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2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up...

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2012 Interserve Plc Half-Year Report 2012
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Page 1: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

2012Interserve Plc Half-Year Report 2012

Page 2: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01

HIGHLIGHTS First-half gross revenues up 2.8 per cent and

headlineprofitincreased8.2percent

First-halffreecashflowgenerationof £53.9 million (HY 2011: £44.1 million)

Acquisitionofwelfare-to-workbusinessfor upto£18.25millionand£15millionofnew investment in PFI portfolio

Disposal of PFI assets to realise a cash value of £35 million announced in June and completed 3 August

Interim dividend up 6.7 per cent

STRONG FUTURE PROSPECTS AND FINANCIAL POSITION

Over£1.4billionofworkwontotheend of June 2012

£1.1billionoffutureworkloadfor2013,within asubstantialtotalfutureworkloadof£6.0billion (FY2011:£5.6billion)

Strong operational cash generation - decrease innetdebtto£39.9millionat30June2012 (FY2011:£44.2million)afterfundingnew investments.

ABOUT INTERSERVE Interserve’s vision is to be The Trusted Partner of all our stakeholders. We are one of the world’s foremost support services and construction companies, operating in the public and private sectors in the UK and internationally. We offer advice, design, construction, equipment and facilities management services for society’s infrastructure. Interserve is based in the UK and is listed in the FTSE 250 index. We have gross revenue of £2.3 billion and a workforce of over 50,000 people worldwide.

Unaudited half-year results for the six months ended 30 June 2012

Page 3: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 02

INSIDE THIS REPORT...

HIGHLIGHTS 01

INTERIM MANAGEMENT REPORT

•CHAIRMAN’S STATEMENT 03

•CASE STUDY: KING ABDULAZIZ INTERNATIONAL AIRPORT 04

•BUSINESS REVIEW 05

RESPONSIBILITY STATEMENT 08

INDEPENDENT REVIEW REPORT 09

FINANCIAL STATEMENTS 10

NOTES TO THE FINANCIAL STATEMENTS 16

DIRECTORS AND ADVISERS 28

HEADLINE PROFIT*

£35.7m+8.2%GROSS REVENUE*

£1.2bn+2.8%

UNDERLYING HEADLINE EARNINGS PER SHARE1

21.3p+3.9%

PROFIT BEFORE TAX

£32.6m+8.3%NET DEBT

£39.9m+11.5%

INTERIM DIVIDEND

6.4p+6.7%

Chief Executive Adrian Ringrose commented, “We have delivered a good set of results against a backdrop of continuing mixed market conditions. Our ability to offer our clients intelligent solutions is reflected in growing revenues and profits together with an increasing future workload. Support Services generated strong growth accompanied by a robust performance from Construction and a continuing recovery in Equipment Services. Our confidence is demonstrated by the Board’s announcement of a further increase in dividend and reiteration of our guidance for stable performance in 2012 compared with 2011.”

STRONGFUTUREWORKLOAD,GROWINGREVENUESANDPROFITS

Results summary H1 2012 H1 2011 Change

Gross revenue* £1,210.1m £1,176.9m +2.8%

Headline profit* £35.7m £33.0m +8.2%

Profit before tax £32.6m £30.1m +8.3%

Underlying headline earnings per share1

21.3p 20.5p +3.9%

Net debt £39.9m £35.8m +11.5%

Interim dividend 6.4p 6.0p +6.7%*This report includes a number of non-statutory measures to reflect the impact of non-trading and non-recurring items. See note 12 to the unaudited condensed financial statements on page 25 for a reconciliation of these measures to their statutory equivalents.

1Using adjusted headline earnings for H1 2011 of £25.8 million, comprising £28.7 million headline earnings (see note 6 to the unaudited condensed financial statements on page 22) less £2.9 million one-off Middle East tax credit.

FOR FURTHER INVESTOR INFORMATION: www.interserve.com/investors

Page 4: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

INTERSERVE HALF-YEAR REPORT 2012 INTERIM MANAGEMENT REPORT CHAIRMAN’S STATEMENT 03

Interim management report Chairman’s statement

Performanceinthefirsthalfhasbeenencouragingdespitecontinuingeconomicheadwinds,benefittingfromourspread of activities and geographies and the strength of ourclientrelationships.Revenuesandprofitincreasedrelativetothefirsthalfoflastyearandwerealisedsignificantadditionalvaluethroughthedisposalofpartof our PFI assets (completed early in the second half of thisyear).Atthesametime,wemadefurtherprogressonourfuturegrowthstrategythroughtheacquisitionofInterserveWorkingFutures(IWF)andorganicinvestmentintotheprisonandwiderjusticemarket.

In the UK our Support Services business, alongside investing in the development of these new outsourcing markets, has continued its progress in enhancing customer value, efficiency and margins. Our expanding international support service activities continue to deliver strong results, benefitting from our exposure to the Middle East petrochemical sector.

Our Construction business has held up well in difficult market conditions, performing overall in line with our expectations. Given the general backdrop of the UK construction market it is particularly pleasing that our UK business has maintained its revenue and continues to be successful in winning new work. The business is pursuing a clear strategy to broaden its sector base in order to take best advantage of future revenue opportunities.

Equipment Services has made further progress during the half year, with growth in the Middle East and strength in the Far East and Australasia outweighing continuing challenging market conditions elsewhere.

The Group maintains a healthy financial position driven by ongoing strong cash conversion, low levels of net debt with substantial banking facilities and an attractive portfolio of PFI investments. Given the continuing opportunities we see for applying our mix of skills across UK and international markets, this financial strength provides a secure underpinning to our strategy for medium-term growth through both organic development and selective acquisitions.

Dividend

Reflecting our confidence in the medium-term outlook the Board has approved a further increase in the dividend of 6.7 per cent to 6.4 pence per share (H1 2011: 6.0 pence per share) which will be paid on 24 October 2012 to shareholders on the register at close of business on 21 September 2012.

Lord Blackwell Chairman 15 August 2012

“Performanceinthefirsthalfhasbeenencouraging.”

LORD BLACKWELL CHAIRMAN

Page 5: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

INTERSERVE HALF-YEAR REPORT 2012 INTERIM MANAGEMENT REPORT CASE STUDY: KING ABDULAZIZ INTERNATIONAL AIRPORT 04

At the head of the pier group

Jeddah’sKingAbdulazizInternationalAirportisbeingexpandedtogiveitacapacity of 30 million passengers annually. The approach road to the main concourse of the new terminal is in an area susceptible to flooding and is being built as an elevated structure, with 20 piers supporting the twin-deck roadway. Creating these concrete piers presented a number of formidable engineering challenges including:

• Each pier consists of two arches inclined at an angle of 16.32 degrees to the vertical and joined at the crown.

• There are 12 inclined columns coming off the arches at various levels.

• The width of each arch element varies from 2.5m at the base to 1.05m at the crown.

• Both arches and all 12 columns had to be cast in a single pour.

Our Equipment Services division, RMD Kwikform, used its own sophisticated 3D modelling software to help determine the

geometry and strength of the formwork structure and devise the shape of the panels required.

Among the issues in play were the need to ensure good flow around the high-density reinforcement contained within the concrete structure, and the pressure created by the weight of the wet concrete due to the height of the arches (14.5m) and the fact that they were to be cast in a single pour. The formwork had to withstand a pressure of 105kN – equivalent to the weight of three adult elephants – for every square metre of formwork.

We developed an ingenious design which used some of our standard equipment, acting as the structural support, and integrated it with a highly-complex, purpose-designed assembly that formed the mould for the complete pier comprising the arches and their columns. This combined solution not only met all the client’s direct requirements but also addressed the other engineering factors intrinsic to the pier design.

KINGABDULAZIZINTERNATIONALAIRPORT,JEDDAH,SAUDIARABIA

Page 6: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

INTERSERVE HALF-YEAR REPORT 2012 INTERIM MANAGEMENT REPORT BUSINESS REVIEW 05

Interim management report continued BusinessreviewSEGMENTAL REVIEWWe deliver our operational services through three divisions:SupportServices,ConstructionandEquipmentServices.OurDevelopmentsdivisionisresponsiblefor managing our investment activities (segmented as Investments) and for leading our strategic developments. Inaddition,GroupServicesconsistsoftheBoardandarange of central services.

All central costs, including those related to our financing and central bidding activities, are disclosed within the Group Services segment. Group Services’ costs in H1 2012 were £9.2 million (H1 2011: £10.2 million).

Support Services

The business focuses on integrated management and delivery of a broad range of outsourced services to both public and private sector clients in the UK and internationally.

Results summary H1 2012 H1 2011 Change

Revenue

- UK £572.1m £513.0m +11.5%

- International (share of associates)

£15.5m £12.0m +29.2%

Contribution to Total Operating Profit

£21.2m £17.1m +24.0%

- UK £19.6m £15.9m +23.3%

- International (share of associates)

£1.6m £1.2m +33.3%

Operating margin (UK) 3.4% 3.1% +0.3%pts

Operating margin (International)*

11.0% 10.8% +0.2%pts

*Operating margin for our associates is calculated on operating profit comprising post-tax profit of £1.6 million (H1 2011: £1.2 million) plus interest and tax of £0.1 million (H1 2011: £0.1 million).

Support Services UK delivered a strong performance, with revenues up 11.5 per cent as a result of our focus on account development and new business wins. The contribution to Total Operating Profit at £19.6 million was 23.3 per cent greater than H1 2011 (£15.9 million). The operating margin increased to 3.4 per cent (H1 2011: 3.1 per cent), reflecting further cost reductions and the emerging scale benefits of increased revenue.

The division derives approximately 65 per cent of its revenues from the public sector and 35 per cent from the private sector, with major customers such as the Ministry of Defence, DEFRA, the Foreign and Commonwealth Office, Sainsbury’s, Prudential and Alliance Boots.

Future workload for the division (UK and International), increased from £4.5 billion at the end of 2011 to £4.7 billion in H1 2012 with new work won from clients such as West Yorkshire Police, Alder Hey Children’s NHS Foundation Trust, National Grid, BPP, Sainsbury’s, Alliance Boots, William Hill and Ladbrokes. Included within this future workload is over £600 million scheduled for 2013.

The main drivers of our UK revenue are based on the ongoing need for government and businesses to increase efficiencies and maximise effectiveness in difficult economic conditions. Our government clients in particular need to deliver significant fiscal improvements in the face of rising demand from a growing and ageing population. We are well positioned to help address this challenge given our strong capabilities across a broad range of markets and our proven track record in managing change, reconfiguring services and transferring best practice between clients and sectors. We expect this part of the Group to generate sustained medium-term growth. Moreover, we have the necessary investment in place to support this growth with an improved back-office infrastructure and a number of procurement initiatives driving additional benefits from the division’s increasing scale. We have continued to strengthen our offering through the addition of Interserve Working Futures into the Group and the creation of the Justice business unit to enhance our offering in front-line public services. We have also added customers such as Magnox, BAE and Alstom to our private sector business.

Our international operations performed well in the period with revenues increasing 29.2 per cent and contribution to Total Operating Profit increasing 33.3 per cent to £1.6 million (H1 2011: £1.2 million). Our main market sector is the petrochemical industry where our long-term relationships, such as with Shell, Qatar Petroleum, Oryx GTL and the New Doha International Airport, represent significant growth opportunities. Our expertise in delivering services in safety-critical environments is reflected in the achievement, during the half year, of 20 million man-hours without a lost-time incident.

Page 7: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

INTERSERVE HALF-YEAR REPORT 2012 INTERIM MANAGEMENT REPORT BUSINESS REVIEW 06

Interim management report continued Businessreviewcontinued

Construction

The business designs and constructs buildings and infrastructure in the UK and internationally, focussing on long-term relationships through commercial structures such as framework agreements and PFI projects.

Results summary H1 2012 H1 2011 Change

Revenue

- UK £366.2m £364.9m +0.4%

- International (share of associates)

£103.8m £107.3m (3.3)%

Contribution to Total Operating Profit

£14.3m £18.7m (23.5)%

- UK £7.3m £10.0m (27.0)%

- International (share of associates)*

£7.0m £8.7m (19.5)%

Operating margin (UK) 2.0% 2.7% (0.7)%pts

Operating margin (International)**

7.1% 8.7% (1.6)%pts

* Defined in note 5 to the unaudited condensed financial statements on page 21 as Group share of profit after tax.

** Operating margin is based on operating profit of £7.4 million (H1 2011: £9.3 million) as defined in note 5 to the unaudited condensed financial statements on page 21.

The UK business performed well against a challenging set of market conditions, maintaining revenues in the period at £366.2 million (H1 2011: £364.9 million). As expected, margins eased slightly, resulting in a contribution to Total Operating Profit of £7.3 million (H1 2011: £10.0 million). The UK business’s future workload was relatively stable year on year at £1.1 billion (FY 2011: £0.9 billion) with some good work-winning in the period.

Project completions in the period included St Helens College, Swillington Primary School in Leeds (built to the Passivhaus standard), the Royal Bolton Hospital and the first phase of an office building refurbishment for Redevco in Glasgow’s George Square.

We are addressing a broadening range of sectors including production industries, energy, waste and nuclear in addition to our more traditional government and utilities arenas. In the UK we were awarded contracts or became preferred bidder with clients such as Jaguar Land Rover, National Grid, Magnox, Viridor (for a major waste-to-energy facility in Glasgow, awarded shortly after the period end), the Highways Agency (Corby A43 ring road), West Yorkshire Police Authority and the NHS in Wales. Internationally, in addition to further orders in the power sector in both Oman and Qatar, we have been successful in developing our specialist operations, winning substantial interior fit-out work in the Dubai Mall, a joinery and interiors contract with the Bab Al Bahr Hotel in Ajman and fit-out works for the Prime Minister of Dubai’s Office in the Emirates Towers.

Equipment Services

Operating globally, we design, hire and sell formwork, falsework and associated access equipment for infrastructure and building projects.

Results summary H1 2012 H1 2011 Change

Revenue £81.9m £74.3m +10.2%

Contribution to Total Operating Profit

£6.8m £5.9m +15.3%

Operating margin 8.3% 7.9% +0.4% pts

The division continued its recovery with revenues up 10 per cent to £81.9 million and contribution to Total Operating Profit up 15.3 per cent to £6.8 million. Revenue growth was led by the Far East and the Middle East with continued strong trading in Australasia. Europe and North America remained muted in the period. We continue to innovate and develop our customer offering; for example we have launched Ascent, a guided climbing formwork and screen product for casting tall building cores, with notable success in the UK, Hong Kong and the Middle East.

We continue to extend the business into growth markets and capture new opportunities, moving our equipment fleet in order to meet global demand. We have expanded our businesses in Chile and India and our export markets have performed well, with orders secured in Kuwait, Kurdistan, Scandinavia and Poland.

Developments

The division undertakes transaction structuring and management of Interserve’s PFI activities, and leads on strategic business development.

Results summary H1 2012 H1 2011 Change

Contribution to Total Operating Profit

£4.0m £2.4m +66.7%

Interest received on subordinated debt investments

£2.8m £1.7m +64.7%

Total contribution to Group results

£6.8m £4.1m +65.9%

Our PFI portfolio continues to make a healthy contribution to Group earnings, with a contribution to pre-tax profit of £6.8 million (H1 2011: £4.1 million). As at 30 June 2012 we had 23 signed contracts (30 June 2011: 21), of which 20 are now operational and three under construction.

The disposal of part of our interest in the UCLH PFI project, announced in June and completed in August, realises latent value within the portfolio and reflects our ongoing strategy of managing the portfolio to be self-financing over the

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INTERSERVE HALF-YEAR REPORT 2012 INTERIM MANAGEMENT REPORT BUSINESS REVIEW 07

medium term and disposing of assets where we have added maximum value. We made equity injections of £15 million into projects at Enniskillen and West Yorkshire Police in the first half. On 25 May 2012 our consortium was appointed preferred bidder for the redevelopment of Alder Hey children’s hospital.

With our considerable expertise and track record in delivering, operating and project finance we believe we are well placed to benefit from the further evolution of funding arrangements for public infrastructure projects.

STRATEGIC GROWTHInterserve’s vision is to bring together our diverse capabilities and innovative solutions that support long-term customer relationships, offer rewarding careers for our staff and underpin sustained value creation for shareholders.

The main components of our strategy are to:

•Continue to build strong core businesses.

•Expand internationally in attractive markets.

•Capture and grow complementary opportunities.

We demonstrated our ability to deliver on this strategy during the first half of 2012 through:

•Developing our front-line public service provision, particularly in the justice and welfare sectors.

•Winning (and achieving financial close shortly after the period end) a major contract to design and build a waste-to-energy scheme in Glasgow.

•Our continued focus on the power sector in Oman exemplified by our contract with Daewoo for the construction of a 2000 MW independent power plant.

•Equipment Services entering the Indian market and already having success with its first major projects.

•Expanding our interiors business in the Middle East with substantial fit-out work at flagship shopping malls, offices and hotels in the region.

The key outcomes in the period were:

•Significant future workload growth, with over £1.4 billion won in the first half of 2012 bringing our total future workload to £6.0 billion.

•Gross revenue growth of 2.8 per cent and headline profit growth of 8.2 per cent.

•Strong three-year rolling average operating cash conversion of 180.4 per cent, up from 149.1 per cent in H1 2011.

KEY PERFORMANCE INDICATORS (KPIs)We use a set of financial and non-financial KPIs to measure critical aspects of the Group’s performance. These KPIs are aligned with:

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

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

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

2 See note 12 to the unaudited condensed financial statements on page 25 for a definition of operating cash conversion.

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

4 Includes Interserve, its subsidiaries, associates and sub-contractors

WORKLOAD (EXCL. ASSOCIATES) FOR NEXT YEAR1

Target: At the half-year: visibility over 50% of next year’s consolidated revenue (consensus)

2012 56.5%

2011 54.8%

CHANGE +1.7%pts

HEADLINE EARNINGS PER SHARE (EPS)

Target: Double headline EPS over the five years to 2015

2012 21.3p

2011 22.8p

CHANGE

(6.6)%

OPERATING CASH CONVERSION2,3-YEARROLLINGAVERAGE

Target: 100% over medium term

2012 180.4%

2011 149.1%

CHANGE +31.3%pts

ANNUALISED STAFF TURNOVER3

Target: Below 10%

2012 5.4%

2011 7.5%

CHANGE

(2.1)%pts

ANNUALISED ALL-LABOUR ACCIDENT INCIDENCE RATE4

(PER100,000WORKFORCE)

Target: Halve the rate by 2020 from a 2010 base

2012 217

2011 317

CHANGE

(31.4)%

Interim management report continued Businessreviewcontinued

Page 9: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

INTERSERVE HALF-YEAR REPORT 2012 INTERIM MANAGEMENT REPORT BUSINESSREVIEW/RESPONSIBILITYSTATEMENT 08

OUTLOOKWe reiterate our full-year guidance for stable performance in 2012 compared with 2011. The medium-term outlook for our businesses remains positive, based on our growth strategy of building strong core businesses, developing internationally and capturing related expansion opportunities.

In Support Services we are focussed on delivering continued margin improvement combined with volume growth. We will continue developing our business internationally, concentrating on the petrochemical sector and on servicing clients with complex real-estate assets.

We expect both UK and international construction revenues to remain subdued in the near term with growth potentially resuming in 2014. Our margin expectations remain unchanged.

In Equipment Services, we envisage a continued recovery in revenues and progressive margin improvement driven by growing demand for infrastructure.

In addition to the trends outlined above in our main businesses, we believe there are a range of further opportunities available in related sectors, services and geographies and we are well positioned to pursue these, both organically and, where appropriate, through acquisition.

PRINCIPAL RISKS AND UNCERTAINTIESThe principal risks and uncertainties which could have a material impact upon the Group’s performance, together with the mitigation strategies adopted, have been reviewed and have not changed significantly from those set out on pages 22 and 23 of the Business Review included in the Group’s 2011 Annual Report and Financial Statements.

These risks and uncertainties arise from: failure to win new or sufficiently profitable contracts in our chosen markets, or to complete those contracts with sufficient profitability, due to adverse changes in the business, economic and political environment; the termination or unsatisfactory execution of major contracts; a breakdown of the relationships in the businesses in which we do not have overall control; failure to recruit or retain key people; failure to manage health and safety adequately; the financial risks discussed in the Financial Review on pages 24 to 29 of the Group’s 2011 Annual Report and Financial Statements; and damage to reputation resulting from the management of our business or the behaviour of our employees.

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

Responsibilitystatement

The names and functions of the directors of Interserve Plc are as listed in the Group’s Annual Report for 2011. A list of current directors is maintained on the Group website: www.interserve.com.

The directors confirm to the best of their knowledge:

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

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

Adrian Ringrose Tim HaywoodChief Executive Group Finance Director

15 August 2012

Interim management report continued Businessreviewcontinued

Page 10: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 which comprises the condensed consolidated income statement, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flow and related notes 1 to 14. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

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

Directors’ responsibilities

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

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

Our responsibility

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

Scope of review

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom’s Financial Services Authority.

Deloitte LLPChartered Accountants and Statutory Auditor London, United Kingdom 15 August 2012

INTERSERVE HALF-YEAR REPORT 2012 INDEPENDENT REVIEW REPORT 09

Independent review report to Interserve Plc

Page 11: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

Six months ended 30 June 2012 Six months ended 30 June 2011 Year ended 31 December 2011

Beforeexceptional

items andamortisation

of acquiredintangible

assets£million

Exceptionalitems and

amortisationof acquiredintangible

assets£million

Total£million

Beforeexceptional

items andamortisationof acquiredintangible

assets£million

Exceptionalitems and

amortisationof acquiredintangible

assets£million

Total£million

Beforeexceptional

items andamortisationof acquiredintangible

assets£million

Exceptionalitems and

amortisationof acquiredintangible

assets£million

Total£million

Continuing operationsRevenue including share of associates

and joint-ventures 1,210.1 - 1,210.1 1,176.9 - 1,176.9 2,319.6 - 2,319.6

Less: Share of associates and joint-ventures (226.1) - (226.1) (248.9) - (248.9) (472.1) - (472.1)

Consolidated revenue 984.0 - 984.0 928.0 - 928.0 1,847.5 - 1,847.5

Cost of sales (882.0) - (882.0) (832.9) - (832.9) (1,643.7) - (1,643.7)

Gross profit 102.0 - 102.0 95.1 - 95.1 203.8 - 203.8

Administration expenses (78.0) - (78.0) (73.8) - (73.8) (157.9) - (157.9)

Amortisation of acquired intangible assets - (2.8) (2.8) - (2.7) (2.7) - (5.2) (5.2)

Total administration expenses (78.0) (2.8) (80.8) (73.8) (2.7) (76.5) (157.9) (5.2) (163.1)

Operating profit 24.0 (2.8) 21.2 21.3 (2.7) 18.6 45.9 (5.2) 40.7

Share of result of associates and joint-ventures 13.1 - 13.1 12.6 - 12.6 27.9 - 27.9

Amortisation of acquired intangible assets - (0.3) (0.3) - (0.2) (0.2) - (0.5) (0.5)

Total share of result of associates and joint-ventures (note 5) 13.1 (0.3) 12.8 12.6 (0.2) 12.4 27.9 (0.5) 27.4

Total operating profit 37.1 (3.1) 34.0 33.9 (2.9) 31.0 73.8 (5.7) 68.1

Investment revenue 19.3 - 19.3 20.7 - 20.7 39.7 - 39.7

Finance costs (20.7) - (20.7) (21.6) - (21.6) (40.7) - (40.7)

Profit before tax 35.7 (3.1) 32.6 33.0 (2.9) 30.1 72.8 (5.7) 67.1

Tax (charge)/credit (note 4) (6.5) 0.9 (5.6) (3.0) 0.9 (2.1) (7.9) 1.4 (6.5)

Profit for the period 29.2 (2.2) 27.0 30.0 (2.0) 28.0 64.9 (4.3) 60.6

Attributable to:Equity holders of the parent 26.9 (2.2) 24.7 28.7 (2.0) 26.7 62.0 (4.3) 57.7

Minority interest 2.3 - 2.3 1.3 - 1.3 2.9 - 2.9

29.2 (2.2) 27.0 30.0 (2.0) 28.0 64.9 (4.3) 60.6

Six monthsended

30 June 2012pence

Six monthsended

30 June 2011pence

Yearended

31 December 2011pence

Earnings per share (note 6)Basic 19.6 21.2 45.9

Diluted 19.2 20.7 44.7

Dividend per share: 2012 unpaid and 2011 paid (note 7) 6.4 6.0 19.0

INTERSERVE HALF-YEAR REPORT 2012 FINANCIAL STATEMENTS 10

Unaudited condensed consolidated income statementFor the six months ended 30 June 2012

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Six monthsended

30 June 2012£million

Six monthsended

30 June 2011£million

Yearended

31 December 2011£million

Profit for the period 27.0 28.0 60.6

Other comprehensive income/(expense)Exchange differences on translation of foreign operations (2.2) (4.9) 8.0

Gains/(losses) on available-for-sale financial assets (excluding joint-ventures) (0.4) 0.1 1.1

Actuarial gains/(losses) on defined benefit pension schemes (52.5) 7.5 (32.9)

Deferred tax on above items taken directly to equity (note 4) 11.9 (2.7) 7.5

Net impact of items relating to joint-venture entities (12.1) (1.2) 23.1

Other comprehensive income/(expense) net of tax (55.3) (1.2) 6.8

Total comprehensive income/(expense) (28.3) 26.8 67.4

Attributable to:Equity holders of the parent (30.6) 25.5 64.5

Minority interest 2.3 1.3 2.9

(28.3) 26.8 67.4

INTERSERVE HALF-YEAR REPORT 2012 FINANCIAL STATEMENTS 11

Unaudited condensed consolidated statement of comprehensive income For the six months ended 30 June 2012

Page 13: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

30 June 2012£million

30 June 2011£million

31 December 2011£million

Non-current assetsGoodwill 213.4 199.6 199.0

Other intangible assets 26.5 25.5 22.2

Property, plant and equipment 137.5 140.7 139.7

Interests in joint-venture entities 107.3 68.0 103.3

Interests in associated undertakings 77.6 57.4 77.2

Deferred tax asset 30.8 11.2 23.4

593.1 502.4 564.8

Current assetsInventories 24.4 21.0 22.2

Trade and other receivables 422.7 387.5 380.1

Cash and deposits 67.2 45.8 46.1

514.3 454.3 448.4

Total assets 1,107.4 956.7 1,013.2

Current liabilitiesBank overdrafts (13.4) (25.5) (19.3)

Trade and other payables (575.5) (509.3) (492.7)

Current tax liabilities (6.0) (4.0) (5.9)

Short-term provisions (30.0) (25.0) (28.7)

(624.9) (563.8) (546.6)

Net current liabilities (110.6) (109.5) (98.2)

Non-current liabilitiesBank loans (92.5) (55.0) (70.0)

Trade and other payables (5.6) (6.5) (4.1)

Non-current tax liabilities (9.2) (6.4) (9.2)

Long-term provisions (25.8) (26.7) (26.3)

Retirement benefit obligation (note 8) (93.0) (29.8) (56.2)

(226.1) (124.4) (165.8)

Total liabilities (851.0) (688.2) (712.4)

Net assets 256.4 268.5 300.8

Equity Share capital 12.7 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 81.6 58.2 96.3

Investment in own shares (2.8) (2.8) (2.8)

Retained earnings (2.4) 34.7 28.7

Equity attributable to equity holders of the parent 250.9 264.5 296.6

Minority interest 5.5 4.0 4.2

Total equity 256.4 268.5 300.8

INTERSERVE HALF-YEAR REPORT 2012 FINANCIAL STATEMENTS 12

Unaudited condensed consolidated balance sheetAt 30 June 2012

Page 14: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

Sharecapital

£million

Sharepremium£million

Capitalredemption

reserve£million

Mergerreserve£million

Hedgingand

translationreserves£million

Investmentin ownshares

£million

Retainedearnings£million

Attributableto equity

holders ofthe parent

£million

Minorityinterest£million

Total£million

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

Total comprehensive income - - - - 38.1 - 0.9 39.0 1.6 40.6

Dividends paid - - - - - - (7.5) (7.5) (1.4) (8.9)

Company shares used to settle share-based payments - - - - - - - - - -

Share-based payments - - - - - - 0.6 0.6 - 0.6

Balance at 31 December 2011 12.6 112.7 0.1 49.0 96.3 (2.8) 28.7 296.6 4.2 300.8

Total comprehensive income - - - - (14.7) - (15.9) (30.6) 2.3 (28.3)

Dividends paid - - - - - - (16.3) (16.3) (1.0) (17.3)

Shares issued 0.1 - - - - - - 0.1 - 0.1

Company shares used to settle share-based payments - - - - - - - - - -

Share-based payments - - - - - - 1.1 1.1 - 1.1

Balance at 30 June 2012 12.7 112.7 0.1 49.0 81.6 (2.8) (2.4) 250.9 5.5 256.4

The accumulated balance of translation differences, incorporated within the hedging and translation reserve above, amounts to £41.4 million at 30 June 2012 (£43.6 million at 31 December 2011 and £30.7 million at 30 June 2011).

INTERSERVE HALF-YEAR REPORT 2012 FINANCIAL STATEMENTS 13

Unaudited condensed consolidated statement of changes in equityFor the six months ended 30 June 2012

Page 15: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

Six monthsended

30 June 2012£million

Six monthsended

30 June 2011£million

Yearended

31 December 2011£million

Operating activitiesTotal operating profit 34.0 31.0 68.1

Adjustments for:

Amortisation of acquired intangible assets 2.8 2.7 5.2

Amortisation of capitalised software development 0.8 0.8 1.6

Depreciation of property, plant and equipment 13.8 13.8 28.3

Pension payments in excess of current service cost (16.1) (13.7) (27.0)

Share of results of associates and joint-ventures (12.8) (12.4) (27.4)

Charge relating to share-based payments 1.1 0.7 2.3

Gain on disposal of plant and equipment – hire fleet (7.1) (6.9) (15.4)

Gain on disposal of plant and equipment - other - - (0.1)

Operating cash flows before movements in working capital 16.5 16.0 35.6

Increase in inventories (2.3) (1.7) (2.7)

(Increase)/decrease in receivables (41.4) (2.2) 5.6

Increase in payables 80.0 21.1 6.6

Cash generated by operations before changes in hire fleet 52.8 33.2 45.1

Capital expenditure - hire fleet (10.6) (9.3) (21.6)

Proceeds on disposal of plant and equipment - hire fleet 9.3 12.9 24.6

Cash generated by operations 51.5 36.8 48.1

Taxes paid (3.1) (1.9) (3.2)

Net cash from operating activities 48.4 34.9 44.9

Investing activitiesInterest received 3.4 3.3 4.4

Dividends received from associates and joint-ventures 10.7 14.8 20.6

Proceeds on disposal of plant and equipment - non-hire fleet 0.1 0.1 0.5

Capital expenditure - non-hire fleet (4.2) (4.1) (9.0)

Purchase of business (17.3) - -

Investment in joint-ventures - Investments (15.4) (9.5) (19.5)

Receipt of loan repayment - Investments 0.3 - 0.2

Net cash generated in investing activities (22.4) 4.6 (2.8)

Financing activitiesInterest paid (4.4) (4.7) (6.7)

Dividends paid to equity shareholders (16.3) (15.5) (23.0)

Dividends paid to minority shareholders (1.0) (1.1) (2.5)

Issue of shares 0.1 - -

Increase in/(repayment of) in bank loans 22.5 (30.0) (15.0)

Movement in obligations under finance leases 0.2 (0.1) (0.2)

Net cash used in financing activities 1.1 (51.4) (47.4)

Net increase/(decrease) in cash and cash equivalents 27.1 (11.9) (5.3)

Cash and cash equivalents at beginning of period 26.8 32.4 32.4

Effect of foreign exchange rate changes (0.1) (0.2) (0.3)

Cash and cash equivalents at end of period 53.8 20.3 26.8

INTERSERVE HALF-YEAR REPORT 2012 FINANCIAL STATEMENTS 14

Unaudited condensed consolidated statement of cash flowsFor the six months ended 30 June 2012

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Six monthsended

30 June 2012£million

Six monthsended

30 June 2011£million

Yearended

31 December 2011£million

Cash and cash equivalents compriseCash and deposits 67.2 45.8 46.1

Bank overdrafts (13.4) (25.5) (19.3)

53.8 20.3 26.8

Reconciliation of net cash flow to movement in net debtNet increase/(decrease) in cash and cash equivalents 27.1 (11.9) (5.3)

(Increase in)/repayment of bank loans (22.5) 30.0 15.0

Movement in obligations under finance leases (0.2) 0.1 0.2

Change in net debt resulting from cash flows 4.4 18.2 9.9

Effect of foreign exchange rate changes (0.1) (0.2) (0.3)

Change in net debt during the period 4.3 18.0 9.6

Net debt - opening (44.2) (53.8) (53.8)

Net debt - closing (39.9) (35.8) (44.2)

INTERSERVE HALF-YEAR REPORT 2012 FINANCIAL STATEMENTS 15

Unaudited condensed consolidated statement of cash flows continued

For the six months ended 30 June 2012

Page 17: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

1. GENERAL INFORMATION

Interserve Plc (the Company) is a company incorporated in the United Kingdom. The half-year results and condensed consolidated financial statements for the six months ended 30 June 2012 (the interim financial statements) comprise the results of the Company and its subsidiaries (together referred to as the Group) and the Group’s interest in joint-ventures and associates.

The directors have considered the Group’s financial position with reference to latest forecasts and the actual performance for the half-year period. Whilst the current economic environment continues to be uncertain, the directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future, being a period of at least 12 months from the date of signing of the interim statements, noting in particular that: the majority of the Group’s revenue is derived from long-term contracts; the Group had visibility of £1.1 billion of work scheduled for 2013 at the balance sheet date; and the Group has access to committed debt facilities totalling £225 million and €25 million until at least 2015. Accordingly, the Group continues to adopt the going-concern basis in preparing the interim financial statements.

A copy of the statutory accounts for the year ended 31 December 2011 has been delivered to the Registrar of Companies. The auditors’ report on those accounts was unqualified and did not contain statements made under sections 498(2) or (3) of the Companies Act 2006.

The interim financial statements for the six months ended 30 June 2012 have been reviewed by Deloitte LLP but have not been audited (see page 9).

2. ACCOUNTING POLICIES AND PRINCIPAL RISKS

The interim financial statements have been prepared in accordance with IAS 34 Interim financial reporting, the recognition and measurement criteria of International Financial Reporting Standards (IFRSs) as adopted by the European Union and the disclosure requirements of the Listing Rules. The financial information set out in this interim report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The interim financial statements do not include all information required for full annual financial statements and should be read in conjunction with the Annual Report and Financial Statements for the year ended 31 December 2011.

The accounting policies and methods of computation followed in the interim financial statements are consistent with those published in the Group’s Annual Report and Financial Statements for the year ended 31 December 2011 and which are available on the Group’s website at www.interserve.com.

In addition, the accounting policies used are consistent with those that the directors intend to use in the Annual Report and Financial Statements for the year ending 31 December 2012. Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual earnings.

There have been no significant standards and interpretations introduced during the period.

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

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

INTERSERVE HALF-YEAR REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS 16

Notes to the unaudited interim financial statementsFor the six months ended 30 June 2012

Page 18: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

2. ACCOUNTING POLICIES AND PRINCIPAL RISKS continued

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

The key impact of IAS 19 (revised) will be to remove the separate assumptions for expected return on plan assets and discounting of scheme liabilities, and replace them with one single discount rate for the net deficit. The impact on net assets is not expected to be material, but the impact on reported income will depend on discount rates, and the expected rates of return and mix of plan assets at the time of adoption.

Except for IFRS 9 and IAS 19 (revised), listed above, the directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group.

In the directors’ view there have been no changes to the principal risks and uncertainties facing the Group from those described on pages 22 to 23 of the Group’s Annual Report and Financial Statements for the year ended 31 December 2011. The directors expect that the Group’s profits will continue to be weighted to the second half.

3. BUSINESS AND GEOGRAPHICAL SEGMENTS

(a) Business segments

The Group is organised into four 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, both in the UK and through Middle East associates.

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

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

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

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

INTERSERVE HALF-YEAR REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS 17

Notes to the unaudited interim financial statements continued

For the six months ended 30 June 2012

Page 19: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

3. BUSINESS AND GEOGRAPHICAL SEGMENTS continued

(a) Business segments continued

Following revision to the Group’s operational reporting structures set out in the 2011 Annual Report, the analysis by business segment for the six months ended 30 June 2011 has been restated in the tables below.

Revenue including share of associates and joint-ventures Consolidated revenue Result

Six monthsended

30 June 2012

£million

Six monthsended

30 June2011

£millionrestated

Yearended

31 December2011

£million

Six monthsended

30 June2012

£million

Six monthsended

30 June2011

£millionrestated

Yearended

31 December2011

£million

Six monthsended

30 June2012

£million

Six monthsended

30 June2011

£millionrestated

Yearended

31 December2011

£million

Support Services – UK 624.0 547.8 1,069.6 572.1 513.0 1,007.3 19.6 15.9 36.4

Support Services – International 15.5 12.0 25.9 - - - 1.6 1.2 3.6

Support Services 639.5 559.8 1,095.5 572.1 513.0 1,007.3 21.2 17.1 40.0

Construction – UK 366.2 364.9 731.1 366.2 364.9 731.1 7.3 10.0 18.0

Construction – International 103.8 107.3 223.7 - - - 7.0 8.7 16.6

Construction 470.0 472.2 954.8 366.2 364.9 731.1 14.3 18.7 34.6

Equipment Services 81.9 74.3 154.3 81.9 74.3 154.3 6.8 5.9 13.6

Investments 54.9 94.8 160.2 - - - 4.0 2.4 6.0

Group Services - - - - - - (9.2) (10.2) (20.4)

Inter-segment elimination (36.2) (24.2) (45.2) (36.2) (24.2) (45.2) - - -

1,210.1 1,176.9 2,319.6 984.0 928.0 1,847.5 37.1 33.9 73.8

Amortisation of acquired intangible assets (3.1) (2.9) (5.7)

Total operating profit 34.0 31.0 68.1

Investment revenue 19.3 20.7 39.7

Finance costs (20.7) (21.6) (40.7)

Profit before tax 32.6 30.1 67.1

Tax (5.6) (2.1) (6.5)

Profit after tax 27.0 28.0 60.6

Net assets/(liabilities)

30 June2012

£million

30 June2011

£millionrestated

31 December 2011

£million

Support Services – UK (48.0) (4.1) (11.4)

Support Services – International 22.0 8.9 21.5

Support Services (26.0) 4.8 10.1

Construction – UK (150.1) (144.4) (129.7)

Construction – International 45.9 38.1 45.6

Construction (104.2) (106.3) (84.1)

Equipment Services 153.0 158.2 152.4

Investments 107.3 68.0 103.3

130.1 124.7 181.7

Group Services, goodwill and acquired intangible assets 160.7 175.6 159.1

290.8 300.3 340.8

Net debt (39.9) (35.8) (44.2)

Net assets (excluding minority interest) 250.9 264.5 296.6

INTERSERVE HALF-YEAR REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS 18

Notes to the unaudited interim financial statements continued

For the six months ended 30 June 2012

Page 20: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

3. BUSINESS AND GEOGRAPHICAL SEGMENTS continued

(b) Geographical segments

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

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

Revenue including share of associates and joint-ventures Consolidated revenue Total operating profit

Six monthsended

30 June 2012

£million

Six monthsended

30 June2011

£million

Yearended

31 December2011

£million

Six monthsended

30 June 2012

£million

Six monthsended

30 June2011

£million

Yearended

31 December2011

£million

Six monthsended

30 June 2012

£million

Six monthsended

30 June2011

£million

Yearended

31 December2011

£million

United Kingdom 1,052.3 1,014.8 1,976.1 945.5 885.2 1,753.6 30.5 29.5 60.8

Rest of Europe 4.2 6.2 10.8 4.2 6.2 10.8 (1.1) (2.0) (4.0)

Middle East and Africa 152.3 147.4 301.0 33.0 28.1 51.4 11.4 10.8 22.8

Australasia 21.0 21.9 48.5 21.0 21.9 48.5 5.4 6.5 14.0

Far East 7.0 3.3 9.5 7.0 3.3 9.5 1.7 - 1.2

Americas 9.5 7.5 18.9 9.5 7.5 18.9 (1.6) (0.7) (0.6)

Group Services - - - - - - (9.2) (10.2) (20.4)

Inter-segment elimination (36.2) (24.2) (45.2) (36.2) (24.2) (45.2) - - -

1,210.1 1,176.9 2,319.6 984.0 928.0 1,847.5 37.1 33.9 73.8

Amortisation of acquired intangible assets (3.1) (2.9) (5.7)

34.0 31.0 68.1

Non-current assets

30 June2012

£million

30 June 2011

£million

31 December 2011

£million

United Kingdom 145.5 109.0 140.5

Rest of Europe 7.4 12.8 9.5

Middle East and Africa 119.7 96.0 118.9

Australasia 17.7 19.3 19.7

Far East 11.4 7.7 10.6

Americas 20.9 23.0 21.8

Group Services, goodwill and acquired intangible assets 239.7 223.4 220.4

562.3 491.2 541.4

Deferred tax asset 30.8 11.2 23.4

Total non-current assets 593.1 502.4 564.8

INTERSERVE HALF-YEAR REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS 19

Notes to the unaudited interim financial statements continued

For the six months ended 30 June 2012

Page 21: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

4. INCOME TAX EXPENSESix months

ended30 June 2012

£million

Six monthsended

30 June 2011£million

Year ended

31 December 2011£million

Current tax - UK 0.6 (3.0) 0.3

Current tax - overseas 1.8 2.5 5.4

Deferred tax 3.2 2.6 0.8

5.6 2.1 6.5

Tax charge before prior period adjustments and changes in rates A 6.1 5.4 14.5

Prior period adjustments – (credits)/charges (0.7) (2.9) (7.4)

Charge/(credit) on revaluation of deferred tax balances on changes in UK tax rate 0.2 (0.4) (0.6)

5.6 2.1 6.5

Profit before tax

Subsidiary undertakings’ profit before tax B 19.8 17.7 39.7

Group share of profit after tax of associates and joint-ventures 12.8 12.4 27.4

32.6 30.1 67.1

Effective tax, excluding one-offs, on subsidiary profits before tax A/B 30.8% 30.5% 36.5%

In addition to the income tax charged to the income statement, the following deferred tax charges/(credits) have been recorded directly in equity in the period:

Six monthsended

30 June 2012£million

Six monthsended

30 June 2011£million

Yearended

31 December 2011£million

Tax on actuarial gains/(losses) on pension liability (12.6) 1.9 (8.2)

Impact of change in corporation tax rate on pension liability 0.7 0.8 1.0

Tax on fair value adjustment on available-for-sale financial assets - - 0.2

Tax on the intrinsic value of share-based payments - - (0.5)

(11.9) 2.7 (7.5)

No account has been taken in these interim financial statements of the Finance Act 2012 that was substantially enacted in July 2012, after the balance sheet date. It is estimated that the reduction in the corporation tax rate from 24% to 23% from April 2013 would have resulted in a £1.3 million reduction in the deferred tax asset held on the balance sheet at 30 June 2012 if the change had been applied in the interim financial statements.

INTERSERVE HALF-YEAR REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS 20

Notes to the unaudited interim financial statements continued

For the six months ended 30 June 2012

Page 22: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

5. SHARE OF RESULTS AND NET ASSETS OF JOINT-VENTURE ENTITIES AND ASSOCIATED UNDERTAKINGS

Six months ended 30 June 2012 Six months ended 30 June 2011 Year ended 31 December 2011

Construction

£million

SupportServices£million

Investments

£million

Total

£million

Construction

£millionrestated

SupportServices£millionrestated

Investments

£million

Total

£million

Construction

£million

SupportServices£million

Investments

£million

Total

£million

Revenue 103.8 67.4 54.9 226.1 107.3 46.8 94.8 248.9 223.7 88.2 160.2 472.1

Operating profit 7.4 2.3 2.8 12.5 9.3 1.7 1.8 12.8 18.8 4.7 1.9 25.4

Net interest receivable 0.3 - 3.1 3.4 0.4 - 2.0 2.4 0.5 0.1 7.5 8.1

Taxation (0.7) (0.2) (1.9) (2.8) (1.0) (0.2) (1.4) (2.6) (1.6) (0.6) (3.4) (5.6)

Group share of profit after tax 7.0 2.1 4.0 13.1 8.7 1.5 2.4 12.6 17.7 4.2 6.0 27.9

Amortisation of acquired intangible assets (0.1) (0.2) - (0.3) - (0.2) - (0.2) (0.1) (0.4) - (0.5)

Contribution to total operating profit 6.9 1.9 4.0 12.8 8.7 1.3 2.4 12.4 17.6 3.8 6.0 27.4

Dividends (6.1) (1.5) (3.0) (10.6) (11.0) (1.1) (2.7) (14.8) (12.8) (2.6) (5.2) (20.6)

Retained result for the period 0.8 0.4 1.0 2.2 (2.3) 0.2 (0.3) (2.4) 4.8 1.2 0.8 6.8

Following revision to the Group’s operational reporting structure set out in the 2011 Annual Report, the above analysis for the six months ended 30 June 2011 has been restated.

The joint-venture and associated undertakings for Construction are located in the Middle East and India, those for Support Services are located in the United Kingdom and the Middle East, and those for Investments are located in the United Kingdom.

INTERSERVE HALF-YEAR REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS 21

Notes to the unaudited interim financial statements continued

For the six months ended 30 June 2012

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6. EARNINGS PER SHARE

The calculation of earnings per share is based on the following data:

Earnings

Six monthsended

30 June 2012£million

Six monthsended

30 June 2011£million

Yearended

31 December 2011£million

Net profit attributable to equity holders of the parent (for basic and basic diluted earnings per share) 24.7 26.7 57.7

Adjustments:

Amortisation of acquired intangibles 3.1 2.9 5.7

Tax effect of above adjustment (0.9) (0.9) (1.4)

Headline earnings (for headline and headline diluted earnings per share) 26.9 28.7 62.0

Weighted average number of shares

Six monthsended

30 June 2012Number

thousand

Six monthsended

30 June 2011Number

thousand

Yearended

31 December 2011Number

thousand

Weighted average number of ordinary shares for the purposes of basic and headline earnings per share 126,331 125,804 125,804

Effect of dilutive potential ordinary shares:

Share-based payments 2,477 3,318 3,399

Weighted average number of ordinary shares for the purposes of basic and headline diluted earnings per share 128,808 129,122 129,203

Earnings per share

Six monthsended

30 June 2012pence

Six monthsended

30 June 2011pence

Yearended

31 December 2011pence

Headline earnings per share 21.3 22.8 49.3

Diluted headline earnings per share 20.9 22.2 48.0

Basic earnings per share 19.6 21.2 45.9

Diluted basic earnings per share 19.2 20.7 44.7

7. DIVIDENDS

Dividendper share

pence

Six monthsended

30 June 2012£million

Six monthsended

30 June 2011£million

Yearended

31 December 2011£million

Final dividend for the year ended 31 December 2010 12.4 - 15.5 15.5

Interim dividend for the year ended 31 December 2011 6.0 - - 7.5

Final dividend for the year ended 31 December 2011 13.0 16.3 - -

Amount recognised as distribution to equity holders in the period 16.3 15.5 23.0

The 2012 interim dividend of 6.4p per share, amounting to £8.1 million, was approved by the directors on 15 August 2012 and has therefore not been included as a liability as at 30 June 2012.

INTERSERVE HALF-YEAR REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS 22

Notes to the unaudited interim financial statements continued

For the six months ended 30 June 2012

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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 monthsended

30 June 2012

Six monthsended

30 June 2011

Yearended

31 December 2011

Retail prices index 2.90% pa 3.50% pa 3.10% pa

Consumer prices index 1.90% pa 2.90% pa 2.10% pa

Discount rate 4.40% pa 5.60% pa 4.80% pa

Pension increases in payment:

LPI/RPI 2.90%/2.90% 3.40%/3.50% 3.00%/3.10%

Fixed 5% 5.00% 5.00% 5.00%

3% or RPI if higher (capped at 5%) 3.50% 3.80% 3.60%

General salary increases 1.90 – 2.40% pa 4.25 – 5.00% pa 3.85 – 4.60% 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 2012 £million

30 June 2011£million

31 December 2011£million

Present value of defined benefit obligation 746.0 639.2 695.0

Fair value of schemes’ assets (653.0) (609.4) (638.8)

Liability recognised in the balance sheet 93.0 29.8 56.2

The amounts recognised in the income statement are as follows:

Six monthsended

30 June 2012£million

Six monthsended

30 June 2011£million

Yearended

31 December 2011£million

Employer’s part of current service cost 2.8 2.9 5.6

Interest cost 16.3 16.9 34.0

Expected return on schemes’ assets (15.9) (17.4) (35.3)

Gains on curtailments and settlements - (0.4) (0.4)

Total expense recognised in the income statement 3.2 2.0 3.9

Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised directly in equity and presented in the statement of comprehensive income.

9. SHARE CAPITAL

Six monthsended

30 June 2012Shares

thousand

Six monthsended

30 June 2011Shares

thousand

Yearended

31 December 2011Shares

thousand

At 1 January 125,804 125,804 125,804

Exercised share-based payments 930 - -

At the end of the period 126,734 125,804 125,804

INTERSERVE HALF-YEAR REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS 23

Notes to the unaudited interim financial statements continued

For the six months ended 30 June 2012

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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 62 in the Annual Report and Financial Statements for the year ended 31 December 2011.

During the period, Group companies entered into the following transactions with related parties who are not members of the Group:

Six monthsended

30 June 2012£million

Six monthsended

30 June 2011£million

Yearended

31 December 2011£million

Sales of goods and services Joint-venture entities 107.9 99.9 180.2

Associates 82.8 54.1 98.6

Purchases of goods and services Joint-venture entities 0.1 0.1 -

Associates 0.3 1.1 1.1

Amounts owed by related parties Joint-venture entities 19.2 10.8 13.8

Associates 15.1 22.0 30.9

Amounts owed to related parties Joint-venture entities - - -

Associates - - 0.4

Sales and purchases of goods and services to related parties were made on normal trading terms.

The amounts outstanding in the above table are unsecured and will be settled in cash. No guarantees have been given or received on these amounts. No provisions have been made for doubtful debts in respect of the amounts owed by related 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 2011.

INTERSERVE HALF-YEAR REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS 24

Notes to the unaudited interim financial statements continued

For the six months ended 30 June 2012

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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.

(a) Headline pre-tax profit

Six monthsended

30 June 2012£million

Six monthsended

30 June 2011£million

Yearended

31 December 2011£million

Profit before tax 32.6 30.1 67.1

Adjusted for:

Amortisation of acquired intangible assets 2.8 2.7 5.2

Share of associates’ amortisation of acquired intangible assets 0.3 0.2 0.5

Headline pre-tax profit 35.7 33.0 72.8

(b) Operating cash flow

Six monthsended

30 June 2012£million

Six monthsended

30 June 2011£million

Yearended

31 December 2011£million

Cash generated by operations 51.5 36.8 48.1

Adjusted for:

Pension contributions in excess of current service cost 16.1 13.7 27.0

Proceeds on disposal of plant and equipment - non-hire fleet 0.1 0.1 0.5

Capital expenditure - non-hire fleet (4.2) (4.1) (9.0)

Operating cash flow 63.5 46.5 66.6

(c) Free cash flow

Six monthsended

30 June 2012£million

Six monthsended

30 June 2011£million

Yearended

31 December 2011£million

Operating cash flow 63.5 46.5 66.6

Adjusted for:

Pension contributions in excess of current service cost (16.1) (13.7) (27.0)

Taxes paid (3.1) (1.9) (3.2)

Dividends received from associates and joint-ventures 10.7 14.8 20.6

Interest received 3.4 3.3 4.4

Interest paid (4.4) (4.7) (6.7)

Effect of foreign exchange rate change (0.1) (0.2) (0.3)

Free cash flow 53.9 44.1 54.4

(d) Operating cash conversion

Six monthsended

30 June 2012£million

Six monthsended

30 June 2011£million

Yearended

31 December 2011£million

Operating cash flow 63.5 46.5 66.6

Operating profit, before exceptional items and amortisation

of acquired intangible assets 24.0 21.3 45.9

Current period operating cash conversion 264.6% 218.3% 145.1%

Three-year rolling operating cash flow 253.3 228.0 226.6

Three-year rolling operating profit, before exceptional items and amortisation of acquired intangible assets 140.4 152.9 145.9

Operating cash conversion, three-year rolling average 180.4% 149.1% 155.3%

INTERSERVE HALF-YEAR REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS 25

Notes to the unaudited interim financial statements continued

For the six months ended 30 June 2012

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12. RECONCILIATION OF NON-STATUTORY MEASURES continued

(e) Gross operating cash conversion

Six monthsended

30 June 2012£million

Six monthsended

30 June 2011£million

Yearended

31 December 2011£million

Operating cash flow 63.5 46.5 66.6

Dividends received from associates and joint-ventures 10.7 14.8 20.6

Gross operating cash flow 74.2 61.3 87.2

Operating profit, before exceptional items and amortisation of acquired intangible assets 24.0 21.3 45.9

Share of result of associates and joint-ventures, before exceptional items and amortisation of acquired intangible assets 13.1 12.6 27.9

Total operating profit, before exceptional items and amortisation of acquired intangible assets 37.1 33.9 73.8

Current period gross operating cash conversion 200.0% 180.8% 118.2%

Three-year rolling gross operating cash flow 329.1 298.3 296.9

Three-year rolling total operating profit, before exceptional items and amortisation of acquired intangible assets 228.0 244.0 233.9

Gross operating cash conversion, three-year rolling average 144.3% 122.3% 126.9%

(f) Gross revenue

Six monthsended

30 June 2012£million

Six monthsended

30 June 2011£million

Yearended

31 December 2011£million

Consolidated revenue 984.0 928.0 1,847.5

Share of revenue of associates and joint-ventures 226.1 248.9 472.1

Gross revenue 1,210.1 1,176.9 2,319.6

(g) Operating margins

Six monthsended

30 June 2012£million

Six monthsended

30 June 2011£million

Yearended

31 December 2011£million

Total operating profit, before exceptional items and amortisation of acquired intangible assets 37.1 33.9 73.8

Gross revenue 1,210.1 1,176.9 2,319.6

Total operating margin 3.1% 2.9% 3.2%

INTERSERVE HALF-YEAR REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS 26

Notes to the unaudited interim financial statements continued

For the six months ended 30 June 2012

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13. ACQUISITIONS

As part of our strategy to be a key public service provider the Group acquired, on 3 May 2012, 100% of the share capital of Business Employment Services Training Limited (BEST), a welfare-to-work business, now renamed Interserve Working Futures Limited. The total consideration was £18.2 million, of which £0.7 million is deferred and contingent consideration. At June 2012 a preliminary fair value exercise has been performed, as set out below:

Assets acquired£million

Property, plant and equipment 0.2

Intangible assets 7.7

Cash balances 0.2

Trade and other receivables 1.6

Trade and other payables (4.5)

Other liabilities (1.4)

Net assets 3.8

Goodwill 14.4

Consideration 18.2

The fair value adjustments relate to certain intangible assets and their associated deferred tax charge. These have been separately identified and recognised using appropriate valuation techniques based on the fair value of forecast future cash flows. The resultant goodwill from the acquisition represents the future economic benefits arising from assets that are not capable of being individually identified and separately recognised. None of the goodwill is expected to be deductible for income tax purposes.

Acquisition-related costs, included in administration expenses, amounted to £0.2 million.

Interserve Working Futures Limited contributed £1.8 million to revenue and (£0.1 million) in operating profit for the period to 30 June 2012. If the acquisition had been completed on the first day of the financial year, the contribution to Group revenues for the period would have been £5.5 million and contribution to Group operating profit would have been £0.1 million.

14. POST-BALANCE-SHEET EVENTS

On 30 June 2012 the Group held a 33.33% interest in the UCLH PFI project (“UCLH”). On 11 July 2012, the transactions announced on 21 June 2012 for the Group to acquire 26.67% of UCLH from Balfour Beatty plc, and simultaneously to dispose of 30% of UCLH to CFIG Unicorn Holdings SPV LLC, were successfully completed, realising a net cash inflow for the Group of £8.6 million. On 3 August 2012, CFIG Unicorn Holdings SPV LLC exercised its option to purchase from the Group a further 13.33% share of UCLH for £26.4 million. As a result of both of these transactions, the Group retains a 16.67% share of UCLH at 15 August 2012.

INTERSERVE HALF-YEAR REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS 27

Notes to the unaudited interim financial statements continued

For the six months ended 30 June 2012

Page 29: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

ChairmanNorman Blackwell (Lord Blackwell)1 3

Executive directorsAdrian Ringrose1 Chief ExecutiveTim Haywood Group Finance DirectorSteven DanceBruce MelizanDavid PatersonDougie Sutherland

Non-executive directorsDavid Trapnell1 2 3 4

Les Cullen1 2 3

Keith Ludeman1 2 3

David Thorpe1 2 3

1 Member of the Nomination Committee2 Member of the Audit Committee3 Member of the Remuneration Committee4 Senior Independent Director

Group Company SecretaryTrevor Bradbury

Directors and advisers

Registered officeInterserve HouseRuscombe ParkTwyfordReadingBerkshire RG10 9JUT +44 (0)118 932 0123F +44 (0)118 932 [email protected]

Registered number88456

Registrar and Share Transfer OfficeCapita Registrars The Registry34 Beckenham RoadBeckenhamKent BR3 4TUT +44 (0)20 8639 3399F +44 (0)1484 [email protected]

AuditorsDeloitte LLP

StockbrokersJ.P. Morgan Cazenove LimitedOriel Securities Limited

LawyersAshurst LLP

INTERSERVE HALF-YEAR REPORT 2012 DIRECTORS AND ADVISERS 28

Page 30: 2012INTERSERVE HALF-YEAR REPORT 2012 OVERVIEW HIGHLIGHTS 01 HIGHLIGHTS First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent First-half free cash flow

REGISTERED OFFICE

Interserve Plc Interserve House Ruscombe Park Twyford Reading Berkshire RG10 9JU

T. +44 (0)118 932 0123 F. +44 (0)118 932 0206

E. [email protected]

www.interserve.com Designed by accrue.co.uk


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