5 Sep 2007 07:00
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007
Interserve, the services, maintenance and building group, announces its interim results for the half year ended 30 June 2007.
H1 2007 H1 2006Revenue ‚£861.1m ‚£649.1m +32.7%Headline profit* ‚£30.0m ‚£21.8m +37.6%Headline earnings per share** 16.1p 12.0p +34.2%Basic earnings per share 15.0p 12.8p +17.2%
Net cashflow from operating activities ‚£36.9m ‚£13.8m +167.4%
* Headline profit comprises profit before taxation of ‚£28.2m (H1 2006: ‚£23.1m)adjusted for the impact of amortisation of intangible assets of ‚£2.4m (H1 2006:‚£nil) and an exceptional gain of ‚£0.6m (H1 2006: ‚£1.3m) from the disposal ofproperty and investments.
** Headline earnings per share are based on Headline profit as defined in the note above (see also note 6 to the unaudited interim results)
Chief Executive Adrian Ringrose commented,
"Conditions in the Group's key markets remained positive during the first halfof the year and our trading performance was strong. We made strategic progressin each part of the business. The recent acquisitions of MacLellan and Madinahave each brought us capabilities which dovetail well with our existingoperations and, together with our start-up business in South Africa, give usaccess to new growth markets."The former MacLellan operations are trading well and are generating significantsynergy benefits. With our markets in both the public and private sectors in theUK and in the Middle East offering plenty of opportunities, we are well placedto continue our strong organic growth and to support our development throughappropriate targeted acquisitions." - Ends -For further information please contact:Adrian Ringrose, Chief ExecutiveTim Jones, Group Finance Director 0118 932 0123
Neil Bennett/Elizabeth Morley, Maitland 020 7379 5151
Chairman's statement
Interserve delivered a strong performance in the first half of the year,building further on the substantial growth achieved in 2006. Headline earningsper share grew by 34.2 per cent to 16.1p (H1 2006: 12.0p), fuelled by revenuegrowth in each of our operating divisions.
Dividend
In view of our progress in the first half of 2007 and the favourable outlook forthe second half, the Board has approved an interim dividend of 5.0p (H1 2006:‚£4.8p) which will be paid on 29 October 2007 to shareholders on the register atclose of business on 28 September 2007.
Prospects
We are well placed to benefit from the strong growth in many of the markets inwhich we operate. Our clients are continuing to see the benefits of bundlingtheir outsourcing contracts with one partner as a means of improving theirefficiency, which enables us to provide them with more and more services fromacross our Group. Our success in the retention and development of satisfiedclients provides a strong foundation to the business.Our UK Government business is benefiting from our focus on areas with attractiveinvestment commitments for the future, particularly education, health, defenceand justice. Our UK private sector activities continue to develop, enhanced bythe added capabilities from last year's MacLellan acquisition. Internationally,the healthy trading conditions we are experiencing in our Middle Eastern marketscontinue to be sustained.The strength of our position is reflected in the value of our future workload,which, at 30 June, had grown to ‚£5.9 billion (31 December 2006: ‚£5.6 billion).In light of this and the generally positive outlook in our markets, the Boardremains confident in the prospects for the Group's continued growth anddevelopment.Business reviewKey Performance Indicators H1 2007 H1 2006 ChangeRevenue ‚£861.1m ‚£649.1m +32.7%Headline earnings per share 16.1p 12.0p +34.2%Cash conversion(1) 146.2% 116.8% +29.4% ptsFuture workload(2) ‚£5.9bn ‚£4.9bn +20.4%Annualised staff turnover(3 10.0% 10.8% -0.8% ptsAnnualised all-employee accident 415 744
-44.2%
incidence rate per 100,000 workforce
Conditions in the Group's key markets remained positive during the first half ofthe year and our trading performance was strong. Our growth came both from newclients and from extending the breadth of our established customerrelationships.
Headline profit for the half year was ‚£30.0 million (H1 2006: ‚£21.8 million), an increase of 37.6 per cent on revenue (excluding works bills(4)) of ‚£857.6 million (H1 2006: ‚£627.2 million).
Net debt at 30 June was reduced to ‚£100.5m (31 December 2006: ‚£114.8m) followinga strong operational cash performance in the period, together with the timing ofadvance receipts on a number of contracts.(1) Cash conversion is calculated as the percentage of cash generated fromoperations of ‚£34.2m (H1 2006: ‚£18.1m) divided by the sum of: operating profitof ‚£21.6m (H1 2006: ‚£16.8m); plus amortisation of intangible assets of ‚£2.4m (H12006: ‚£nil); less profit on disposal of property and investments of ‚£0.6m (H12006: ‚£1.3m).(2) Future workload comprises contracted work plus work that has been settledand on which final terms are being agreed (principally PFI projects at preferredbidder stage).
(3) Staff turnover measures the proportion of managerial, technical and office-based staff leaving voluntarily over the course of the period. The figures for Jan-Jun have been doubled to give an annual equivalent.
(4) Works bills are components of certain residual MoD contracts which pass through our accounts as revenue but generate no margin. In H1 2007 they were ‚£3.5 million (H1 2006: ‚£21.9 million).
Segmental review
Interserve has five market-facing divisions supported by a Group Services function which provides a range of central services and encompasses our PFI bidding activity. Group Services costs in the half year were ‚£7.9 million (H1 2006: ‚£6.6 million).
Facilities Management provides a range of services that are normally integratedinto one managed interface for the customer. The division combines thefacilities management operations of MacLellan, acquired in July last year, withthose of our previous industrial and facilities divisions. Performance in theperiod was excellent, resulting in a contribution to Total Operating Profit of‚£12.7 million (H1 2006: ‚£4.4 million), on revenue of ‚£378.0 million (H1 2006:‚£292.1 million). A number of factors contributed to this step-change, notablythe contribution from the acquired MacLellan businesses and an improvedperformance in our industrial operations. We won a series of new and extendedcontracts, examples of which included:
‚· Integrated retail facilities management over three years for CB Richard
Ellis at two more of its shopping centres: the new Silverburn centre in
Glasgow, which will be one of the 10 largest in the UK when it opens later
this year, and Crowngate in Worcester.
‚· Total facilities management for the Department of Health at six
locations in London for a three-year period.
‚· The extension of our contract with Homebase for a further two years and
its increase in scope to cover the entire estate of 178 stores in the UK and
Ireland.
‚· Cleaning contracts with UK-based airport operator TBI, covering its
airports at Belfast, Cardiff and Luton for five years, and with Abbey at
over 350 branches in its North and Central regions for two years.
Results in our former Industrial Services operations improved through re-focusedmanagement and the impact of our cost reduction strategy taking effect. Clientretention in the period was excellent, at 98 per cent, positioning the businesswell for its future development.At the end of April we commenced our ‚£150 million, seven-year contract with theMetropolitan Police Service, which continues a successful long-term relationshipwith this client and was won by leveraging the strength of our extendedcapabilities resulting from the MacLellan acquisition. Since being awarded thecontract we have also secured responsibility for Special Events support. Inaddition our Specialist Services division is supplying a range of furtherservices (see below).Specialist Services offers services including security, specialist cleaning,engineering services (principally mechanical and electrical design, installationand maintenance) and technical services (such as HVAC, lift maintenance andasbestos surveying and remediation).Financial performance was slightly below our expectations, with a contributionto Total Operating Profit of ‚£2.7 million (H1 2006: ‚£2.3 million) on revenue of‚£88.8 million (H1 2006: ‚£49.2 million). Within this our security operationsperformed well, offsetting a disappointing result from our HVAC activities as werepositioned and refocused these within their markets.We won a number of contracts across the division's range of services withclients such as South West Trains, Savills, Lambeth Council, Anglian Water,Cadbury, Asda and Abbey. We also started our stewarding contract at Wembley,where, amongst other events, we played a key role in managing a capacity crowdof almost 90,000 at the new stadium's inaugural FA Cup final and the audiencesat Live Earth and the concert in celebration of the life of Diana, Princess ofWales.In addition, clients of other Interserve divisions proved a fruitful source ofbusiness in the half year. Contracts won through Facilities Management included:security and window cleaning for University College London Hospital; security,lift maintenance, air conditioning and asbestos management for the MetropolitanPolice; lift maintenance for Slough Borough Council; and heating maintenance andasbestos management for Defence Estates in the South East Regional Primecontract. Mechanical and electrical installation contracts won through ProjectServices included the BBC and the Leeds and Plymouth schools PFI programmes.Project Services delivered strong results from excellent trading in both the UKand the Middle East, contributing ‚£10.9 million to Total Operating Profit (H12006: ‚£9.0 million). Of this, ‚£6.4 million came from the UK (H1 2006: ‚£5.2million) on revenue of ‚£362.0 million (H1 2006: ‚£276.1 million) and ‚£4.5 millioncame from our Middle East associates (H1 2006: ‚£3.8 million).In addition to the numerous smaller contracts in framework agreements and repeatbusiness that underpin the division's activities in the UK, we secured severallarger contracts including:
‚· Leeds Building Schools for the Future (BSF), where construction value in
the first wave alone is estimated at ‚£240 million; further waves are
expected over the next 10 years.
‚· Plymouth Schools PFI (see PFI Investments section for more detail).
‚· The Air-side Platform Works contract to design and build aircraft parking
stands for future aircraft fleets at RAF Brize Norton, stemming from the
facilities management work that we carry out in the South East Regional
Prime contract. ‚· A series of contract wins in Welsh Health Estates' Designed for Life: Building for Wales framework programme which will generate work over several years. ‚· A place on the Environment Agency's ‚£500 million framework programme
covering flood defence, waterways and water resources capital works over
the next four years.
Earnings in our Middle East operations also continued to grow strongly. Contract wins in the period included:
‚· In the United Arab Emirates we won an earthworks and road construction
project in the relocation of Camel City, involving the movement of 4.4
million m(3) of material and the creation of 24 km of graded road. We
completed the project ahead of schedule in just 31/2 months and have since
won further associated work.
‚· Following our recent completion of the Mall of the Emirates we have now
won the contract to build a 483-room, 24-storey East Hotel as part of this
major development.
‚· In Oman we won our fifth project at the Sohar Industrial Port complex,
covering the construction of all the buildings comprising the Aromatics
Plant. The contract is the associate company's largest ever and is due for
completion in June 2008.
‚· Also in Oman we secured the civil and building works on Phase 2 of the
Barka Power and Desalination Plant, having previously carried out the civil
works on Phase 1. This will be the eighth power station project we have
carried out over a period spanning 20 years.
‚· We are beginning the construction of the 27-storey United Tower, a
residential development at the Pearl (the reclaimed island resort off the
coast at Doha, Qatar).
‚· Following the success of previous projects at the New Doha International
Airport, we won a contract to construct a comprehensive fuel storage and
delivery system.
‚· We extended our relationship with Siemens in Qatar with a contract for the design and construction of 50 further substations in Phase III of its programme, including all civil, building and landscaping works.We also acquired, for a consideration of just over ‚£9 million, a 49 per centinterest in Madina, a Qatari industrial services business. Madina operates intwo main fields: mechanical engineering and safety training. These activitiesfit well with our construction work in the area, where we expect to capitaliseon the relationships in both businesses to win additional work, and provide anentree into value-added support services in Qatar's high growth petrochemicalmarket.After a very strong 2006, Equipment Services maintained a healthy contributionto Total Operating Profit of ‚£10.0 million (H1 2006: ‚£10.2 million). Revenue washigher, at ‚£60.6 million (H1 2006: ‚£55.8 million) with gross margin broadlystable; operating profit margin was impacted by the cost to date of establishingour start-up operation in South Africa, adverse foreign exchange movement andfurther investment in our Middle East and Spanish businesses.In Europe, our operation in Spain had a good half year, including a contractinvolving falsework design innovations which enabled the construction of themobile roof for the signature building at the Princess Letizia Congress Centre,Oviedo. Ireland also performed well and UK exports were strong. Among these werethe sale of our Alshor Plus system into the US for use in the extension of theUniversity of Texas's American football stadium, and the use of our equipment inthe construction of massive water storage tanks along the route of the GreatMan-made River pipeline project in Libya - the world's largest engineeringventure.The Middle East maintained a robust performance with a number of prestigiouscontracts including the Arabian Ranches road interchange, the largest built todate in Dubai, UAE. We supplied a broad range of equipment to create 10 box-cellbridges, each between 150 and 240 metres long, and a cut-and-cover tunnel. Thisis a high-growth sector in the country and we have won several furtherinfrastructure projects as a result of our work on the interchange. Elsewhereour operations in Australasia and the Far East fell slightly short of theirprojected levels of activity in subdued markets.
In South Africa, we have made a promising start to our operations in Durban and Pretoria where activity is proceeding in line with our plan.
PFI Investments' contribution to profit before tax was ‚£2.9 million (H1 2006:‚£2.2 million), of which ‚£2.1 million was interest receivable on subordinateddebt investments (H1 2006: ‚£1.6 million). At 30 June we had 26 signed PFIcontracts (30 June 2006: 23) and four more at preferred bidder stage (30 June2006: two). Our total investment commitment on the signed contracts was ‚£58.7million (30 June 2006: ‚£52.4 million), of which ‚£36.2 million (30 June 2006:‚£32.0 million) had already been made.We were appointed preferred bidder on two schools projects in Northern Ireland:Derry and Down & Connor. In Derry there will be two new schools for a total ofaround 1,650 girls aged 12-18, while the Down & Connor project will involve thecreation of two primary and two grammar schools serving a total of 2,650 pupils.This will give us six educational PFI projects in Northern Ireland.Meanwhile in England we reached financial close on the Plymouth Schools projectin which we are building a primary school for 450 pupils and a pioneering'all-through school' for 1,480 which brings together an early-years, primary,secondary and specialist school on a single campus. We shall provide facilitiesmanagement services over a 25-year period once the schools are open.Our Building Schools for the Future contract with Leeds City Council alsoreached financial close. The contract forms a 10-year strategic partnershipbetween the council, Education Leeds, the government's Partnership for Schoolsand Interserve's consortium. Through it we shall deliver the Leeds BSF programmein a series of waves, each building on the experience gained from the last. Theinitial wave will itself involve a number of phases, the first of which,consisting of four new PFI schools and two refurbishments, will createfacilities for some 6,000 pupils. We shall then provide facilities managementservices over 25 years.In health, the business case for the 512-bed hospital and mental health projectin Tunbridge Wells, for which our consortium was selected as first choice, hasbeen approved. This will be the first acute hospital in the country to beprovided with 100 per cent single rooms. Interserve will invest in the region of‚£5.5 million of equity and subordinated debt in the project and will deliver FMservices worth an estimated ‚£66 million in the new buildings over a period
of 30years.Health and Safety
The Group maintains its commitment to excellent health and safety through avariety of initiatives aimed at reducing accidents (by focusing on awareness andavoidance of potential dangers) and by providing occupational health support toour people. Specific initiatives in the period included an ongoing communicationprogramme (branded 'Don't Walk By'), a programme of occupational health riskassessments for all employees, health surveillance for all high-risk employeesand dedicated Board-member site visits.The all-labour injury incidence rate (i.e. including subcontractors) is one ofour Key Performance Indicators. The annualised RIDDOR-reportable accident andincident rate for the first six months of 2007 was 421 accidents per 100,000workforce, which compares to 744 for the equivalent period in 2006.
Strategy & outlook
Our businesses are involved in three closely-linked activities throughout theasset lifecycle: building, facilities management services and maintenance. Weinvest in strategic relationships and concentrate very much on the long-term -the majority of our revenue comes from strong relationships and through repeatbusiness where we add value through continual improvement in terms of qualityand efficiency.Within our chosen sectors we aim to offer an unrivalled breadth and depth ofservice, and any strategic move we make is undertaken to further this goal. Therecent acquisitions of MacLellan and Madina have each brought us capabilitieswhich dovetail well with our existing operations, strengthening ourrelationships with current clients and giving us access to new growth markets,which is also the objective of our start-up Equipment business in South Africa.Demand in our UK markets remains strong. In the public sector, Governmentspending on education is set to continue steadily, with opportunities comingthrough the Building Schools for the Future programme and other forms ofcontract for smaller-scale developments. The Department of Health has extendedthe ProCure21 framework agreement until 2010, and the similar Designed for Life:Building for Wales scheme is now well-established. We are well-placed to playour part in meeting the requirement for more prison places, through both PFI andthe framework agreements we have with HM Prison Service. There are significantopportunities with local authorities in contracts akin to those we have withSlough and Croydon. Expenditure under the utility companies' frameworkagreements in the water sector is increasing, and the floods caused byunexpected rainfall in early summer this year have highlighted the need forfurther alleviation and defence work through the Environment Agency.Opportunities in the private sector are also exciting. Our integrated retailservices are increasingly in demand for the management of shopping centres andthere is steady growth in mechanical and electrical installation in these andother retail environments. We have a healthy programme of work in our commercialframework agreements, for example with Barclays and BT. And in the securitysector, where scale and innovation, such as the use of electronic surveillance,are key factors, we see significant potential for expansion by leveraging ournational presence.Elsewhere, trading conditions in Australasia and the Far East are likely toremain tough in the short term. However, markets in the Middle East, where wederive the vast majority of our international profits, are set to enjoy growthfor the foreseeable future, under-pinned by continued expansion in thepetrochemical sector together with burgeoning commercial and leisure developmentand associated infrastructure investment.The former MacLellan operations are trading well and are generating significantsynergy benefits. With our markets in both the public and private sectors in theUK and in the Middle East offering plenty of opportunities, we are well placedto continue our strong organic growth and to support our development throughappropriate targeted acquisitions.
INDEPENDENT REVIEW REPORT TO INTERSERVE PLC
Introduction
We have been instructed by the company to review the financial information forthe six months ended 30 June 2007 which comprise the unaudited consolidatedincome statement, the unaudited consolidated statement of recognised income andexpense, the unaudited consolidated balance sheet, the unaudited consolidatedcash flow statement and related notes 1 to 9. We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information.This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed.
Directors' responsibilities
The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly,we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2007.
Deloitte & Touche LLPChartered AccountantsLondon, United Kingdom5 September 2007Unaudited Consolidated Income StatementFor the six months ended 30 June 2007 Six months ended 30 June 2007 Before exceptional Exceptional items and items and amortisation of amortisation of intangible intangible assets assets Total ‚£ million ‚£ million ‚£ millionContinuing operationsRevenue 861.1 - 861.1Cost of sales (771.9) - (771.9) ------------ ----------- --------Gross profit 89.2 - 89.2 ------------ ----------- --------Administration expenses (65.8) - (65.8)Amortisation of acquiredintangible assets - (2.4) (2.4)Impairment of goodwill - - -Other exceptional costs - - - ------------ ----------- --------Total administration expenses (65.8) (2.4)
(68.2)
Profit on disposal of propertyand investments - 0.6 0.6 ------------ ----------- --------Operating profit 23.4 (1.8) 21.6Share of result of associatesand joint ventures 5.8 - 5.8 ------------ ----------- --------Total operating profit 29.2 (1.8) 27.4Investment revenue 19.5 - 19.5Finance costs (18.7) - (18.7) ------------ ----------- --------Profit before tax 30.0 (1.8) 28.2Tax (charge)/credit (note 4) (9.1) 0.5 (8.6) ------------ ----------- --------Profit for the period 20.9 (1.3) 19.6 ------------ ----------- --------Attributable to:Equity holders of the parent 19.9 (1.3) 18.6Minority interest 1.0 - 1.0 ------------ ----------- -------- 20.9 (1.3) 19.6 ------------ ----------- --------
Earnings per share (note 6)
pBasic 15.0 ------------ ----------- --------Diluted 14.8 ------------ ----------- --------Proposed dividend per share(note 7) 5.0 ------------ ----------- --------Unaudited Consolidated Income StatementFor the six months ended 30 June 2007 Six months ended 30 June 2006 Before exceptional Exceptional items and items and amortisation amortisation of intangible of intangible assets assets Total ‚£ million ‚£ million ‚£ millionContinuing operationsRevenue 649.1 - 649.1Cost of sales (583.0) - (583.0) -------------- ------------ --------Gross profit 66.1 - 66.1 -------------- ------------ --------Administration expenses (50.6) - (50.6)
Amortisation of acquired intangible - -
-assetsImpairment of goodwill - - -Other exceptional costs - - - -------------- ------------ --------Total administration expenses (50.6) - (50.6)Profit on disposal ofproperty and investments - 1.3 1.3 -------------- ------------ --------Operating profit 15.5 1.3 16.8Share of result of associates and joint ventures 4.4 - 4.4 -------------- ------------ --------Total operating profit 19.9 1.3 21.2Investment revenue 16.4 - 16.4Finance costs (14.5) - (14.5) -------------- ------------ --------Profit before tax 21.8 1.3 23.1Tax (charge)/credit (note 4) (7.1) (0.4) (7.5) -------------- ------------ --------Profit for the period 14.7 0.9 15.6 -------------- ------------ --------Attributable to:Equity holders of the parent 13.7 0.9 14.6Minority interest 1.0 - 1.0 -------------- ------------ -------- 14.7 0.9 15.6 -------------- ------------ --------
Earnings per share (note 6)
pBasic 12.8 -------------- ------------ --------Diluted 12.7 -------------- ------------ --------
Proposed dividend per share (note 7)
4.8 -------------- ------------ --------Unaudited Consolidated Income StatementFor the six months ended 30 June 2007 Year ended 31 December 2006 Before exceptional Exceptional items and items and amortisation of amortisation of intangible intangible assets assets Total ‚£ million ‚£ million ‚£ millionContinuing operationsRevenue 1,408.5 - 1,408.5Cost of sales (1,243.9) - (1,243.9) ------------ ----------- ----------Gross profit 164.6 - 164.6 ------------ ----------- ----------Administration expenses (120.2) (120.2)Amortisation of acquiredintangible assets - (2.1) (2.1)Impairment of goodwill - (30.0) (30.0)Other exceptional costs - (12.2) (12.2) ------------ ----------- -------Total administration expenses (120.2) (44.3)
(164.5)
Profit on disposal of propertyand investments - 1.3 1.3 ------------ ----------- -------Operating profit 44.4 (43.0) 1.4Share of result of associatesand joint ventures 11.8 - 11.8 ------------ ----------- -------Total operating profit 56.2 (43.0) 13.2Investment revenue 33.8 - 33.8Finance costs (31.9) - (31.9) ------------ ----------- -------Profit before tax 58.1 (43.0) 15.1Tax (charge)/credit (note 4) (17.9) 3.9 (14.0) ------------ ----------- -------Profit for the period 40.2 (39.1) 1.1 ------------ ----------- -------Attributable to:Equity holders of the parent 37.5 (39.1) (1.6)Minority interest 2.7 - 2.7 ------------ ----------- ------- 40.2 (39.1) 1.1 ------------ ----------- -------
Earnings per share (note 6)
pBasic (1.4) ------------ ----------- -------Diluted (1.3) ------------ ----------- -------Proposed dividend per share(note 7) 4.8 ------------ ----------- -------Unaudited Consolidated balance sheetAt 30 June 2007 30 June 30 June 31 December 2007 2006 2006 ‚£million ‚£million ‚£millionNon-current assetsGoodwill 228.4 154.3 228.4Other intangible assets 37.2 - 39.6Property, plant and equipment 107.7 101.2
105.5
Interests in joint ventures 53.9 31.6
60.7
Interests in associated undertakings 30.4 19.4 23.3Investments 0.1 - 0.1Deferred tax asset - 26.3 13.7 -------- ------- --------- 457.7 332.8 471.3 -------- ------- ---------Current assetsInventories 14.7 15.1 15.3Trade and other receivables 363.9 275.5 305.2Cash and deposits 39.7 34.8 35.2 -------- ------- --------- 418.3 325.4 355.7 -------- ------- --------- -------- ------- ---------Total assets 876.0 658.2 827.0 -------- ------- ---------Current liabilitiesBank overdrafts and loans (2.4) (2.6) (6.8)Unsecured loan notes (1.0) (1.5) (1.4)Trade and other payables (479.2) (363.0) (403.0)Short-term provisions (7.9) - (7.0) -------- ------- --------- (490.5) (367.1) (418.2) -------- ------- --------- -------- ------- ---------Net current liabilities (72.2) (41.7) (62.5) -------- ------- ---------Non-current liabilitiesBank loans (136.8) (56.0) (140.2)Trade and other payables (11.1) (9.6) (13.0)Long-term provisions (24.9) (18.2) (22.3)Retirement benefit obligation (60.2) (118.9) (111.4) -------- ------- --------- (233.0) (202.7) (286.9) -------- ------- --------- -------- ------- ---------Total liabilities (723.5) (569.8) (705.1) -------- ------- --------- -------- ------- ---------Net assets 152.5 88.4 121.9 -------- ------- ---------EquityShare capital 12.5 11.4 12.4Share premium account 110.9 109.0 109.3Capital redemption reserve 0.1 0.1 0.1Merger reserve 49.0 16.4 49.0Hedging and translation reserves 11.3 (5.5) 18.7Retained earnings (31.9) (43.7) (68.5)Investment in own shares (0.5) (0.5) (0.5) -------- ------- ---------Equity attributable to equity holders ofthe parent 151.4 87.2 120.5Minority interest 1.1 1.2 1.4 -------- ------- ---------Total equity 152.5 88.4 121.9 -------- ------- ---------
Unaudited consolidated statement of recognised income and expense For the six months ended 30 June 2007
Six months Six months Year ended ended 30 ended 30 31 December June 2007 June 2006 2006 ‚£million ‚£million ‚£million
Exchange differences on translation of foreign operations -
(6.2) (6.5) Gains on revaluation of available-for-sale financial assets (excluding joint ventures)
0.3 - 0.2Gains on cash flow hedges (joint ventures) 21.6
15.0 13.3 (Loss)/gains on available-for-sale financial assets (joint ventures)
(32.4) (32.0) 4.7Actuarial gains on defined benefit pension schemes 45.0 12.5 7.7Deferred tax on items taken directly to equity (11.6)
1.4 (7.3)
--------- -------- ---------Net income/(loss) recognised directly in equity 22.9
(9.3) 12.1Profit for the period 19.6 15.6 1.1 --------- -------- ---------Total recognised income 42.5 6.3 13.2 --------- -------- ---------Attributable to:Equity holders of the parent 41.5 5.3 10.5Minority interest 1.0 1.0 2.7 --------- -------- --------- 42.5 6.3 13.2 --------- -------- ---------Unaudited Consolidated cash flow statementFor the six months ended 30 June 2007 30 June 30 June 31 December 2007 2006 2006 ‚£million ‚£million ‚£millionOperating activitiesTotal operating profit 27.4 21.2 13.2Adjustments for:
Amortisation of acquired intangible assets 2.4 - 2.1Impairment of goodwill - - 30.0Depreciation of property, plant and equipment 9.5 8.4 17.5Profit on disposal of property and investments (0.6) (1.3) (1.3)Pension payments in excess of the income statement charge (5.0) - (10.4)Share of results of associates and joint ventures (5.8) (4.4) (11.8)Non-cash charge relating to share based payments 0.7 0.4 0.6Gain on disposal of property, plant and equipment (5.4)
(2.1) (5.8)Currency - (2.0) (0.4) ------- ------- ---------
Operating cash flows before movements in working capital 23.2 20.2 33.7Decrease/(increase) in inventories 0.7
0.7 (0.2)Increase in receivables (53.7) (19.4) (21.8)Increase in payables 64.0 16.6 37.6 ------- ------- ---------Cash generated by operations 34.2 18.1 49.3Taxes received/(paid) 2.7 (4.3) (9.2) ------- ------- ---------
Net cash from operating activities 36.9
13.8 40.1 ------- ------- ---------Investing activitiesInterest received 3.8 2.4 5.5
Increase in investment in associates (9.1) - (0.8)Dividends received from associates and joint ventures 6.5 1.3 3.5Proceeds on disposal of property, plant and equipment 10.5 4.4 14.0Purchases of property, plant and equipment (17.1) (15.5) (30.8)Purchase of subsidiary undertaking - - (97.6)Investment in joint ventures-PFI investments - (1.1) (4.5)Proceeds from disposal of investment - - 0.7Repayment of subsidiary debt -PFI joint ventures 0.1 - -Disposal of investment in associates and joint ventures - 1.6 1.6 ------- ------- ---------Net cash used in investing activities (5.3)
(6.9) (108.4) ------- ------- ---------Financing activitiesInterest paid (4.2) (1.9) (6.7)
Dividends paid to equity shareholders (13.1) (11.5) (17.5)Dividends paid to minority shareholders (1.3) (1.2) (2.7)Issue of shares 1.8 0.2 0.5(Decrease)/increase in bank borrowings (4.2) 12.3 97.1Repayments of obligations under finance leases (0.3)
- (0.4)Redemption of loan notes (0.4) (0.7) (0.8) ------- ------- ---------
Net cash (used in)/from financing activities (21.7)
(2.8) 69.5
-------
------- ---------
Net increase in cash and cash equivalents 9.9 4.1 1.2Cash and cash equivalents at beginning of period 28.4 27.7 27.7Effect of foreign exchange rate changes 0.3
0.4 (0.5)
------- ------- ---------Cash and cash equivalents at end of period 38.6
32.2 28.4
-------
------- ---------
Cash and cash equivalents compriseCash and deposits 39.7 34.8 35.2Bank overdrafts (1.1) (2.6) (6.8) ------- ------- --------- 38.6 32.2 28.4 ------- ------- ---------
Reconciliation of net cash flow to movement in net debt Net increase in cash and cash equivalents
9.9 4.1 1.2Decrease/(increase) in borrowings 4.2 (12.3) (97.1)Increase in finance leases (0.8) - -Obligations under finance leases assumed with acquisition - - (1.9)of subsidiaryRepayments of obligations under finance leases 0.3
- 0.4Redemption of loan notes 0.4 0.7 0.8 ------- ------- ---------
Change in net debt resulting from cash flows 14.0 (7.5) (96.6)Effect of foreign exchange rate changes 0.3
(0.2) (0.5)
------- ------- ---------Movement in net debt during the period 14.3
(7.7) (97.1)Net debt - opening (114.8) (17.7) (17.7) ------- ------- ---------Net debt - closing (100.5) (25.4) (114.8) ------- ------- ---------
Notes to the unaudited interim results
1. General information
The information for the year ended 31 December 2006 does not constitutestatutory accounts as defined in section 240 of the Companies Act 1985. A copyof the statutory accounts for that year has been delivered to the Registrar ofCompanies. The auditors' report on those accounts was unqualified and did notcontain statements under section 237(2) or (3) of the Companies Act 1985.The interim results for the six months ended 30 June 2007, and the six monthsended 30 June 2006, have been reviewed but have not been audited (see page 8).The financial information set out in these statements does not constitute fullaccounts as defined by section 240 of the Companies Act 1985.
2. Accounting policies
The interim financial report has been prepared in accordance with 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 accounting policies and methods of computation followed in the interimfinancial statements are the same as published in the Group's financialstatements for the year ended 31 December 2006 and which are also available onthe Company's website at www.interserve.com. The accounting policies used inthese interim financial statements are consistent with those that the Directorsintend to use in the annual financial statements
3. Business and geographical segments
Following the integration of the MacLellan business, and as announced in theFinancial Review of the annual report and financial statements 2006, the Groupdivisional and management structure has been reorganised to align customer andoperational synergies more closely.
The Group is currently organised into five operating divisions, as set out below. These divisions are the basis on which the Group reports its primary segment information.
‚· Facilities Management: provision of outsourced support services to
public and private sector clients
‚· Specialist Services: mechanical and electrical related operations;
asbestos surveying and remedial work; security services; and, specialist
cleaning operations
‚· Project Services: design, construction and maintenance of buildings and
infrastructure
‚· Equipment Services: design, hire and sale of formwork, falsework and
associated access equipment
‚· Joint ventures - PFI Investments: the Group's share of the net result of its PFI special purpose companies
Segment information about these operating divisions is presented below.
Following the reorganisation of the group into five operating divisionsdescribed above, and in order to assist readers in understanding the year onyear performance, we have reanalysed the comparative segmental information forthe six months ended 30 June 2006 and the year ended 31 December 2006. There isno change to the overall group reported results. Sales revenue Result 30 June 30 June 31 December 30 June 30 June 31 December 2007 2006 2006 2007 2006 2006 ‚£million ‚£million ‚£million ‚£million
‚£million ‚£millionFacilities Management 378.0 292.1 649.5 12.7 4.4 13.9Specialist Services 88.8 49.2 137.4 2.7 2.3 6.6Project Services 362.0 276.1 570.8 10.9 9.0 23.4Equipment Services 60.6 55.8 108.5 10.0 10.2 22.6Joint ventures - PFI - - - 0.8 0.6 1.1Investments Inter Group elimination (28.3) (24.1) (57.7) - - - ------- ------- ---------- ------- ------- --------- 861.1 649.1 1,408.5 37.1 26.5 67.6Group Services (7.9) (6.6) (11.4)
Amortisation of acquired intangible assets (2.4)
- (2.1)Impairment of goodwill - - (30.0)Other exceptional costs - - (12.2)
Profit on disposal of property and investments 0.6
1.3 1.3 ------- ------- ---------- ------- ------- --------- 861.1 649.1 1,408.5 27.4 21.2 13.2 ------- ------- ----------Investment revenue 19.5 16.4 33.8Finance costs (18.7) (14.5) (31.9) ------- ------- ---------- ------- ------- ---------Profit before tax 28.2 23.1 15.1Tax (8.6) (7.5) (14.0) ------- ------- ---------- ------- ------- ---------Profit after tax 19.6 15.6 1.1 ------- ------- ---------- ------- ------- ---------Facilities Management revenue includes ‚£3.5 million in respect of works bills(30 June 2006: ‚£21.9 million, 31 December 2006: ‚£28.2 million). Works bills arecosts relating to services and materials procured on behalf of the Ministry ofDefence on which no margin is allowed but for which a management fee isreceived. Net assets / (liabilities) 30 June 30 June 31 December 2007 2006 2006 ‚£million ‚£million ‚£millionFacilities Management (2.4) (48.0) (17.0)Specialist Services (6.3) (1.2) (5.6)Project Services (101.5) (94.1) (87.5)Equipment Services 105.3 92.9 94.1Joint ventures - PFI Investments 52.4 31.6 60.7 --------- -------- --------- 47.5 (18.8) 44.7Group Services 204.4 131.4 190.6 --------- -------- --------- 251.9 112.6 235.3Net debt (100.5) (25.4) (114.8) --------- -------- ---------Net assets (excluding minority interest) 151.4 87.2 120.5 --------- -------- ---------Geographical SegmentsFacilities Management and Specialist Services are predominantly based in theUnited Kingdom. The Project Services division is located in the United Kingdomand has investments in associates in the Middle East. Equipment Services hasoperations 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.
Following the decision to separately disclose inter group sales and in order toassist readers in understanding the year on year performance, we have reanalysedthe comparative segmental information for the six months ended 30 June 2006 andthe year ended 31 December 2006. There is no change to the overall groupreported results. Sales revenue Total operating profit 30 June 30 June 31 December 30 June 30 June 31 December 2007 2006 2006 2007 2006 2006 ‚£million ‚£million ‚£million ‚£million ‚£million ‚£millionUnited Kingdom 839.9 627.7 1,378.1 22.4 12.2 35.4Rest of Europe 12.2 11.6 24.8 2.7 2.1 4.6Middle East & Africa 17.1 14.1 23.3 8.1 7.7 19.4Australasia 11.9 12.9 23.9 2.2 3.5 5.7Far East 4.2 5.4 10.0 (0.4) 0.1 (0.3)Americas 4.1 1.5 6.1 1.3 0.3 1.7Inter Group elimination (28.3) (24.1) (57.7) - - - ------- ------- --------- ------- ------- --------- 861.1 649.1 1,408.5 36.3 25.9 66.5
Joint ventures - PFI Investments 0.8 0.6 1.1Group Services (7.9) (6.6) (11.4)Amortisation of acquired intangible assets (2.4) - (2.1)Impairment of goodwill - - (30.0)Other exceptional costs - - (12.2)Profit on disposal of propertyand investments 0.6 1.3 1.3 ------- ------- --------- ------- ------- --------- 861.1 649.1 1,408.5 27.4 21.2 13.2 ------- ------- --------- ------- ------- --------- Net assets / (liabilities) 31 December 30 June 2007 30 June 2006 2006 ‚£million ‚£million ‚£millionUnited Kingdom (109.4) (144.4) (106.6)Rest of Europe 19.2 17.8 4.2Middle East & Africa 40.7 31.0 20.3Australasia 20.3 20.3 18.2Far East 18.8 18.6 37.7Americas 5.5 6.3 10.2 ---------- --------- ------------ (4.9) (50.4) (16.0)Joint ventures - PFIInvestments 52.4 31.6 60.7Group Services 204.4 131.4 190.6 ---------- --------- ------------ 251.9 112.6 235.3Net debt (100.5) (25.4) (114.8) ---------- --------- ------------Net assets (excludingminority interest) 151.4 87.2 120.5 ---------- --------- ------------4. Income tax expense Six months Six months ended 30 June ended Year ended 31 2007 30 June 2006 December 2006 ‚£million ‚£million ‚£millionUK taxation 6.8 4.4 6.6Overseas taxation 1.8 2.7 1.9Deferred taxation - 0.4 5.5 ------------------ ------------ ----------- 8.6 7.5 14.0 ------------------ ------------ -----------Corporation tax for the interim period is charged at 30.5% representing the bestestimate of the weighted average annual corporation tax rate expected for thefull financial year (30 June 2006: 32.5%; 31 December 2006: 92.7%. Excluding theimpact of ‚£30.0m goodwill impairment, the effective tax rate for year ended 31December 2006 was 31.0%). The effective tax rate for 2007 includes a ‚£1.2mcredit following the re-measurement of deferred tax balances as a result of thechange in the main UK corporation tax rate from 30% to 28% that will beeffective from 1 April 2008.Deferred tax of ‚£11.6m has been charged directly to equity (‚£13.6m chargerelating to actuarial gains on the Group's defined benefit pension scheme; ‚£3.2mcredit relating to fair value adjustments on interest rate swaps andavailable-for-sale financial assets within the Group's PFI special purposecompanies; and, ‚£1.2m charge for the substantially enacted change in corporationtax rate noted above).
5. Reconciliation of movement in equity
Six months Six months ended 30 ended 30 Year ended 31 June 2007 June 2006 December 2006 ‚£million
‚£million ‚£million
Opening equity attributable to equity holders of the parent 120.5
92.8 92.8 -------- --------- -----------Exchange differences on translation of foreign operations - (6.2) (6.5)
Gains on revaluation of available-for-sale financial assets (excluding joint ventures)
0.3 - 0.2Gains on cash flow hedges (joint ventures) 21.6 15.0 13.3
(Losses) / gains on revaluation of available-for-sale financial assets (joint ventures)
(32.4) (32.0) 4.7Actuarial gains on defined benefit pension schemes 45.0 12.5 7.7Deferred tax on items taken directly to equity (11.6) 1.4 (7.3) -------- --------- -----------Net income (loss) recognised directly in equity 22.9 (9.3) 12.1Profit/(loss) for the period attributable to equity holders of the parent 18.6 14.6 (1.6)Equity dividend paid (13.1) (11.5) (17.5)Issue of shares 1.8 0.2 34.1Share based payments 0.7 0.4 0.6 --------
--------- ----------- Net addition/(reduction) to equity attributable to equity holders of the parent
30.9 (5.6) 27.7 -------- --------- -----------Equity attributable to equity holders of the parent 151.4 87.2 120.5Minority interest 1.1
1.2 1.4 -------- --------- ----------- 152.5 88.4 121.9 -------- --------- -----------
6. Earnings per share
The calculation of earnings per share is based on the following data:
Six months Six months ended 30 ended 30 Year ended 31 June 2007 June 2006 December 2006Earnings ‚£million ‚£million ‚£million
Earnings for the purposes of basic earnings per share being 18.6
14.6 (1.6)
net profit attributable to equity holders of the parent Profit on disposal of property and investments
(0.6) (1.3) (1.3)Amortisation of acquired intangibles 2.4
- 2.1Impairment of goodwill - - 30.0Other exceptional costs - - 12.2
Tax effect of above adjustments (0.5)
0.4 (3.9) ---------- --------- ----------Headline earnings 19.9 13.7 37.5 ---------- --------- ----------
Earnings for the purposes of diluted earnings per share 18.6 14.6 (1.6) ----------
--------- ----------
Number of shares Number Number Number thousand thousand thousandWeighted average number of ordinary shares for the purposes 123,863 114,198 118,481of basic and headline earnings per shareEffect of dilutive potential ordinary shares:Share options
1,981 812 1,253
-------- -------- ---------Weighted average number of ordinary shares for the purposes 125,844 115,010 119,734of diluted earnings per share
-------- -------- ---------
p p pHeadline earnings per share 16.1 12.0 31.7 -------- -------- ---------Basic earnings per share
15.0 12.8 (1.4)
-------- -------- ---------Diluted earnings per share
14.8 12.7 (1.3)
-------- -------- ---------
7. Dividends Six months Six months Year ended ended 30 June ended 30 June 31 December 2007 2006 2006 ‚£million ‚£million ‚£millionFinal dividend for the year ended 31 December 2006 of 13.1 11.5 11.510.6 per share (2005: 10.1p per share) ---------- ---------- ---------Interim dividend for the year ended 31 December 2006 of - - 6.04.8p per share ---------- ---------- ---------Amount recognised as distribution to equity holdersin the period 13.1 11.5 17.5 ---------- ---------- ---------
The proposed interim dividend of 5.0p per share, amounting to ‚£6.2m, was approved by the Directors on 5 September 2007 and has therefore not been included as a liability as at 30 June 2007.
8. Share capital
During the period 0.6m ordinary shares of 10p each were issued for a cashconsideration of ‚£1.8m to participants in the Executive Share Option Scheme. (30June 2006: 0.1m for a cash consideration of ‚£0.2m; 31 December 2006: 0.2m shareswere issued to participants in the Executive Share Option Scheme and 9.4m shareswere issued in relation to the MacLellan acquisition for a combined value of‚£34.1m).9. AcquisitionsOn 11 June 2007, together with our partner in Qatar, Al Darwish United Co WLL,the Group acquired the Madina group, a Qatari industrial services business, fora total consideration of ‚£18.5 million. The consideration paid by the Groupamounted to ‚£9.1m for a 49% share of the Madina group. The investment is treatedas an associate and the provisional fair value of the tangible net assetsacquired amounted to ‚£2.1m.
INTERSERVE PLC