Final Results

Interior Services Group PLC

("ISG" or "the Group")

Final results for the year ended 30 June 2012

growth OVERSEAS, competitive UK environment

Interior Services Group plc, the international construction services group, today announces its final results for the year ended 30 June 2012.

1from continuing operations

2from underlying items (Note 2 and 3)

3from earnings attributable to owners of the company from underlying items (Note 10)

4from earnings attributable to owners of the company (Note 10)

Group Highlights

·; Revenue up 9% to £1,281m (2011: £1,174m)

·; Lower profits in the UK reflect a challenging economic environment

·; Profits from overseas business nearly quadrupled to £3.5m

·; Developing our international network of offices to continue servicing our blue-chip corporate clients

·; Significant advances in the expanding data centre market

·; Construction activity ahead of prior year on the back of completing substantial projects for the London 2012 Olympic and Paralympic Games following on from the successful delivery of the Velodrome

·; Net cash balance of £25.4m at 30 June 2012 (2011: £36.1m)

·; Order book marginally ahead at £760m (2011: £750m) with private sector bias of 81% (2011: 78%)

·; Total full year dividend at 9.00p per share (2011: 15.06p)

·; Subsequent to year-end, banking facilities renewed until September 2015

Divisional Highlights

UK Fit Out

·; Revenue maintained at £347m (2011: £342m)

·; Operating profit 19% lower at £6.5m (2011: £8.0m)

·; London Office Fit Out market remains competitive, with project sizes smaller

·; Increased revenue from growth sectors, particularly data centres

·; Workloads from Retail Banking framework agreements stable

·; Order book up 7% to £182m

Continental Europe Fit Out

·; Revenue increased by 39% to £101m (2011: £73m)

·; Operating profit of £2.3m (2011: loss £0.8m)

·; Substantial organic growth of our Retail division; acquisition of Alpha completed

·; Office Fit Out division maintained revenue after strong growth in prior year

·; France, Germany and Italy performing well

·; Order book up 100% to £40m with continuing solid demand from multinational clients

Middle East Fit Out

·; Revenue up 6% to £21m (2011: £20m)

·; Year impacted by project start delays, overheads based on a growing business and start up costs of Qatar

·; Order book up 75% from prior year to £14m

Asia Fit Out

·; Revenue increased by 22% to £81m (2011: £67m)

·; Operating profit increased by 66% to £1.7m (2011: £1.0m)

·; North Asia growth driven by retail and hospitality & leisure sectors

·; South East Asia maintained volumes

·; Realys, our newly branded design and project management business, grew by 33% on back of prior year acquisition

·; Strong demand for commissioning management services, particularly data centre sector

·; Continued investment in strengthening local management teams

·; Order book slightly lower at £30m (2011: £35m) reflecting slower South East Asia market

Food Retail

·; Revenue decreased by 9% to £199m (2011: £218m), reflecting decrease in new build project activity

·; Operating profit decreased to £2.3m (2011: £5.2m), with margins impacted by customers focusing on reducing costs

·; Substantial work under frameworks carried out for top four major UK supermarket brands

·; Integrations of Food Retail and Retail Fit Out business completed

·; Order book lower at £116m (2011: £140m) reflecting fewer new build opportunities with certain customers

Construction

·; Against market trend, revenue increased by 17% to £533m (2011: £455m) on the back of LOCOG London 2012 overlay works contract

·; Market conditions remain challenging

·; South West division returned to profitability in Q4 after restructuring of business

·; Order book steady at £378m and now weighted 65% towards private sector (2011: 55%)

·; Post year-end we have secured a £61m project for Center Parcs

David Lawther, Chief Executive Officer, said:

"ISG has delivered a resilient performance in market conditions that continue to be challenging. In the UK, we have maintained our market leading positions, and have successfully delivered substantial projects for LOCOG as well as for our key customers and frameworks. In addition, we have targeted a number of growth sectors and achieved particular success in data centres. Internationally, we have experienced strong growth in Europe and Asia where we continue to see opportunities for growth, and as a result we have succeeded in quadrupling our profits from our overseas businesses.

Looking ahead, the Group is well placed to benefit from a recovery in the UK and from our presence in key global locations that are attracting inward investment. We are confident of our strategy and will continue to target growth both organically and via acquisition."

11 September 2012

ENQUIRIES:

chairman's statement

The current economic environment continues to challenge our industry and that of many of our customers and suppliers. Underlying profit before tax*for the year ended 30 June 2012 amounted to £7.5m (2011: £12.4m), with underlying earnings per share** of 18.01p (2011: 29.19p).

During the year there have also been a number of significant achievements. Our international businesses nearly quadrupled their profits illustrating the benefit of our diversification strategy and now account for 27% of our underlying Group trading profit* (2011: 5%). We have improved the international co-ordination of our multinational key accounts, successfully delivering a consistent product and service across multiple locations thereby supporting our customers' international growth plans. We have also made rapid progress on our ambition to become a major player in new market sectors such as data centres, where we have had a number of notable successes around the world. Following on from the delivery of the London 2012 Velodrome, we successfully completed the "overlay works" for the Olympics and Paralympics which involved some 180 of our people working across every UK Olympic venue, thereby reinforcing our reputation for providing multi-location construction services.

Against the background of the current economic environment, we have taken further steps to align business costs to current opportunities. We have combined our Retail Banking and Food Retail operations into one division with effect from 1 July 2012 and further rationalised our Construction business and Group support functions. While there has been a short-term cost incurred to achieve this, we are already seeing the longer term benefits.

With greater emphasis on cash management, it is creditable that we have ended the year with net cash balances of £25.4m (2011: £36.1m), as there are fewer larger contracts, lower margins and tightening availability of credit. Subsequent to year-end, the Group has renewed its banking facilities for a further three years to September 2015.

As previously announced in our pre-close trading statement in July 2012, the Board is proposing a final dividend of 4.59p per share, making a total of 9.00p (2011: 15.06p) for the year. The Board remains committed to a progressive dividend policy and a long-term dividend cover target of greater than two.

In August 2012, we further strengthened the Board with the appointment of Richard Mully as a Non-Executive Director. Richard, 51, currently serves as a main board director of Aberdeen Asset Management plc as well as two European REITs, Hansteen Holdings plc in the UK and Alstria Office REIT-AG in Germany. His international business experience will be of significant value.

Our successes are due in no small measure to the continued dedication of our employees. In such a tough market environment we especially thank them for their undaunted determination to succeed.

The Group has been active in ensuring that its business model fits the current economic conditions. Our successful development of a number of new market sectors illustrates our flexibility and ability to grow organically. Equally we have continued to complement this with strategic acquisitions, acquiring Alpha International SARL, a Paris-based retail design and fit out company, in October 2011. Going forward we will continue to search for opportunities to expand our reach to service our international clients. In the current market we will adopt a conservative approach to structuring these opportunities.

The year-end order book has remained steady at £760m (2011: £750m). We believe that we are at the bottom of the cycle in the UK but, with no clear short-term upturn, we continue to focus on active clients and sectors. With growth overseas and successful entry into new market sectors, we are targeting an improved outcome in the current year.

*from underlying items (Notes 2 and 3)

**from earnings attributable to owners of the company from underlying items (Note 10)

Roy Dantzic

Chairman

11 September 2012

CHIEF EXECUTIVE OFFICER'S STATEMENT

Ouryear-end results are in line with the revised management expectations announced in January 2012. The UK market in which we operate continues to be challenging and nationally there are fewer large-scale projects, a focus on refurbishment of existing space rather than new build, public sector cutbacks and generally increased competition in general. At the same time the economic uncertainty in the Eurozone is affecting private sector confidence.

However, there are a number of reasons to be cautiously optimistic about the outlook. Our overseas markets are, as predicted, proving more resilient, showing continued growth and stronger margins. Equally, our plans to become a major player in new sectors such as data centres are now bearing fruit and positioning us well for the eventual upturn. There are also signs that some of our traditional markets, for example large-scale London office fit outs, will begin to show improvement. Finally our focus on servicing multinational clients, whose investment budgets remain substantial and who are looking to expand into many of the regions where we are active, will continue to serve the Group well.

Our strategy is to:

·; Target growth through sectors where we see opportunities, particularly in the data centre, hospitality, high-end residential and international retail markets.

·; Develop our established specialist businesses in European and Asian fit out, retail and management services, where we are seeing significant growth opportunities.

·; Continue to target and invest in new growth geographies where there is demand for our services from our international clients.

·; Expand our services to deepen our relationships with our multinational, framework and repeat customer base, to include design and commissioning management services in selected geographies.

·; Focus on maximising operating efficiencies.

Results

For the year ended 30 June 2012, underlying profit before tax* was £7.5m (2011: £12.4m) on revenue** of £1,281m (2011: £1,174m). Underlying basic earnings per share*** amounted to 18.01p (2011: 29.19p). Profit before tax** was £3.0m (2011: £10.2m).

We finished the year with a net cash position of £25.4m (2011: £36.1m). There was a nil net cash inflow from operating activities** for the period (2011: £14.7m) reflecting the current lower level of larger contracts in comparison with prior years. During the year, the Group repaid £4.1m (2011: £5.1m) of term debt, resulting in a residual balance of £4.7m (2011: £8.5m). In addition, we retain a working capital revolving credit facility of £10m which was undrawn at year-end. Subsequent to year-end, we have renewed our banking facilities with a term loan of £6.0m and a revolving credit facility of £10.0m through to September 2015.

Discontinued operations and other non-underlying items

As set out in Notes 3 and 8 of the financial statements, during the year our Construction business discontinued its Affordable Housing activity in the South West, resulting in a loss before tax of £2.1m being treated as a discontinued operation. In addition, we have incurred restructuring costs of £3.0m, largely relating to the consolidation of our Retail Banking and Food Retail operations into one division, further rationalisation of our Construction business as well as relocation of all our UK IT departments to Ipswich. These costs, which have been treated as a non-underlying loss, are partially offset by a non-underlying gain of £1.4m arising from a reassessment of the deferred contingent consideration payable to the vendors of Realys based on latest forecasts.

Dividend

As previously announced in our pre-close trading statement in July 2012, the Board is proposing to pay a final dividend of 4.59p (2011: 10.65p) making a total for the year of 9.00p (2011: 15.06p).

The ex-dividend date will be 24 October 2012 and the dividend will be payable on 11 December 2012 to shareholders on the register on 26 October 2012. The Board considers it appropriate to offer a scrip dividend alternative to shareholders, the details of which will be explained in the forthcoming Annual General Meeting circular. The final dividend for the previous financial year of 10.65p was paid on 18 November 2011.

Overview

Key features of our business during the year included:

·; We have won work during the year totalling £1,291m (2011: £1,204m) - testament to our reputation for excellent customer service and delivery.

·; Our UK Fit Out business has maintained its leading position in a highly competitive London corporate office market, where we have seen a reduction in the size of projects.

·; We remain the number one service provider to the UK retail sector, though the market is challenging. The second half decline in revenues for our UK Retail businesses has been in line with our revised expectations as our framework customers continue to reduce their construction programs. We have adjusted the size of our business accordingly.

·; Our Construction business continues to experience competitive pressure on margins. However, against the market trend, revenues for the year have increased with a particularly strong performance in the South benefiting from the work secured with the London Organising Committee of the Olympic and Paralympic Games (LOCOG) to lead the preparations for the London 2012 Olympics and Paralympics, following on from the successful delivery of the Velodrome ahead of schedule and on budget.

·; The business is establishing a leading presence in the data centre market having secured a number of projects to construct and fit out new facilities for international customers.

·; Our Continental Europe business has continued to grow. The Fit Out and Retail businesses have both made profitable contributions with the former benefiting from strong performances in each of its key markets - Germany, Italy and France. The latter also benefited from the acquisition of Alpha International SARL (Alpha) in October 2011, which has continued to trade well.

·; The Middle East business, whilst building its reputation for quality of delivery, has been impacted by lower volumes and margins.

·; Revenues and margins are substantially improved in Asia. In particular, our North Asia Contracting and Commtech Commissioning Management businesses have performed strongly largely on the back of continued growth in the retail and data centre markets.

UK Fit Out

While the return of large-scale office fit outs is on the horizon, it is fair to say that it is not here yet. We maintain our position as a market leader but the characteristics of the current market are smaller projects, refurbishment of existing space, tighter margins and a client base looking to maximise value for money. In line with this we have had a record year in terms of number of projects, albeit at a lower average project size. During the period, revenues were maintained at £347m (2011: £342m). However operating profit was down 19% to £6.5m (2011: £8.0m), due to tighter margins at 1.9% (2011: 2.3%) which are the result of increased competitive pressure in the sector.

We are deepening our relationships with social media and internet-led companies where we are at the forefront of developing new and innovative blueprints for office interiors. These trends are beginning to be followed by others in the market including major corporate and professional services clients. Our market leading position here, alongside our continued stream of work from our repeat business blue-chip clients, will position us well for the upturn.

Four ISG fit out projects were named as finalists in the prestigious 2012 British Council for Offices Awards (BCO) regional awards for London and the South East, including 160,000 sq ft projects for both Pinsent Masons and K&L Gates, with the latter announced the winner of the London BCO awards in the period.

In addition, our London Fit Out team completed a 120,000 sq ft technology-rich project for international film and television organisation NBCUniversal. Also in London, at the newly regenerated Paddington Basin, we completed a 160,000 sq ft fit out for Marks & Spencer and started work on a 60,000 sq ft project for Nokia. We also worked on a 78,000 sq ft fit out for Bain & Co in the period.

Our reputation for technology-rich and highly engineered projects has grown as we have recruited industry leading talent to our UK Fit Out team. In the year we have secured a number of projects including a £100m+ data centre for Santander and we are preferred contractor on a similar sized project for another international customer. In the year ahead we intend to build upon this exceptional success in entering new market sectors.

We are also making significant progress in establishing ourselves in the high-end residential sector. In the year we were reunited with well-known British designer Tim Gosling, to deliver the luxury specification fit out of a new build residence in Hampstead, London. In addition, subsequent to the year-end, we achieved completion on a complex seven star luxury penthouse in Central London. The hospitality sector is also providing opportunity and in the year we delivered the refurbishment of one of the Ascott Group's most popular Citadine apartment hotels, located close to Trafalgar Square, London. We are also on-site delivering the conversion of London's Queen Anne's Chambers building in Westminster into a luxury InterContinental Hotel.

In our Retail Banking market we have maintained our position on all the major Retail Banking frameworks completing over 400 projects for our customers in the sector including Barclays Bank, HSBC, Lloyds Banking Group (LBG), Nationwide and The Royal Bank of Scotland (RBS). Our knowledge and expertise has enabled us to take lead positions on these frameworks. For example, we have been appointed as the Sustainability Partner for LBG, setting sustainability policy for all contractors on their framework. Also for LBG, we have delivered their retail banking presence on the Olympic Park and Athletes' Village for London 2012. Another standout project is the delivery of a 2,400 sq ft flagship branch for Barclays at Westfield in Stratford, London. Our Retail Banking customers are reassessing their programmes and in line with this the outlook in the sector is more challenging.

While the high street retail sector has remained subdued, we have had a number of successes. In the year, we have increased commissions from our repeat customers such as Hackett, for whom we completed our tenth UK project in the year. We have also delivered the 13,000 sq ft Victoria's Secret store at Westfield in Stratford, London. Another luxury brand choosing ISG to deliver its stores was Swarovski for whom we delivered three stores in the UK. We are working on a number of projects for Foot Locker and delivered their Locker Room 'performance store' concept in Brent Cross, London.

At the end of the year the order book for the UK Fit Out business is up at £182m (2011: £170m) benefiting from our growing success in the data centre, hotels and high-end residential sectors. We expect the market to remain competitive in the year ahead but with the benefit of our growing success in new sectors, we anticipate an increase in volumes.

Continental Europe Fit Out

In Continental Europe there is solid demand from our multinational client base and revenue rose further (after a significant rise the previous year too) to £101m (2011: £73m). Profits were greatly improved at £2.3m (2011: loss £0.8m). These strong results reflect an increase in volumes and repeat business, underpinned by the successful implementation of our strategy to strengthen our infrastructure and management in the region. Repeat customers include Google, K&L Gates and Hewlett-Packard. Business from local customers has also increased in line with our strategy and in the year we delivered office fit outs for Italian companies Corso and also Corio Italia for whom we completed a 20,000 sq ft, BREEAM-rated office fit out in Milan. We secured the first phase of a five-year enlargement and renovation project for the oldest department store in Paris, Le Bon Marché, again demonstrating the appeal of our approach to local customers. We have also serviced customers outside the countries where we have Continental European offices.

Other project highlights include a 16,500 sq ft headquarters in Geneva for leading international creative consulting group WPP, a 13,000 sq ft remodelling of the law firm Olswang's office in the prestigious Torre de Cristal, Madrid and a 6,000 sq ft design and build project for Sony Ericsson in Moscow.

As part of our strategy to grow retail in the region, we have continued to invest in our retail fit out offering in Continental Europe. In October 2011 we acquired Alpha, a Paris-based retail design and fit out company with an established reputation and client network in France and Italy. Encouragingly, our existing UK retail customers have looked to us to aid in their international expansion. We have delivered a 40,000 sq ft store for Hackett in Milan and we continue to work with Marks & Spencer on their return to Continental Europe, delivering our second project for them in Paris. The combination of these two approaches has helped this business achieve a strong performance in the period.

At the end of the year, the order book for Continental Europe has doubled at £40m (2011 - £20m). We expect the business to deliver further growth over the next year.

Middle East Fit Out

The Middle East business continued to focus on fit out within the Dubai and Abu Dhabi markets, providing services for both multinational and local customers including Credit Agricole, SinoGulf and Mubadala. We have now commenced delivery of our first project in Qatar where we will look to service our international and regional customers. In the year we were awarded "Middle East Interior Fit Out Contractor of the Year" at the fifth annual Middle East Commercial Interior Design (CID) Awards. A highlight of the year was the completion of a number of projects in Sowwah Square, including 6,500 sq ft office fit outs for both Akin Gump and Baker Botts, and a 10,000 sq ft office fit out for Norton Rose.

In the period, trading has been particularly difficult due to several project starts being delayed through stalled base builds. As a result, revenues were maintained at £21m (2011: £20m). With margins reduced in a highly competitive market, the business delivered a loss of £0.5m (2011: profit £0.7m).

In the region the order book is improved at £14m (2011: £8m) and we expect improved performance in the current year.

Asia Fit Out

Our strategy to grow our international business through organic and non-organic growth is exemplified by continued success in our Asia region, particularly in the north where Hong Kong and China are proving to be resilient to the global economic downturn. As a result, revenue for the region has increased by 22% to £81m (2011: £67m). Margins remain generally stronger than those found in the UK market at 2.1% (2011: 1.5%) which has resulted in an operating profit of £1.7m (2011: £1.0m).

The year has seen us continue to build our reputation for excellent customer service and delivery, working on some highly prestigious projects for international clients, particularly luxury retail brands and blue-chip corporates, leading to an increase in revenue. We are integrating Realys, our design, consultancy and project management business, into our offering. Alongside Commtech, which provides commissioning management services, it is contributing profitably and complements the range of services we can provide. This is enabling us to form deeper relationships with key customers and to offer them a broader range of services.

In North Asia, in line with our continued success with international luxury retailers, we secured the fit out of the 30,000 sq ft Abercrombie & Fitch flagship store in the Grade II-listed Pedder Building. Our international relationship with Hackett has underpinned the winning of its new Hong Kong store and we continue to work for luxury retailers such as Chanel, Hogan, Tod's and Dior. For the latter we completed twelve projects across North Asia in the year. We have also commenced work on our first retail scheme for Tesco in the region.

Our reputation in the commercial office sector continues to grow. We have established new relationships with clients such as World Wildlife Fund and Daiwa, for whom we delivered 75,000 sq ft of office space in Hong Kong. The business continues to provide management contracting services throughout Asia Pacific under a term agreement to a leading multinational semi-conductor chip maker and is currently delivering commissions throughout China,Taiwan and Hong Kong. We also continue to grow in the hotel and leisure sector in North Asia, delivering projects for the Hong Kong Club, Hong Kong Jockey Club and Onyx Hotels.

The market in South East Asia is more challenging. However, in the period, volumes were maintained and we successfully completed the fit out of a 46,000 sq ft Louis Vuitton Island Maison store at Marina Bay Sands in Singapore. The business also completed the fit out of 238,000 sq ft of office space, spread over nine floors and housing approximately 1,700 members of staff, for ANZ near Singapore's new Marina Bay Finance District. It also built on its hospitality expertise with the completion of Concorde Hotel in Shah Alam, Malaysia.

The successful delivery of 117,000 sq ft of state-of-the-art office space for Microsoft in Singapore led to further work in Malaysia resulting in our delivering 37,000 sq ft of unique working space for the client in the newly built KLCC Tower 3, where we are also providing new work environments for customers in the petrochemical sector, such as BP. Currently the team is also working on a major upgrade to Scott's Plaza as well as delivering facilities for British International Schools, LDH Energy, Stuggart Auto and Squire Sanders.

Our Asia Pacific project management arm, through Realys, has secured further work with Audi, BMW, Jaguar Land Rover, Mercedes and Porsche. With Standard Chartered Bank, we continue to work on both their retail branch network and office space. We are also working with Western Union across a wide geography including Australia, Hong Kong, Japan, New Zealand and Singapore, and provided services to the Australian Department of Foreign Affairs and Trade in Mumbai, India and Islamabad, Pakistan. Other customers we are providing services for are Nestlé, Sematic and Arkema.

Demand for comprehensive commissioning management services at Commtech remained strong across the mission critical facilities, energy enhancement and environmental controls sectors. Key projects include Wonder 8 - Hong Kong Financial Data Centre for NTT Communications, phase one of which covers 400,000 sq ft and World Trade Centre II for Hongkong Land/Jakarta Land Joint Venture covering a total area of 1.2m sq ft. We are now extending this offering to the Middle East and China.

Our Asia division is carrying forward an order book of £30m as at 30 June 2012 (2011: £35m). With the focus of our professional services offer under the Realys brand, the development of Commtech and the strong market conditions in North Asia, we anticipate that the business will continue to grow in the current financial year.

Food Retail

We are on the frameworks for all the major UK food retailers and remain the number one provider to the wider retail market. However, during the year a number of our clients decided to reduce their UK capital expenditure programmes. Their current focus is less on new space, and more on refreshing what already exists. Where new build projects are available, the overall project size tends to be smaller, with some of the major brands in this sector retreating from the development of previously popular new hyperstores.

Competitive pressures are more marked than ever before with food retailers reviewing their approach to frameworks and focusing on maximising value at every stage. This is exerting further pressure on margins. Revenues for the year were lower at £199m (2011: £218m), with operating margins declining to 1.2% (2011: 2.4%) and profits down at £2.3m (2011: £5.2m).

Despite the pressures in the sector, we delivered over 140 projects in the period. For Sainsbury's we delivered their greenest-ever store, a 40,000 sq ft project in Dawlish which, in the period, received an award from Sustain Magazine for its sustainability achievements.

Among the 42 projects we delivered for Tesco, a highlight was the construction of a 30,000 sq ft store in Faversham involving the conversion of two Grade II listed brewery buildings, which were located alongside an existing store.

For Asda we completed the Netto to Asda conversion programme and delivered a 40,000 sq ft store in Cheltenham. Constructed on a brownfield site, the £9.8m store is used by Asda to trial new products and sales concepts, a highlight among the 57 projects we delivered for them in the period.

In Teignmouth, Devon, we are underway on our latest scheme with supermarket chain Morrisons, delivering a £20m project to construct a new store. We are also working on a £20m new store in Edgbaston.

We continue to enjoy a successful relationship with Marks & Spencer. In the UK we are working on their Concept 11 remodelling project on High Street Kensington, London, which is used to help blueprint the future interiors for their stores. We are also in the process of remodelling a Marks & Spencer store in the Gyle Shopping Centre on the outskirts of Edinburgh. The 105,000 sq ft store features one of their first retail banking outlets.

The order book at the end of year was £116m (2011: £140m) reflecting the decline in the number of new build projects. In the current financial year, we anticipate lower revenue but stable margins.

Construction

Our Construction business, with its exposure to the public sector, is operating in a particularly challenging section of the market and as such it continues to experience competitive pressure on margins. However, against the market trend, revenue for the year has increased to £533m (2011: £455m) with a strong performance in London underpinned nationally by the work secured with LOCOG to manage the preparation of the London 2012 Olympics and Paralympics. Importantly, in the last quarter our South West construction division returned to profitability after a restructuring of the business, although it made an overall loss in the year which has impacted profits. In line with this, profits declined to £0.9m (2011: £3.6m).

The business continues to develop its sector expertise and to concentrate on developing customer relationships and frameworks. This strategic focus has resulted in a major win on the Ministry of Justice (MOJ) framework, where we are appointed to three frameworks, North, South and National, compared to a single regional appointment previously. Under the framework we will deliver new build, alterations, refurbishment and maintenance work across prison estates, court estates, the probation service and tribunals.

Similarly our focus on nurturing key customer relationships is exemplified by our work on London 2012 Olympics. After handing over the Velodrome under budget and ahead of schedule to international acclaim, we were successful in securing a Construction Management contract for more than £300m of overlay works for every UK venue On-Park, Off-Park and Non-Competition, including associated site works and infrastructure, part of which will be delivered in the current financial year. This has reinforced our reputation for providing multi-location construction services.

Nationally, our strategy to develop framework and repeat customers is succeeding. In the reporting period we were active on the North West Construction Hub, the Construction Framework South West and we continue to work successfully for repeat key customers including Alliance Leisure, Aspire, BAE Systems, Diageo, Genesis, Imperial College and Persimmon. 30% of our revenues now come from repeat and framework customers.

Our regional structure helps ensure that we remain an influential local business presence across the UK. In Scotland we have successfully completed the first phase of a major £45m regeneration scheme for Home Scotland, and have since been appointed to commence work on Phase Two. We are also on site for Golf Resorts International to transform the iconic Hamilton Grand at St Andrews.

In the North West, the period has seen us awarded our 15th contract with BAE Systems and a third project at the high-profile MediaCity UK Development in Salford.

Our team in the North East played a lead role in securing our place on the MOJ Strategic Agreement Alliance framework. In the Midlands we started on site at the world-renowned Rugby School and continued work on the delivery of a new learning quarter in Dudley. Both the North East and Midlands businesses are working with our fit out business to deliver the construction elements of a £100 million+ data centre in Leicester for Santander.

In the South West we have continued to work with the Aspire Defence framework where we completed the final Junior Ranks Single Living Accommodation (JRSLA) building as part of a £40m rolling programme of 86 assets carried out over two phases.

In London, as well as all the On-Park LOCOG work, we delivered our first scheme as a preferred supplier for Aviva, the refurbishment of a 10-storey building at 33 Kingsway, London. We attracted more headlines when we delivered the unique and daring visitor attraction 'Up at The O2'. We also delivered The Crystal, a highly sustainable structure within London's new Green Enterprise District for Siemens, and are delivering a £37m student accommodation project for Voreda at Imperial College London.

In the South East we successfully completed the New Marlowe Theatre and the Canada Water Library, an inverted pyramid which overhangs the water. Looking forward there are some indications of a revival of the residential sector. We have recently secured the £15m first phase of a £36m mixed-use development with Genesis Housing in Ipswich.

As at 30 June 2012, the order book for Construction stood at £378m (2011: £377m). Of this, £323m will be delivered in the current financial year (2011: £333m). The balance of our Construction order book is now weighted 65% towards the private sector (2011: 55%). Subsequent to the year-end, the business secured a £61m contract to build the accommodation element of the new Center Parcs holiday village development in Bedfordshire. Overall, we anticipate a slight reduction in volumes due to the continued reduction in public sector spending, and for margins to continue to be under pressure.

Outlook

Our strategy to diversify our business positions us well for the period ahead albeit in a market that will continue to challenge the industry. Our entry into new geographies, sectors and service lines will underpin further growth in target areas as will our focus on broadening the number of multinational companies we work for. Our order book at year-end was stable at £760m (2011: £750m) with the private:public sector balance weighted 81% towards the private sector (2011: 78%).

In the UK, formal and informal frameworks remain the backbone of our UK business in what will remain a highly challenging market. Here, the rate of economic recovery is affecting confidence in the private sector while the public sector cuts are now taking hold.

We have an established presence in the provision of data centres and we anticipate greater opportunity in this sector looking ahead. We will also further establish ourselves in other sectors where there is opportunity such as hospitality and high-end residential.

Overseas, we anticipate increased volumes and margins as we continue to benefit from greater local recognition, strengthening of local management and stronger demand from global clients. We will continue to target new geographies where there is demand from our blue-chip international customer base.

The Group is well placed to benefit from a recovery in the UK and from our presence in key global locations that are attracting inward investment. We are confident of our strategy and will continue to target growth both organically and via acquisition.

*from underlying items (Notes 2 and 3)

**from continuing operations

***from earnings attributable to owners of the company from underlying items (Note 10)

David Lawther

Chief Executive Officer

11 September 2012

Interior services group plc

CONSOLIDATED INCOME STATEMENT

Year ended 30 June 2012

AUDITED

* Restated from prior year reflecting the discontinued operations.

CONSOLIDATED STATEMENT OF comprehensive INCOME

Year ended 30 June 2012

AUDITED

Items in the statement above are disclosed net of tax. The tax relating to each component of other comprehensive income is disclosed in Note 7.

CONSOLIDATED BALANCE SHEET

At 30 June 2012

AUDITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 30 June 2012

AUDITED

The foreign currency translation reserve is used to record cumulative translation differences on the goodwill and other intangible assets of foreign operations (Notes 11 and 12). The cumulative translation differences are recycled to the income statement on disposal of the foreign operation.

CONSOLIDATED CASH FLOW STATEMENT

Year ended 30 June 2012

AUDITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

30 June 2012

AUDITED

1. GENERAL INFORMATION

The financial information set out above does not constitute the Group's statutory accounts for the years ended 30 June 2012 or 2011, but is derived from those accounts. Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered following the company's annual general meeting. The auditor has reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

The information has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS). This announcement does not contain sufficient information to comply with all the disclosure requirements of IFRS.

The preliminary announcement for the year ended 30 June 2012 has been prepared in accordance with the accounting policies as disclosed in the 2011 Annual Report, as updated to take effect of any new accounting standards applicable for 2012 as set out in the 2012 Interim Report. In a presentational change from the prior year, the Group now shows its results in the Income Statement split between underlying and non-underlying items. This has no net impact on the results presented.

The directors have prepared cash flow forecasts for the Group for a period in excess of twelve months from the date of approval of the 2012 consolidated financial statements. These forecasts are based on the Group's existing order book together with assumptions in respect of new business and reflect an assessment of current and future market conditions and risks and uncertainties in the businesses, their impact on the Group's trading performance and the actions taken by management in response to the challenging market conditions. The forecasts completed on this basis demonstrate that the Group will be able to operate within the current committed debt facilities and show continued compliance with the financial covenants. In addition, management has considered various mitigating actions that could be taken in the event that future market conditions deteriorate beyond their current assessment. Such measures include further improvements in working capital within management's control, further reductions in costs and capital expenditure and use of the Group's undrawn credit facilities.

On the basis of the exercise described above, the directors have a reasonable expectation that the Group and company have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements of the Group and the company.

2. SEGMENTAL INFORMATION

For management purposes, the Group is organised into operating segments on both a product and geographic perspective. The performances of these segments are considered by the Board when making strategic decisions. These segments include Fit Out, Food Retail and Construction, whilst Fit Out is further segregated by geography into the UK, Continental Europe, Middle East and Asia.

Although the Continental Europe, Middle East and Asia geographical segments do not meet the quantitative thresholds required by IFRS 8 'Operating Segments', management has concluded that these segments should be reported. All are closely monitored by the Board as potential growth regions and are expected to materially contribute to Group revenue in the future.

The principal activities of each of these divisions are as follows:

The segmental information provided to the Board for the reportable segments for the year to 30 June 2012 is as follows:

Revenue and profit analysis

Annual revenue from no one customer amounted to more than 10% of the Group's total revenues.

The revenue disclosed is from external customers and is reported to the Board in a manner consistent with that in the income statement.

1restated for classification of Affordable Housing as discontinued operations

3. NON-UNDERLYING ITEMS

The Group has incurred restructuring costs of £3.0m (2011: £1.8m). This completes the exercise that commenced in the previous year in respect of the Construction operations with the South West construction business being re-organised and fully integrated with the rest of our Construction operations in the UK. Furthermore, the various retail operations in the UK consisting of the bank branch rollout programmes, the high street retail fit out and the food retail fit out which were previously managed separately, have now been brought together under a single and uniform management structure with effect from 1 July 2012, driving efficiencies going forward. Finally, the UK IT teams have been consolidated into a single location, helping to drive operational synergies.

The acquisition of 85% of the issued share capital of Realys was completed on 8 April 2011, for which the initial consideration was valued at £2.4m, with a further deferred contingent element payable (in cash and shares) over the following three years depending on achieving certain performance targets in each of those years. As at 30 June 2011, the fair value of this contingent consideration was estimated to be £2.1m, based on the profit forecasts produced at that time. This amount was recognised as contingent consideration in the Group's consolidated financial statements. In line with IAS 39 'Financial Instruments - Recognition and Measurement', the Group reviews all contingent consideration outstanding at each reporting date. Based on the latest forecasts produced at the time of reporting and the revised amount of consideration estimated to be payable, £1.4m of the previously accrued contingent consideration has been released.

As reported in last year's financial statements, Pearce Construction (Midlands) Limited (Pearce Midlands), a dormant subsidiary of ISG Pearce Limited, was investigated by the Office of Fair Trading (OFT) for technical breaches of competition law in earlier years prior to ISG's ownership. The OFT announced the findings of its investigation on 20 November 2009 and fined Pearce Midlands £5.2m of which £4.4m was on a joint and several basis with the company's former owner, Crest Nicholson plc. Appeals were submitted by both parties to the Competition Appeal Tribunal (CAT) on 24 November 2009. On 15 April 2011, the CAT announced their findings in respect of the appeal and reduced the fine against Pearce Midlands to £950k of which £760k was on a joint and several basis with Crest Nicholson plc. The fine and associated interest were accrued in the prior year and paid in July 2011.

With effect from 1 July 2010, the Al Habtoor ISG International LLC joint venture agreement in the Middle East was terminated with the Group retaining the fit out business and our former joint venture partner retaining the joinery business. The Group has incurred costs during the course of the joint venture separation which have been treated as a loss on disposal of joint venture in the prior period.

Given the nature of these items, the Board has considered that they should be treated as non-underlying items in accordance with the Group's accounting policies.

4. STAFF COSTS INCLUDING DIRECTORS' REMUNERATION

Included in salaries above is a bonus accrual payable in respect of the financial year ended 30 June 2012.

Directors' remuneration included in the aggregate remuneration above comprised:

Directors emoluments (excluding social security costs) disclosed above include £476,730 paid to the highest paid director (2011: £673,292).

Certain subsidiary undertakings of the Group had operated defined contribution pension schemes. The assets of the schemes were held separately from those of the Group by an independently administered fund. The only other pension contributions made by the Group are to employees' personal pension schemes under a salary waiver arrangement.

The Corporate segment in the table above includes three directors (2011: three).

5. FINANCE INCOME

6. Finance costs

7. TAX ON PROFIT ON ORDINARY ACTIVITIES

a. Taxation charge

b. Taxation reconciliation for continuing operations

The charge for the year can be reconciled to the profit per the income statement as follows:

8. discontinued operations

In November 2011, the Group discontinued its Construction's Affordable Housing activity in South West and it has been classified as a discontinued operation for the year ended 30 June 2012, and the results for the year ended 30 June 2011 restated for the presentation of the Affordable Housing activity as a discontinued operation.

This has resulted in trading losses and closure costs in the year and consequently, the 2012 results include a charge to the income statement in respect of the discontinued operations of £2.1m (2011: £1.2m). The directors consider that the restatement of the income statement has no impact on the Group's reported balance sheet at 30 June 2011 and consequently no comparative balance sheet for the year ended 30 June 2010 has been presented in these statements.

The results of the Group's discontinued operations in 2012 are presented below together with the comparative information for 2011 and arise solely from the Affordable Housing operations.

9. DIVIDENDS

In accordance with IAS 10 'Events after the Reporting Date', dividends are accounted for in the period in which they are paid. Accordingly the final dividend proposed in respect of the year ended 30 June 2012 has not been included as a liability as at 30 June 2012.

There are no tax consequences attaching to the payment of dividends by the Group to its shareholders.

10. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the earnings attributable to owners of the company by the weighted average number of ordinary shares during the period, determined in accordance with the provisions of IAS 33 'Earnings per Share'.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all dilutive potential ordinary shares. The Group has two categories of dilutive potential ordinary shares, being share options granted where the exercise price is less than the average price of the company's ordinary shares during the period, and conditional shares not vested where contingent consideration conditions are yet to be met.

Underlying basic earnings per share is calculated by dividing the earnings from underlying items attributed to owners of the company by the weighted average number of ordinary shares during the period. The Group believes that this measure of earnings from underlying items is more reflective of the ongoing trading of the Group.

A total of 3,497,375 share options that could potentially dilute earnings per share in the future were excluded from the calculations below because they were anti-dilutive at 30 June 2011 (2011: 3,044,164).

11. GOODWILL

Goodwill has been allocated for impairment testing purposes to six groups of cash-generating units (CGUs) identified according to operating segments, being UK Fit Out, Continental Europe Fit Out, Middle East Fit Out, Asia Fit Out, Food Retail and Construction. The allocation of goodwill is dependent on the CGU that is expected to benefit from the business combination.

The additional goodwill in the current period relates to the acquisition of the trade and business assets of the French branch of Alpha. Further details of this acquisition are provided in Note 18. The additions to goodwill in the prior year relate to the transfer of the fit out business as a going concern to the Group following the separation of the Al Habtoor ISG International LLC joint venture as referred to in Note 3 and the acquisition of 85% of the issued share capital of Realys.

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and margins for the period. The Board estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the business, giving a pre-tax discount rate of 11.0% (2011: 11.4%). The Group discount rate is applied to all CGUs, on a pre-tax basis. The long-term growth rate of 2.25% is based on the estimated industry growth forecasts and long-term growth in gross domestic product.

The Group prepares cash flow forecasts derived from the most recent financial forecasts approved by the Board for the next two years and extrapolates cash flows for the following three years based on the estimated growth rate of 2.25% and thereafter applied into perpetuity.

At 30 June 2012 and 30 June 2011, the carrying amounts of goodwill for CGUs were tested for impairment and deemed not to be impaired.

The Group's impairment review is sensitive to changes in the key assumptions used. The major assumptions that result in significant sensitivities are the growth rate, the discount rate and the forecast year two cash flows. Except as noted below, a reasonably possible change in a single assumption will not give rise to impairment in any of the Group's CGUs. The Construction goodwill is £24m and the key assumptions are the discount rate and the forecast year two cash flow which assumes a recovery in performance compared to current levels. At the Group's pre-tax discount rate of 11.0%, the fair value of the CGU exceeds the carrying value by £5m or 19%. The fair value is equal to the carrying value at either a discount rate of 12.5% or if the forecast year two cash flow is reduced by 17%.

12. OTHER INTANGIBLE ASSETS

13. ANALYSIS OF NET CASH POSITION