - 36.1 Finance costs (40.9) - (40.9) Profit before tax 69.6 (5.5) 64.1 Tax (charge)/
credit (note 4) (12.0) 1.4 (10.6)
Profit for the period 57.6 (4.1) 53.5 Attributable to: Equity holders of the parent 53.8 (4.1) 49.7 Minority interest 3.8 - 3.8 57.6 (4.1) 53.5 Six months Six months Year ended ended ended 31 30 June 30 June December 2011 2010 2010
Earnings per share (note 6) pence pence
Pence Basic 21.2 15.9 39.5 Diluted 20.7 15.5 38.5
Dividend per share: 2011 unpaid and 2010 paid (note 7) 6.0 5.6
17.6
Unaudited condensed consolidated statement of comprehensive income For the six months ended 30 June 2011
Six months Six months Year ended ended ended 31 30 June 30 June December 2011 2010 2010 £million £million £million Profit for the period 28.0 22.0 53.5 Other comprehensive income
Exchange differences on translation of
foreign operations (4.9) 4.3 7.7
Gains/(losses) on available-for-sale financial assets (excluding joint ventures) 0.1 (0.8)
(0.6)
Actuarial gains/(losses) on defined benefit
pension schemes 7.5 (22.3) 19.3
Deferred tax on above items taken directly
to equity (note 4) (2.7) 6.4 (6.0)
Net impact of items relating to joint venture (1.2)
entities * (5.5) (12.4)
Other comprehensive (expense)/income net of tax (1.2) (17.9)
8.0 Total comprehensive income 26.8 4.1 61.5 Attributable to: Equity holders of the parent 25.5 2.1 57.7 Minority interest 1.3 2.0 3.8 26.8 4.1 61.5
* Movements in other comprehensive income within joint venture entities, previously disclosed separately, have been shown within a single line, net of deferred tax. Prior period comparatives have been reclassified accordingly. This does not impact total comprehensive income.
Unaudited condensed consolidated balance sheetAt 30 June 2011 30 June 30 June 31 December 2011 2010 2010 £million £million £million Non-current assets Goodwill 199.6 198.9 199.6 Other intangible assets 25.5 30.5 28.7 Property, plant and equipment 140.7 138.6 149.0
Interests in joint venture entities 68.0 67.2
60.1
Interests in associated undertakings 57.4 62.2
61.7 Deferred tax asset 11.2 32.4 16.5 502.4 529.8 515.6 Current assets Inventories 21.0 18.1 19.6 Trade and other receivables 387.5 387.8 386.1 Cash and deposits 45.8 49.6 67.6 454.3 455.5 473.3 Total assets 956.7 985.3 988.9 Current liabilities Bank overdrafts (25.5) (11.4) (35.2) Trade and other payables (509.3) (494.2) (492.8) Current tax liabilities (4.0) (7.1) (3.9) Short-term provisions (25.0) (23.2) (20.2) (563.8) (535.9) (552.1) Net current liabilities (109.5) (80.4) (78.8) Non-current liabilities Bank loans (55.0) (90.0) (85.0) Trade and other payables (6.5) (9.2) (6.7) Non-current tax liabilities (6.4) (9.1) (9.1) Long-term provisions (26.7) (25.5) (26.9) Retirement benefit obligation (note 8) (29.8) (105.3) (51.5) (124.4) (239.1) (179.2) Total liabilities (688.2) (775.0) (731.3) Net assets 268.5 210.3 257.6 Equity Share capital 12.6 12.6 12.6 Share premium account 112.7 112.7 112.7 Capital redemption reserve 0.1 0.1 0.1 Merger reserve 49.0 49.0 49.0
Hedging and translation reserves 58.2 67.5
64.2 Investment in own shares (2.8) (0.5) (2.8) Retained earnings 34.7 (34.7) 18.0
Equity attributable to equity holders of
the parent 264.5 206.7 253.8 Minority interest 4.0 3.6 3.8 Total equity 268.5 210.3 257.6
Unaudited condensed consolidated statement of changes in equity For the six months ended 30 June 2011
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
£million £million £million £million £million £million £million £million £million £million Balance at 31 December 2009 12.5 112.7 0.1 49.0 69.3 (0.5) (24.1) 219.0 2.7 221.7 Total comprehensive income - - - - (1.8) - 3.9 2.1 2.0 4.1 Dividends paid - - - - - - (15.1) (15.1) (1.1) (16.2) Shares issued 0.1 - - - - - - 0.1 - 0.1 Share-based payments - - - - - - 0.6 0.6 - 0.6 Balance at 30 June 2010 12.6 112.7 0.1 49.0 67.5 (0.5) (34.7) 206.7 3.6 210.3 Total comprehensive income - - - - (3.3) - 58.9 55.6 1.8 57.4 Dividends paid - - - - - -
(7.0) (7.0) (1.6) (8.6)
Shares issued - - - - - - - - - - Purchase of Company shares - - - - - (2.3) - (2.3) - (2.3) Company shares used to settle share-based payments - - - - - - - - - - Share-based payments - - - - - - 0.8 0.8 - 0.8 Balance at 31 December 2010 12.6 112.7 0.1 49.0 64.2 (2.8) 18.0 253.8 3.8 257.6 Total comprehensive income - - - - (6.0) - 31.5 25.5 1.3 26.8 Dividends paid - - - - - -
(15.5) (15.5) (1.1) (16.6)
Company shares used to settle share-based payments - - - - - - - - - - Share-based payments - - - - - - 0.7 0.7 - 0.7 Balance at 30 June 2011 12.6 112.7 0.1 49.0 58.2 (2.8) 34.7 264.5 4.0 268.5
The accumulated balance of translation differences, incorporated within the Hedging and translation reserve above, amounts to £30.7 million at 30 June 2010 (£35.6 million at 31 December 2010 and £32.2 million at 30 June 2010).
Unaudited condensed consolidated statement of cash flows For the six months ended 30 June 2011
Six months Six months Year ended ended ended 31 December 30 June 2011 30 June 2010 2010 £million £million £millionOperating activities Total operating profit 31.0 29.1 68.9 Adjustments for: Amortisation of acquired intangible assets 2.7 2.5 5.0 Amortisation of capitalised software development 0.8 0.4 1.1 Depreciation of property, plant and equipment 13.8 12.2 25.2 Pension payments in excess of current service cost (13.7) (13.5) (26.7)
Share of results of associates
and joint venture entities (12.4) (14.6) (30.5)
Charge relating to share-based
payments 0.7 0.6 1.6
Gain on disposal of plant and
equipment - hire fleet (6.8) (5.6) (12.7)
Gain on disposal of plant and
equipment - other (0.1) (0.3) (0.3)
Operating cash flows before movements in working capital 16.0 10.8
31.6
(Increase)/decrease in inventories (1.7) 2.4
2.6 Increase in receivables (2.2) (32.2) (29.1) Increase in payables 21.1 11.0 5.0 Cash generated by operations 33.2 (8.0) 10.1 Taxes paid (1.9) (1.5) (6.3)
Net cash from operating activities 31.3 (9.5)
3.8 Investing activities Interest received 3.3 1.9 3.8
Dividends received from associates
and joint ventures 14.8 13.4 32.1
Proceeds on disposal of plant and
equipment - hire fleet 12.3 9.9 27.5
Proceeds on disposal of plant and
equipment - other 0.7 0.7 2.3 Capital expenditure (13.4) (7.4) (20.3) Purchase of business - - (21.6)
Investment in joint ventures -
Investments (9.5) (6.3) (6.1)
Investment in associated undertakings - -
(5.0)
Receipt of loan repayment - Investments - -
0.1
Net cash generated in investing
activities 8.2 12.2 12.8 Financing activities Interest paid (4.7) (2.4) (6.4)
Dividends paid to equity shareholders (15.5) (15.1)
(22.1)
Dividends paid to minority shareholders (1.1) (1.1)
(2.7) Issue of shares - - 0.1 Purchase of own shares - - (2.3)
(Repayment of)/increase in bank loans (30.0) 5.0
-
Movement in obligations under finance
leases (0.1) (0.3) (0.4)
Net cash used in financing activities (51.4) (13.9)
(33.8) Net decrease in cash and cash equivalents (11.9) (11.2) (17.2)
Cash and cash equivalents at beginning
of period 32.4 49.3 49.3
Effect of foreign exchange rate changes (0.2) 0.1
0.3
Cash and cash equivalents at end of
period 20.3 38.2 32.4
Cash and cash equivalents comprise
Cash and deposits 45.8 49.6 67.6 Bank overdrafts (25.5) (11.4) (35.2) 20.3 38.2 32.4
Reconciliation of net cash flow to
movement in net debt Net decrease in cash and cash equivalents (11.9) (11.2) (17.2)
Repayment of/(increase in) bank loans 30.0 (5.0)
-
Movement in obligations under finance
leases 0.1 0.3 0.4
Change in net debt resulting from cash
flows 18.2 (15.9) (16.8)
Effect of foreign exchange rate changes (0.2) 0.1
0.3
Change in net debt during the period 18.0 (15.8)
(16.5) Net debt - opening (53.8) (37.3) (37.3) Net debt - closing (35.8) (53.1) (53.8)
Notes to the unaudited interim financial statements For six months ended 30 June 2011
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 2011 (the interim financial statements) comprise theresults 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 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 fromthe date of the signing of the interim financial statement, noting inparticular that: the majority of the Group's revenue is derived from long-termcontracts; the Group had visibility of £1.1 billion of work scheduled for 2012at the balance sheet date; and the Group has access to committed debtfacilities totalling £250 million until at least October 2013. Accordingly, theGroup continues to adopt the going concern basis in preparing the half-yearlycondensed financial statements.A copy of the statutory accounts for the year ended 31 December 2010 has beendelivered to the Registrar of Companies. The auditors' report on those accountswas 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 2011 have been reviewed by Deloitte LLP but have not been audited (see page 15).
2. Accounting policies and principal risks
The interim financial statements have been prepared in accordance with IAS 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 financialinformation set out in this interim report does not constitute statutoryaccounts as defined in section 434 of the Companies Act 2006. 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 2010. The accounting policies and methods of computation followed in the interimfinancial statements are consistent with those published in the Group's AnnualReport and Financial Statements for the year ended 31 December 2010 and whichare available on the Group's website at www.interserve.com.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 2010. Taxes on income in the interim period are accruedusing the tax rate that would be applicable to expected total annual earnings.
Significant standards and interpretations introduced during the period:
Standard IFRS 1 (amended) First-time adoption of IFRS Does not impact the Group- limited exemptions from comparative IFRS 7 disclosures
IFRIC 14 Prepayments of a minimum funding requirement Does not impact the Group
IAS 24 Related party disclosures (amended Nov 2009) Does not impact the Group
IFRIC 19 Extinguishing financial liabilities with Does not impact the Group equity instruments
IAS 32 (amended) Financial instruments presentation Does not impact the Group - classification of rights issues
At the date of authorisation of these interim financial statements thefollowing standards and interpretations were in issue but not yet effective, asthey have not yet been adopted by the EU, and therefore have not been appliedin these interim financial statements:Standard IFRS 9 Financial instruments IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements
IFRS 12 Disclosures of Interests in Other Entities
IFRS 13 Fair Value Measurement IAS 19 (revised) Employee Benefits IAS 27 Separate Financial Statements
IAS 28 Investments in Associates and Joint Ventures
IFRS 7 (amended) Financial Instruments: Disclosures
IAS 12 (amended) Deferred tax: Recovery of Underlying Assets
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 though profit or loss" or "amortised cost". As a result, movements in the fair value will no longer be taken to "Other comprehensive income".
The key impact of IAS 19 (revised) will be to remove the separate assumptionsfor expected return on plan assets and discounting of scheme liabilities, andreplace them with one single discount rate for the net deficit.Except for IFRS 9 and IAS 19 (revised), listed above, the directors anticipatethat the adoption of these standards and interpretations in future periods willhave no material impact on the financial statements of the Group.The principal risks and uncertainties facing the Group are those described onpages 28 to 29 of the Group's Annual Report and Financial Statements for theyear ended 31 December 2010. The directors expect that the Group's profits willcontinue to be weighted to the second-half.
3. Business and geographical segments
(a) Business segments
The Group is organised into four operating divisions, as set out below. The Group internally reviews and allocates resources to each of these operating divisions and each has a divisional managing director who reports into and forms part of the executive board.
- Support Services: provision of outsourced support services to public- and
private-sector clients.
- Construction: design, construction and maintenance of buildings and
infrastructure.
- Equipment Services: design, hire and sale of formwork, falsework and associated
access equipment.
- Investments: transaction structuring and management of the Group's project
finance activities. The Investments' segmental figures represent the Group's
share of the associated special purpose companies.
Segment information about these operating divisions is presented below.
Revenue including share of associates and joint ventures Consolidated revenue Six Six Six Six months months Year months months Year ended ended ended ended ended ended 31 31 30 June 30 June December 30 June 30 June December 2011 2010 2010 2011 2010 2010 £million £million £million £million £million £million Support Services 572.8 583.6 1,167.5 538.0 538.2 1,093.6 Construction 484.1 512.4 1,002.9 364.8 380.8 740.0 Equipment Services 74.3 68.4 139.9 74.3 68.4 139.9 Investments 94.8 43.8 106.6 - - - Group Services - - - - - - Inter-segment elimination (49.1) (42.9) (101.5) (49.1) (42.9) (101.5) 1,176.9 1,165.3 2,315.4 928.0 944.5 1,872.0 Result Six months Six months Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 £million £million £million Support Services 15.7 8.9 27.2 Construction 20.1 23.5 48.6 Equipment Services 5.9 7.7 14.4 Investments 2.4 1.8 4.2 Group Services (10.2) (10.1) (20.0) 33.9 31.8 74.4
Amortisation of acquired intangible assets (2.9) (2.7)
(5.5) Total operating profit 31.0 29.1 68.9 Investment revenue 20.7 18.1 36.1 Finance costs (21.6) (19.9) (40.9) Profit before tax 30.1 27.3 64.1 Tax (2.1) (5.3) (10.6) Profit after tax 28.0 22.0 53.5 Net assets/(liabilities) 31 30 June 30 June December 2011 2010 2010 £million £million £million Support Services (15.2) (21.9) (17.1) Construction (86.3) (97.3) (75.2) Equipment Services 158.2 132.6 158.0 Investments 68.0 67.2 60.1 124.7 80.6 125.8
Group Services, goodwill and acquired intangible
assets 175.6 179.2 181.8 300.3 259.8 307.6 Net debt (35.8) (53.1) (53.8)
Net assets (excluding minority interest) 264.5 206.7
253.8 (b) Geographical segments
Support Services is predominantly based in the United Kingdom. Construction is located in the United Kingdom and operates through associates in the Middle East and India. Equipment Services has operations in all of the geographic segments listed below.
The table below provides an analysis of the Group's sales by geographical market, irrespective of the origin of the goods/services.
Revenue including share of associates Consolidated revenue and joint ventures Six Six Six months Six months Year months months Year ended ended ended ended ended ended 31 30 June 30 June 31 December 30 June 30 June December 2011 2010 2010 2011 2010 2010 £ £ £ £ £ £ million million million million million million United Kingdom 1,039.7 1,014.8 2,027.2 910.1 925.6 1,846.7 Rest of Europe 6.2 10.6 17.5 6.2 10.6 17.5 Middle East & Africa 147.4 161.2 323.8 28.1 29.6 60.9 Australasia 21.9 16.6 37.4 21.9 16.6 37.4 Far East 3.3 3.1 6.1 3.3 3.1 6.1 Americas 7.5 1.9 4.9 7.5 1.9 4.9 Group Services - - - - - - Inter-segment elimination (49.1) (42.9) (101.5) (49.1) (42.9) (101.5) 1,176.9 1,165.3 2,315.4 928.0 944.5 1,872.0 Total operating profit Six months Six months Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 £million £million £million United Kingdom 29.5 23.8 55.9 Rest of Europe (2.0) (0.7) (2.8) Middle East & Africa 10.8 14.8 30.5 Australasia 6.5 4.1 10.5 Far East - 0.1 0.7 Americas (0.7) (0.2) (0.4) Group Services (10.2) (10.1) (20.0) 33.9 31.8 74.4 Amortisation of acquired intangible assets (2.9) (2.7) (5.5) 31.0 29.1 68.9 Non-current assets 31 30 June 30 June December 2011 2010 2010 £million £million £million United Kingdom 109.0 112.3 101.4 Rest of Europe 12.8 16.3 14.7 Middle East & Africa 96.0 127.0 105.4 Australasia 19.3 17.0 19.3 Far East 7.7 5.5 6.3 Americas 23.0 4.4 26.1
Group Services, goodwill and acquired intangible
assets 223.4 214.9 225.9 491.2 497.4 499.1 Deferred tax asset 11.2 32.4 16.5 Total non-current assets 502.4 529.8 515.64. Income tax expense Six months Six months Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 £million £million £million UK taxation (3.0) (1.4) (1.6) Overseas taxation 2.5 1.5 3.1 Deferred taxation 2.6 5.2 9.1 2.1 5.3 10.6
Tax charge before prior period adjustments and changes in
rates A 5.4 4.2 11.7
Prior period adjustments - (credits)/charges (2.9) 1.1
(0.9)
Credit on revaluation of deferred tax balances on changes
in tax rate (0.4) - (0.2) 2.1 5.3 10.6 Profit before tax
Subsidiary undertakings' profit before tax B 17.7 12.7
33.6
Group share of profit after tax of associates and joint
ventures 12.4 14.6 30.5 30.1 27.3 64.1
Effective tax, excluding one-offs, on subsidiary profits
before tax A/B 30.5% 33.1% 34.8% 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 Six Year months months ended ended ended 30 June 30 June 31 December 2011 2010 2010 £million £million £million
Tax on actuarial gains/(losses) on pension liability 1.9 (6.2)
5.2
Impact of change in corporation tax rate on pension
liability 0.8 - 1.0
Tax on fair value adjustment on available-for-sale
financial assets - (0.2) (0.2) 2.7 (6.4) 6.0 The impact of deferred tax within project finance joint venture entities,disclosed in prior periods, has been removed from the table above and is nowincluded within "Net impact of items relating to joint venture entities" withinOther comprehensive income.No account has been taken in these interim financial statements of the FinanceAct 2011 that was substantially enacted in July 2011, after the balance sheetdate. It is estimated that the reduction in the corporation tax rate from 26%to 25% from April 2012 would have resulted in a £0.4 million reduction in thedeferred tax asset held on the balance sheet at 30 June 2011 if the change hadbeen applied in the interim statements.
5. Share of results and net assets of joint venture and associated undertakings
Six months ended 30 June 2011 Six months
ended 30 June 2010
Support Support Construction Services Investments Total Construction
Services Investments Total
£ £ £ £ £ £ £ £ million million million million million million million million Revenue 119.3 34.8 94.8 248.9 131.6 45.4 43.8 220.8 Operating profit 10.6 0.4 1.8 12.8 13.5 0.5 0.3 14.3 Net interest receivable 0.4 - 2.0 2.4 0.5 - 3.6 4.1 Taxation (1.1) (0.1) (1.4) (2.6) (1.4) (0.1) (2.1) (3.6) Group share of profit after tax 9.9 0.3 2.4 12.6 12.6 0.4 1.8 14.8 Amortisation of acquired intangible assets (0.2) - - (0.2) (0.2) - - (0.2) Contribution to total operating profit 9.7 0.3 2.4 12.4 12.4 0.4 1.8 14.6 Dividends (12.1) - (2.7) (14.8) (10.2) (1.0) (2.2) (13.4) Retained result for the period (2.4) 0.3 (0.3) (2.4) 2.2 (0.6) (0.4) 1.2 Year ended 31 December 2010 Support Construction Services Investments Total £ £ £ £ million million million million Revenue 262.9 73.9 106.6 443.4 Operating profit 28.1 0.8 3.8 32.7 Net interest receivable 1.1 - 2.8 3.9 Taxation (3.0) (0.2) (2.4) (5.6)
Group share of profit after tax 26.2 0.6 4.2
31.0
Amortisation of acquired intangible
assets (0.5) - - (0.5)
Contribution to total operating
profit 25.7 0.6 4.2 30.5 Dividends (25.9) (1.0) (5.2) (32.1) Retained result for the period (0.2) (0.4) (1.0)
(1.6)
The joint venture and associate undertakings are located in the United Kingdomexcept for the Construction associates which are located in the Middle East
andIndia.6. Earnings per share
The calculation of earnings per share is based on the following data:
Earnings Six Six Year months months ended ended ended 30 June 30 June 31 December 2011 2010 2010 £million £million £million
Net profit attributable to equity holders of the parent
(for basic and basic diluted earnings per share) 26.7 20.0
49.7 Adjustments:
Amortisation of acquired intangibles 2.9 2.7
5.5
Tax effect of above adjustment (0.9) (0.7)
(1.4)
Headline earnings (for headline and headline
diluted earnings per share) 28.7 22.0 53.8
Weighted average number of shares Six months Six months
Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 Number Number Number thousand thousand thousand
Weighted average number of ordinary shares for the purposes of basic and headline earnings
per share 125,804 125,626 125,716
Effect of dilutive potential ordinary shares:
Share-based payments 3,318 3,186 3,284
Weighted average number of ordinary shares for the purposes of basic and headline diluted earnings per share 129,122 128,812
129,000
Earnings per share Six months ended 30 Six months ended 30 Year ended 31 June 2011 June 2010 December 2010 pence pence pence Headline earnings per share 22.8 17.5 42.8 Diluted headline 22.2 earnings per share 17.1 41.7 Basic earnings per 21.2 share 15.9 39.5 Diluted basic earnings 20.7 per share 15.5 38.5 7. Dividends Six months Six months Year ended ended ended Dividend 30 June 30 June 31 December per share 2011 2010 2010 pence £million £million £million
Final dividend for the year
ended 31 December 2009 12.0 - 15.1 15.1
Interim dividend for the year
ended 31 December 2010 5.6 - - 7.0 Final dividend for the year ended 31 December 2010 12.4 15.5 - - Amount recognised as
distribution to equity holders
in the period 15.5 15.1 22.1 The interim dividend of 6.0 pence per share, amounting to £7.5 million, wasapproved by the directors on 8 August 2011 and has therefore not been includedas a liability as at 30 June 2011.
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 ended 30 June 30 June 31 December 2011 2010 2010 Retail prices index 3.50% pa 3.30% pa 3.40% pa Consumer prices index 2.90% pa n/a 2.80% pa Discount rate 5.60% pa 5.40% pa 5.40% pa
Pension increases in payment:
LPI/RPI 3.40%/3.50% 3.20%/3.30% 3.30%/3.40% Fixed 5% 5.00% 5.00% 5.00% 3% or RPI if higher (capped at 5%) 3.80% 3.60% 3.70% General salary increases 4.25 - 5.00% 4.05 - 4.80% 4.15 - 4.90% pa pa pa
The amount included in the balance sheet arising from the Group's obligations in respect of the various pension schemes is as follows:
31 December 30 June 2011 30 June 2010 2010 £million £million £million
Present value of defined benefit
obligation 639.2 640.2 642.3 Fair value of schemes' assets (609.4) (534.9) (590.8)
Liability recognised in the balance sheet 29.8 105.3 51.5
The amounts recognised in the income statement are as follows:
Six months Six months Year ended ended ended 31 30 June 30 June December 2011 2010 2010 £million £million £million
Employer's part of current service cost 2.9 3.3
6.3 Interest cost 16.9 17.4 34.5 Expected return on schemes' assets (17.4) (16.1)
(32.3)
Gains on curtailments and settlements (0.4) -
-
Total expense recognised in the income 2.0 4.6
8.5statement 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 ofcomprehensive income. In February 2011, the RMD Ireland Pension Scheme wasclosed to future accrual of benefit and as a result a £0.4 million curtailmentgain has been recognised in the income statement in the six months ended 30
June 2011.9. Share capital Six months Six months Year ended ended ended 30 June 30 June 31 December 2011 2010 2010 Shares thousand Shares thousand Shares thousand At 1 January 125,804 125,368 125,368
Exercised share-based payments - 436
436 At the end of the period 125,804 125,804 125,804 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 57 to 67 in the Annual Report and Financial Statements for the year ended 31 December 2010.
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 ended ended 30 June 30 June 31 December 2011 2010 2010 £million £million £million
Sales of goods and services Joint venture 99.9 105.1
225.2 entities Associates 54.1 64.3 103.1 Purchases of goods and Joint venture 0.1 - 0.1services entities Associates 1.1 1.6 1.0 Amounts owed by related Joint venture 1.1 0.9 1.1parties entities Associates 3.2 2.6 2.3 Amounts owed to related Joint venture - - -parties entities Associates - - -
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
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 2010.
12. Reconciliation of non-statutory measures
The Group uses a number of key performance indicators to monitor the performance of its business. This note reconciles these key performance indicators to individual lines in the financial statements.
Six Six months months Year ended ended ended 31 30 June 30 June Decembera) Headline pre-tax profit 2011 2010 2010 £million £million £million Profit before tax 30.1 27.3 64.1 Adjusted for: Amortisation of acquired intangible assets 2.7 2.5 5.0 Share of associates' amortisation of acquired 0.2 0.2 0.5intangible assets Headline pre-tax profit 33.0 30.0 69.6 Six Six months months Year ended ended Ended 31 30 June 30 June Decemberb) Operating cash flow 2011 2010 2010 £million £million £million Cash generated by operations 33.2 (8.0) 10.1 Adjusted for: Pension contributions in excess of current 13.7 13.5 26.7service cost Proceeds on disposal of property, plant and 13.0 10.6 29.8equipment Capital expenditure (13.4) (7.4) (20.3) Operating cash flow 46.5 8.7 46.3 Six Six months months Year ended ended ended 31 30 June 30 June Decemberc) Free cash flow 2011 2010 2010 £million £million £million Operating cash flow 46.5 8.7 46.3 Adjusted for: Pension contributions in excess of current (13.7) (13.5) (26.7)service cost Taxes paid (1.9) (1.5) (6.3)
Dividends received from associates and joint 14.8 13.4
32.1ventures Interest received 3.3 1.9 3.8 Interest paid (4.7) (2.4) (6.4) Effect of foreign exchange rate change (0.2) 0.1 0.3 Free cash flow 44.1 6.7 43.1 Six Six months months Year ended ended ended 31 30 June 30 June December
d) Operating cash conversion 2011 2010
2010 £ £ £ million million million
Three-year rolling operating cash flow 228.0 177.1
194.7
Three-year rolling operating profit, before exceptional 152.9 164.4
159.4
items and amortisation of acquired intangible items
Operating cash conversion 149.1% 107.7% 122.1%
PINX