13th Mar 2006 07:00
13 March 2006 PRELIMINARY RESULTS YEAR ENDED 31 DECEMBER 2005 Interserve, the services, maintenance and building group, announces itspreliminary results for the year ended 31 December 2005. - Revenue (net of works bills(a) up 4.0 per cent to ‚£1,168.2 million (2004: ‚£1,123.7 million) - Profit before tax up 15.7 per cent to ‚£47.9 million (2004: ‚£41.4 million) - Headline earnings per share(b) up 14.0 per cent to 26.1p (2004: 22.9p) - Full-year dividend up 4.3 per cent to 14.7p (2004: 14.1p) Chief Executive Adrian Ringrose commented,"Our performance in 2005 was strong. Key drivers were the growing trend towardspublic sector outsourcing in the UK together with an increased level ofactivity in our Middle Eastern businesses enabled by timely investment inpeople, systems and business infrastructure. Overall healthy tradingconditions, together with the excellent visibility of our future workload,underpin our confidence in achieving continued growth." - Ends - For further information please contact:Interserve Plc Adrian Ringrose, Chief Executive 0118 932 0123Tim Jones, Group Finance Director 0118 932 0123 Maitland Neil Bennett / Elizabeth Morley 020 7379 5151 Chairman's statementIn my first statement as Chairman of Interserve I am pleased to report that theGroup made good progress in 2005, delivering strong results and advancing ourstrategy to develop as an added-value infrastructure and facilities managementprovider.We traded well in most markets, with the bulk of our revenue reflecting ourfocus on long-term customer relationships.Our results are summarised in the table below: 2005 2004 Growth Revenue net of works bills(a) ‚£1,168.2m ‚£1,123.7m 4.0% Headline profit(c) ‚£47.7m ‚£39.2m 21.7% Profit before tax ‚£47.9m ‚£41.4m 15.7% Headline earnings per share(b) 26.1p 22.9p 14.0% Basic earnings per share 26.2p 24.2p 8.3% DividendThe directors are recommending a final dividend of 10.1p (2004: 9.7p), bringingthe total dividend for the year to 14.7p (2004: 14.1p). Subject to shareholderapproval at the Annual General Meeting, the final dividend will be paid on 9June 2006 to shareholders on the register at the close of business on 24 March2006.BoardSeveral changes were implemented during the year as part of a planned Boardsuccession. This involved my appointment and that of one other non-executivedirector, Les Cullen, together with the retirements of John Padovan and MikeBottjer, both of whom left with the gratitude of the Board for theircontribution to the Group. Mike left the Board on 31 December 2005 after 43years service with the Company, 26 of which were as a director, having beenChairman since 1996. On behalf of the Board and all colleagues in the Group, Iwould like to thank Mike for his leadership over many years covering a periodin which the Group has made remarkable progress.PeopleOur results are testimony to the hard work, skill and enthusiasm of ourpeople. During my first months with the Group I have been able to meet many ofour teams and have been consistently impressed with their energy,professionalism and dedication to customer service across our broad spectrum ofservices and operating environments. On behalf of the Board, I thank them fortheir performance in 2005 and look forward to their continued commitment in thefuture.ProspectsIn light of the earnings progress made in 2005, together with favourabletrading conditions, particularly in our Middle Eastern markets, the Boardremains confident of the Group's encouraging prospects for continued growth. Wehave excellent forward visibility, in both workload and opportunities, arewell-positioned in our markets and have skilled management in place with aclear strategic plan and a determination to succeed.Lord BlackwellChairman13 March 2006Chief Executive's reviewBusiness overviewOur overall performance in 2005 was strong. Key drivers were the growing trendtowards public sector outsourcing in the UK together with an increased level ofactivity in our Middle Eastern businesses enabled by timely investment inpeople, systems and business infrastructure. The highlights of our 2005 performance were:- A strong set of results driven by the performance of Facilities, Project and Equipment Services- Continued focus on driving through strategic change in Industrial Services- Headline profit(c) grew by 21.7 per cent to ‚£47.7 million (2004: ‚£39.2 million)- 77 per cent of revenue was generated from long-term client relationships (2004: 75 per cent)- UK future workload remains very strong, standing at ‚£4.8 billion at the year end (2004: ‚£4.9 billion)- Growing contribution from our PFI portfolio- 90 per cent visibility of 2006 expected revenues in future workload(d) (2004: 91 per cent visibility of 2005 expected revenues)Notes(a) Works bills - pass-through costs on certain MoD contracts on which no margin can be earned - were ‚£60.9m (2004: ‚£114.5m).(b) Headline earnings per share are based on profit attributable to equity holders of ‚£29.9m (2004: ‚£27.5m) less profit disposal of property and investments of ‚£0.2m (2004: ‚£2.2m).(c) Headline profit comprises profit on ordinary activities before taxation of ‚£47.9m (2004: ‚£41.4m) less profit on disposal of property and investments of ‚£0.2m (2004: ‚£2.2m).(d) Both expected revenues and future workload exclude figures for Equipment Services.OperationsA segmental analysis of results is shown in note 1. The Group reports under sixheadings: we have five market-facing divisions and a sixth, Group Services,which principally represents our PFI bidding activity, a range ofcentrally-provided services and the costs of the Board. Group Services' overallcost was ‚£14.8 million (2004: ‚£12.0 million). This net increase wassubstantially due to a greater level of investment in PFI bidding costs as wepursue growth in this long-term market, with some incremental impact fromshare-based payments.Facilities Services drives structural, cultural and performance change into theprocesses that support the occupancy of the built environment. Increasingly ourclients and prospective clients are seeking to consolidate their supply chainsolutions into larger, broader-based contracts as the UK outsourcing marketcontinues to become more sophisticated. By combining an anticipation of thesetrends with our integration, management and delivery capabilities, we believewe are well positioned to deliver on growing client expectation and to maintainour competitive advantage.Our 2005 performance was excellent, resulting in a 39 per cent increase inoperating profit to ‚£17.8 million (2004: ‚£12.8 million). The majority of thisincrease came from volume growth in existing contracts in the defence, healthand education sectors, together with the ramp-up of activity on new MoD Primecontracts mobilised during the year. Margins on revenue (net of works bills)further improved to 4.6 per cent (2004: 3.9 per cent).Significant developments during the year included:* Financial close on three significant new contracts: - South East Regional Prime, worth some ‚£400 million - Newcastle Hospitals PFI project, worth over ‚£130 million - Telford & Wrekin Schools PFI project, worth over ‚£40 million to the division* Five major contract mobilisations: - University College London Hospital PFI project - concentration of facilities management (FM) activities in a new 595-bed acute health and teaching facility in Central London - Dudley Group of Hospitals PFI project - migration from four existing facilities in the West Midlands to a new 757-bed acute centre - South Atlantic Prime - operational and logistics support for the MoD on Ascension Island and the Falklands - Project Armada - delivery of FM services for the Fleet Accommodation Centre in Devonport Naval Base - Defence Sixth Form College - migration of FM and bursarial services to a new purpose-built residential teaching facility in Loughborough.Through focusing on complex outsourcing projects, typically involving thesupply of a broad range of services with an integrated management and directdelivery role, we develop durable and committed relationships with ourclients. This, together with our ability to deliver continuous performanceimprovement, was a significant factor in again achieving a client retentionrate in excess of 90 per cent.Industrial Services delivers a range of maintenance-led services, coordinatedthrough a single point relationship with our clients. Much of our work isundertaken in safety-critical environments, where our ability to combinecontinuous improvement and the breadth of our service offering set us apartfrom our competitors. Our strategy is to develop a broad-based presence in the UK industrialfacilities management market, generating revenue dominated by maintenance-ledservices, the aim of which is to enhance visibility and reduce risk by dilutingour historic reliance on cyclical markets and 'one-off' projects. Whilst wecontinue to make progress in developing new revenue streams and customers inline with this strategy, its implementation has been more protracted than atfirst anticipated and we have faced a number of issues relating to theconclusion of legacy contracts. This, together with the cost of furtherinvestment in management resources and improved control systems, has impactedoperating profit, which was ‚£6.3 million (2004: ‚£10.1 million) on revenue of ‚£163.5 million (2004: ‚£164.5 million). During the year we made further progress towards our strategic goals, achievinga more evenly balanced segmentation of revenue within which the oil and gassector accounted for around 15 per cent of activity (2004: 28 per cent) andincreasing the proportion of revenue from long-term relationships to above 60per cent (2004: 55 per cent).Other developments included:- an initial five-year contract with BAA for building fabric, mechanical and electrical maintenance at Heathrow Airport Terminals 1-4, worth around ‚£50 million- an initial three-year agreement with British Energy to provide a range of maintenance services at Hartlepool, Hunterston, Sizewell and Torness nuclear power stations, worth in aggregate some ‚£30 million- a number of further contracts in the high voltage power transmission market, including a framework agreement with National Grid, contributing to over 20 per cent growth in this part of our business- strong growth in our environmental services business (formed in 2004), providing asbestos surveying, testing and remediation services to clients such as Thomas Cook, British Gas, Circle 33 Housing Group, Slough Borough Council and Nottingham City CouncilOur client retention rate was again over 90 per cent, reflecting the durabilityof the relationships we form. Our ability to deliver productivity improvementsthrough outsourcing in a range of complex, safety critical operations, togetherwith the breadth of service range in both process and the built environments,provides our clients with a highly differentiated offering. We see a trendamongst our industrial clients to 'bundle' their procurement of servicesthrough integrated contracts and, increasingly, believe we have a range ofopportunities to extend our role further, through leveraging the capabilitiesof other parts of the Group, in offering a 'total' FM product to the industrialmarket.Project Services provides a comprehensive service covering all stages of thedesign and construction process in the UK and certain overseas markets. Whilst the time, cost and quality of on-site delivery are vitally important inour risk management, increasingly, critical differentiators for our clients arederived from our early involvement in feasibility, pre-design, procurement andjust-in-time production/fabrication processes as well as in after-care andmaintenance activities. Our strategy is to work with clients who look for this increased level ofinvolvement and partnering with their supply chain and who recognise theadvantages of procuring services from a 'one-stop-shop' provider. In the UKthis approach is manifested in our focus on framework and other partneringagreements and on other forms of sustainable work such as PFI. The proportionof revenue coming from long-term relationships remained at around 80 per cent. In our overseas businesses we operate a parallel approach of being highlyselective in the clients for whom we work, tending to focus on sectors withhigh levels of repeat business.Our overall 2005 performance was very strong. Operating profit was ‚£18.3million, an increase of 21.2 per cent over last year (2004: ‚£15.1 million). Inthe UK we completed a number of large contracts including Peterborough Prison,Morfa Stadium in Swansea, the Defence Sixth Form College near Loughborough andthe HM Revenue & Customs' Newcastle Estate development, which contributed tostrengthened margins of 2.4 per cent (2004: 2.1 per cent) and growth in UKoperating profit to ‚£12.2 million (2004: ‚£11.2 million).Developments in the UK during the year included:* further progress with framework agreements: - a five-year, ‚£400 million, agreement (in joint venture) for United Utilities - a seven-year, ‚£175 million, agreement for HM Prison Service - cumulative orders to date of over ‚£400 million in NHS ProCure21 - growing relationships with BT, Barclays, Mapeley and the Highways Agency - new agreements with the Royal Bank of Scotland and the Home Office* further PFI/PPP successes: - financial close on the Telford & Wrekin Schools PFI project, worth some ‚£60 million to the division - preferred bidder on the Addiewell Prison PFI projectOur international operations are an important element in Project Services'strategy. They delivered an outstanding performance, increasing their aggregatecontribution to total operating profit by 56 per cent to ‚£6.1 million (2004: ‚£3.9 million). Our businesses, in Dubai, Qatar and Oman, focus on being theirclients' contractor of choice, building reputational strength for performing ontechnically and logistically complex projects. Market conditions have beenbuoyant in the Middle East, fuelled by oil price movements and furtherexpansion in tourism and real estate, backed increasingly by governmentpolicies to encourage development. Notable successes in the year included:- completion of the Mall of the Emirates, Dubai, reported to be the third largest shopping centre in the world, comprising over 240,000 square metres of retail space for 440 tenants- new contracts for the Wafi Raffles Hotel, Dubai, the Dubai Festival City Golf Clubhouse and the Al Rostamani Office/Residential Tower- works in connection with the 2006 Asian Games and for the new airport, both in Doha, Qatar- a contract awarded in early 2005 to construct a desalination plant in Sohar, Oman, leading to growing opportunities around the industrial complex.Equipment Services provides temporary structural equipment solutions for complexinfrastructure projects. The business operates in many major constructioneconomies and we differentiate ourselves on the basis of our design andengineering expertise, client relationship management and the breadth of ourintegrated product range. Our strategy is to operate across a wide range of geographies and marketsectors to mitigate the effects of inherent country-specific cyclicality,whilst focusing on boosting efficiency through enhancing the composition,procurement and deployment of our centrally-coordinated fleet. Our designservices are delivered from three centres of excellence in the UK, UAE andAustralia. We rank fourth by revenue in terms of global competitors and aim tobe the leading player in our chosen geographies and niche markets.Our 2005 performance was excellent and benefited from the significant fleetinvestment made in 2004, which enabled growth in most markets, particularly inthe Middle East. Operating profit grew by some 40 per cent to ‚£20.5 million(2004: ‚£14.6 million) on revenue of ‚£107.2 million (2004: ‚£87.7 million), anincrease of 22 per cent. The business generates revenue through both hire contracts and equipment sales(of both new and used components). Hire income, which typically accounts forabout half of our revenue, increased by 18 per cent. Revenue from equipmentsales grew by 31 per cent, fuelled in particular by a number of unusually largeorders in the Middle East. Overall the significant volume growth led to animprovement in operating margin to 19.1 per cent (2004: 16.6 per cent).Regionally:Middle East - Our performance was outstanding. Through early investment andexcellent market conditions, our operations in the region have more thantrebled in size in the last few years. Having already invested significantlyin design capabilities in the region, we see further opportunity and are nowfocusing on the expansion of our materials storage and handling infrastructure,management development and management information systems.Australasia - Having experienced softer market conditions in later 2004 andearly 2005, our Australian business showed improving performance throughout thesecond-half, with recovery being led by infrastructure investment in Queenslandand through the introduction of new products, such as Alshor Plus, to thefleet. Market conditions in New Zealand were less favourable, with increasingcompetition; however, our operation is lean on cost and the introduction of anumber of new products should enable a niche-based approach going forward.Europe - The UK infrastructure market was quiet in 2005 with a number ofhigh-profile projects suffering delayed starts, particularly in the roadssector. We took the opportunity to improve cost-efficiencies through a branchrationalisation programme and through a reorganisation of our sales force intoa sector-based structure. Albeit there are some encouraging signs in terms ofproject start-ups in roads, any material upturn in the UK market is expectedonly in the medium term. Our Spanish operation had a strong year, benefitingfrom a significant investment in a new depot and the associated fleet expansionthis enabled.Far East - We had a strong year in Hong Kong but were frustrated in Korea,where progress was hindered by the prolonged delay of a major project. Whilstthis specific issue has now been resolved, our priority in Korea is to makegood progress with market entry into new sectors, such as high-rise residentialbuilding. We have significantly re-trenched our position in Taiwan, with anyfuture business being operated on an export basis from other locations. PFI Investments is a growing element of our overall business mix. Whilst ourcore strategic interest in PFI/PPP projects is as a significant channel tomarket for our Facilities Services and Project Services businesses, theinvestment opportunities associated with the project financial structures areattractive to the Group and we are an active primary investor in projects wherewe have a direct involvement in the downstream facilities management and/orconstruction services. We manage our investment activities through a centrally-run team, which isresponsible for coordinating Group-wide business development activities,particularly in the Public/Private Partnerships market. This involves leadingthe bidding process for PFI opportunities, managing our investment portfolioand, in many cases, delivering management services to Special PurposeCompanies.2005 performance from our PFI investments was good. Operating profit was ‚£0.6million (2004: ‚£0.6 million). However, the pre-tax contribution (including netinterest receivable on subordinated debt investments) grew by 23 per cent to ‚£3.2 million (2004: ‚£2.6 million), reflecting an increase both in the number ofinvestments and their overall maturity: 18 out of our 23 projects have reachedthe operational stage in their life cycle (2004: 13 out of 21 projects). Therewere no disposals during the year. We achieved financial close on two projects, those being for Telford & WrekinBorough Council and for the Newcastle Hospitals NHS Trust, with a combinedequity commitment of ‚£8.7 million. In both cases Interserve will deliverfacilities management services over the life of the concession, and at Telford& Wrekin we are well advanced in the design and build stage of the project. This takes the total committed value of our PFI investment portfolio to ‚£49.5million (2004: ‚£42.4 million).We were appointed preferred bidder on two further projects, for Holy CrossSchool in Northern Ireland, where we will deliver facilities managementservices and for the Scottish Prison Service at Addiewell Prison, where we willdeliver the design and build stage of the project. The combined equityrequirement of these projects will be around ‚£4.5 million.Health & safety remains a key priority for all our operations, wherein ourobjective is to achieve an accident-free environment. To this end we continueto invest in ensuring that we provide a safe and healthy environment for ouremployees, the contractors working with us and for the clients to whom wedeliver our services. We operate under established safety managementarrangements that are actively monitored through audit by safety professionalsand inspection by senior management, including the Executive Committee whocollectively undertook over 40 site safety inspections in the year. Progressin our overall safety performance was pleasing, resulting in a furtherreduction in the rate of incidence to 795 per 100,000 employees (2004: 989 per100,000). Our performance and commitment to continuous improvement wasrecognised in two British Safety Council International Safety Awards and in atotal of 15 safety awards from the Royal Society for the Prevention ofAccidents (RoSPA).Strategy and outlookThe Group is well placed to make further progress as an infrastructure andfacilities management provider, delivering services at each stage of the assetlifecycle.The UK facilities management market continues to provide an attractive breadthand quality of opportunities, particularly in relation to the integrated,broad-based offering on which we focus. Long-term relationships continue todominate the work-mix within Facilities Services, with over 95 per cent of 2005revenue being derived from such sources. Our future workload at the end of2005 was ‚£3.3 billion (2004: ‚£3.2 billion), within which our longest contractsextend over 30 years. The UK industrial facilities management market continues to develop towards themodel of multi-service contracts in which we specialise. We remain convincedthat the change programme being implemented in our business will position uswell to access the growth opportunities in markets such as nucleardecommissioning, high voltage power transmission, and environmental services. At the end of 2005 our future workload was ‚£659 million (2004: ‚£690 million).The outlook for the UK construction market is mixed, although the sectors onwhich we concentrate remain the focus of government investment policy. Progresswith our framework activities is encouraging; however, following the completionof the major contracts mentioned earlier, future workload in the UK for ProjectServices at 31 December 2005 stood at ‚£790 million (2004: ‚£930 million). Internationally, market conditions in the Middle East remain very buoyant andwe expect to deliver further growth in this region.Contract durations and sales lead-times are generally shorter in EquipmentServices than in other parts of our business; however, forward visibility ofour workload has improved through investments made in our systems to trackopportunities and predict market trends. Our markets continue to offerfavourable trading conditions and with the recent investment in our operationswe are very well placed to take advantage of these. Nevertheless, we do not expect, in the short term, to repeat the exceptional level of performance achieved in 2005.Demand for infrastructure projects delivered through public-privatepartnerships remains strong in the UK and our opportunity and bidding pipelineremains healthy, comprising over 40 projects in our chosen sectors. Thedownstream services activities associated with our PFI project investmentsrepresent over 60 per cent of our total future workload and provide the Groupwith an excellent source of high visibility, high quality earnings flow.Our expertise in delivering outsourced services, maintenance and buildingactivities and in developing long-term relationships with our clients remainscentral to our growth strategy. Overall healthy trading conditions, togetherwith the excellent visibility of our future workload, underpin our confidencein achieving continued growth.Adrian RingroseChief Executive13 March 2006INTERSERVE PLCConsolidated income statementFor the year ended 31 December 2005 Year ended Year ended 31 December 31 December 2005 2004# Notes ‚£million ‚£million Continuing operations Revenue 1 1,229.1 1,238.2Cost of sales (1,076.0) (1,098.0) Gross profit 153.1 140.2Other operating income 0.1 0.1Distribution costs (27.6) (24.8)Administrative expenses (83.6) (78.8)Profit on disposal of property and investments 0.2 2.2 Operating profit 42.2 38.9Share of result of associates and joint ventures 6.7 4.5 Total operating profit 1 48.9 43.4Investment revenue 2 27.4 24.8Finance costs 3 (28.4) (26.8) Profit before tax 47.9 41.4Income tax expense 4 (15.4) (12.1) Profit for the year 32.5 29.3 Attributable to: Equity holders of the parent 29.9 27.5 Minority interest 2.6 1.8 32.5 29.3 Earnings per share 6 Basic 26.2p 24.2pDiluted 26.1p 24.1p Consolidated statement of recognised income and expense For the year ended 31 December 2005 Year ended Year ended 31 December 31 December 2005 2004# ‚£million ‚£million Exchange differences on translation of 3.9 (0.4)foreign operations Losses on cash flow hedges (joint ventures) (18.4) -Gains on available-for-sale financial assets 24.1 -(joint ventures) Actuarial losses on defined benefit pension (4.4) (2.1)schemes Deferred tax on items taken directly to equity (0.4) 0.6Net income (expense) recognised directly in 4.8 (1.9)equity Profit for the year 32.5 29.3 Total recognised income for the year 37.3 27.4Adoption of IAS 39 7.4 -Deferred tax on adoption of IAS 39 (2.2) - Total recognised income 42.5 27.4 Attributable to: Equity holders of the parent 39.9 25.6Minority interest 2.6 1.8 42.5 27.4 # Restated under IFRS (see note 9) INTERSERVE PLCConsolidated balance sheetAt 31 December 2005 2005 2004# Notes ‚£million ‚£million Non-current assets Goodwill 154.3 154.3Property, plant and equipment 102.7 97.3Interests in joint ventures 43.0 26.9Interests in associated undertakings 17.0 12.2Deferred tax asset 30.4 29.9 347.4 320.6 Current assets Inventories 15.0 15.6Trade and other receivables 274.5 240.5Cash and deposits 39.3 52.6 328.8 308.7 Total assets 676.2 629.3 Current liabilities Bank overdrafts and loans (11.6) (20.0)Unsecured loan notes (2.2) (3.9)Trade and other payables (338.8) (309.7)Short-term provisions - (1.5) (352.6) (335.1) Net current liabilities (23.8) (26.4) Non-current liabilities Bank loans (43.1) (46.3)Trade and other payables (9.8) (7.8)Long-term provisions (18.0) (16.0)Retirement benefit obligation 8 (132.6) (128.9) (203.5) (199.0) Total liabilities (556.1) (534.1) Net assets 120.1 95.2 EQUITY Share capital 11.4 11.4Share premium account 108.8 107.9Capital redemption reserve 0.1 0.1Merger reserve 16.4 16.4Hedging and translation reserves 12.7 (0.4)Retained earnings (30.2) (41.4)Investment in own shares (0.5) (0.5) Equity attributable to equity holders of the parent 118.7 93.5Minority interest 1.4 1.7 Total equity 120.1 95.2 # Restated under IFRS (see note 9) These financial statements were approved by the Board of Directors on 13 March 2006 Signed on behalf of the Board of Directors A M Ringrose T C Jones 13 March 2006 INTERSERVE PLCConsolidated reconciliation of movements in equityFor the year ended 31 December 2005 Share Share Capital Merger Hedging and Investment Retained Attributable Minority Total capital premium redemption reserve translation in own earnings to equity interest reserve reserves shares holders of the parent ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m Balance at 1 11.4 107.9 0.1 16.4 - (0.5) (52.0) 83.3 0.7 84.0January 2004 Exchange - - - - (0.4) - - (0.4) - (0.4)differences on translation of foreign operations Actuarial losses - - - - - - (2.1) (2.1) - (2.1)on defined benefit pension schemes Deferred tax on - - - - - - 0.6 0.6 - 0.6 items taken directly to equity Net income - - - - (0.4) - (1.5) (1.9) - (1.9)(expense) recognised directly in equity in the year Profit for the - - - - - - 27.5 27.5 1.8 29.3year Dividends paid - - - - - - (15.6) (15.6) (0.8) (16.4) Share based - - - - - - 0.2 0.2 - 0.2payments Balance at 31 11.4 107.9 0.1 16.4 (0.4) (0.5) (41.4) 93.5 1.7 95.2December 2004 Adoption of IAS 39 - - - - 7.4 - - 7.4 - 7.4 Deferred tax on - - - - (2.2) - - (2.2) - (2.2)adoption of IAS 39 Balance at 1 11.4 107.9 0.1 16.4 4.8 (0.5) (41.4) 98.7 1.7 100.4January 2005 Exchange - - - - 3.9 - - 3.9 - 3.9differences on translation of foreign operations Losses on cash - - - - (18.4) - - (18.4) - (18.4)flow hedges (joint ventures) Gains on - - - - 24.1 - - 24.1 - 24.1available-for-sale financial assets (joint ventures) Actuarial losses - - - - - - (4.4) (4.4) - (4.4)on defined benefit pension schemes Deferred tax on - - - - (1.7) - 1.3 (0.4) - (0.4)items taken directly to equity Net income - - - - 7.9 - (3.1) 4.8 - 4.8(expense) recognised directly in equity in the year Profit for the - - - - - - 29.9 29.9 2.6 32.5year Dividends paid - - - - - - (16.3) (16.3) (2.9) (19.2) Shares issued - 0.9 - - - - - 0.9 - 0.9 Share based - - - - - - 0.7 0.7 - 0.7payments Balance at 31 11.4 108.8 0.1 16.4 12.7 (0.5) (30.2) 118.7 1.4 120.1December 2005 INTERSERVE PLCConsolidated cash flow statementFor the year ended 31 December 2005 Year ended Year ended 31 December 31 December 2005 2004 # ‚£million ‚£million OPERATING ACTIVITIES Operating profit 48.9 43.4 Adjustments for: Depreciation of property, plant and equipment 16.6 15.4Share of results of associates and joint (6.7) (4.5)ventures Gain on disposal of investment in joint venture - (1.9)Non-cash charge relating to share based payments 0.7 0.2Gain on disposal of property, plant and (6.1) (5.7)equipment Currency (0.2) 0.2 Operating cash flows before movements in working 53.2 47.1capital Decrease (increase) in inventories 0.6 (3.1)Increase in receivables (34.0) (0.4)Increase in payables 25.7 0.4 Cash generated by operations 45.5 44.0Income taxes paid (10.7) (4.9) Net cash from operating activities 34.8 39.1 INVESTING ACTIVITIES Interest received 4.6 3.6Interest paid (4.2) (4.2)Dividends received from associates and joint 1.6 2.4ventures Proceeds on disposal of property, plant and 15.6 14.2equipment Purchases of property, plant and equipment (27.4) (31.7)Investment in joint ventures-PFI investments (6.5) (7.3)Disposal of investment in associate / joint 1.0 4.3venture Net cash used in investing activities (15.3) (18.7) FINANCING ACTIVITIES Dividends paid to equity shareholders (16.3) (15.6)Dividends paid to minority shareholders (2.9) (0.8)Issue of shares 0.9 -Repayment of borrowings (4.6) (2.7)Repayments of obligations under finance leases (0.1) (0.2)Redemption of loan notes (1.7) (2.2) Net cash used in financing activities (24.7) (21.5) NET DECREASE IN CASH AND CASH EQUIVALENTS (5.2) (1.1) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32.6 33.7 Effect of foreign exchange rate changes 0.3 - CASH AND CASH EQUIVALENTS AT END OF PERIOD 27.7 32.6 Cash and cash equivalents comprise Cash and deposits 39.3 52.6Bank overdrafts and loans (11.6) (20.0) 27.7 32.6 Reconciliation of net cash flow to movement in net debt Net reduction in cash and cash equivalents (5.2) (1.1)Decrease in borrowings 4.6 2.7Repayments of obligations under finance leases 0.1 0.2Redemption of loan notes 1.7 2.2Change in net debt resulting from cash flows 1.2 4.0Effect of foreign exchange rate changes (1.1) 0.7Movement in net debt during the period 0.1 4.7Net debt - opening (17.8) (22.5) Net debt - closing (17.7) (17.8) # Restated under IFRS INTERSERVE PLCBasis of preparationFor the year ended 31 December 2005The financial information in this announcement, which was approved by the Boardof Directors on 13 March 2006, does not constitute the Company's statutoryaccounts for the years ended 31 December 2005 or 2004 but is derived from theseaccounts.Statutory accounts for 2004 have been delivered to the Registrar of Companiesand those for 2005 will be delivered following the Company's annual generalmeeting. The auditors have reported on these accounts; their reports wereunqualified and did not contain statements under section 237(2) or (3) of theCompanies Act 1985.The preliminary announcement has been prepared in accordance with theaccounting policies adopted under IFRS for the first time with a transitiondate of 1 January 2004. The disclosures required by IFRS 1 "First-time Adoptionof International Financial Reporting Standards" concerning the transition fromUK GAAP to IFRS can be found in Note 9 to this announcement.These financial statements have been prepared on a historical cost basis,except for the revaluation of certain financial instruments.During the period the Group adopted IAS 39 "Financial Instruments: Recognitionand Measurement" and IAS 32 "Financial Instruments: Disclosure andPresentation". The Group has taken advantage of the exemption in IFRS 1 thatenabled the Group to apply these standards from 1 January 2005 - accordinglycomparatives are not restated. The effect of adopting IAS 32 and IAS 39,following the fair valuing of certain of the Group's financial assets andderivatives, is to increase shareholders' funds at 1 January 2005 by ‚£5.2million (net of deferred tax).INTERSERVE PLCNotes to the consolidated financial statementsFor the year ended 31 December 20051. Business and geographical segmentsBusiness segments Sales revenue Result (external) 2005 2004 2005 2004 ‚£million ‚£million ‚£million ‚£million Facilities Services 444.2 440.7 17.8 12.8Industrial Services 163.5 164.5 6.3 10.1Project Services 514.2 545.3 18.3 15.1Equipment Services 107.2 87.7 20.5 14.6Joint ventures - PFI Investments - - 0.6 0.6 1,229.1 1,238.2 63.5 53.2 Group Services - - (14.8) (12.0)Profit on disposal of property and investments - - 0.2 2.2 1,229.1 1,238.2 48.9 43.4 Investment revenue 27.4 24.8Finance costs (28.4) (26.8)Profit before tax 47.9 41.4Tax (15.4) (12.1)Profit after tax 32.5 29.3 Facilities Services revenue includes ‚£60.9 million in respect of works bills(2004: ‚£114.5 million). Works bills are costs relating to services andmaterials procured on behalf of the Ministry of Defence on which no margin isallowed but for which a management fee is received.Inter segment sales are not material and have been excluded from the abovefigures. Segment assets Segment liabilities Net assets / (liabilities) 2005 2004 2005 2004 2005 2004 ‚£million ‚£million ‚£million ‚£million ‚£million ‚£million Facilities Services 89.3 102.7 (166.2) (178.6) (76.9) (75.9)Industrial Services 89.3 76.9 (44.8) (44.3) 44.5 32.6Project Services 133.5 119.3 (225.5) (214.7) (92.0) (95.4)Equipment Services 127.0 119.7 (35.9) (37.4) 91.1 82.3Joint ventures - PFI Investments 45.2 28.3 (2.2) (1.4) 43.0 26.9 484.3 446.9 (474.6) (476.4) 9.7 (29.5) Group Services 155.1 157.4 (28.4) (16.6) 126.7 140.8 639.4 604.3 (503.0) (493.0) 136.4 111.3 Net debt (17.7) (17.8) Net assets (excluding minority interest) 118.7 93.5 Geographical SegmentsFacilities Services and Industrial Services are predominantly based in theUnited Kingdom. The Project Services division is located in the United Kingdomand the Middle East. Equipment Services has operations in all of the geographicsegments listed below.The following table provides an analysis of the Group's sales by geographicalmarket, irrespective of the origin of the goods/services: Sales revenue by Total operating Carrying amount geographical market profit of segment assets/ (external) (liabilities) 2005 2004 2005 2004 2005 2004 ‚£million ‚£million ‚£million ‚£million ‚£million ‚£million United Kingdom 1,141.5 1,168.3 36.9 33.0 (123.3) (127.9)Rest of Europe 18.9 17.0 2.4 1.5 16.4 14.9Middle East & Africa 30.3 14.5 17.1 10.3 28.0 14.0Australasia 26.7 27.7 7.1 8.5 22.5 19.9Far East 9.2 9.2 (1.3) (0.9) 17.3 19.6South America 2.5 1.5 0.7 0.2 5.8 3.1 1,229.1 1,238.2 62.9 52.6 (33.3) (56.4) Joint ventures - PFI Investments - - 0.6 0.6 43.0 26.9 Group Services - - (14.8) (12.0) 126.7 140.8 Profit on disposal of property - - 0.2 2.2 - -and investments 1,229.1 1,238.2 48.9 43.4 136.4 111.3 Net debt (17.7) (17.8) Net assets (excluding minority interest) 118.7 93.5 Inter segment sales are not material and have been excluded from the above figures. 2. Investment revenue 2005 2004 ‚£million ‚£million Bank interest 1.8 1.6Other interest 2.8 2.0Retirement benefits return on assets 22.8 21.2 27.4 24.8 3. Finance costs 2005 2004 ‚£million ‚£million Bank loans and overdrafts and other (4.2) (4.2)loans repayable within 5 years Interest cost on retirement benefits liabilities (24.2) (22.6) (28.4) (26.8) Borrowing costs included within the share of results from joint ventures is netof ‚£7.2 million (2004: ‚£12.2 million) of interest included in the cost ofqualifying assets during the year. This interest arose on project specificfinance.4. Income tax expense 2005 2004 ‚£million ‚£million Current tax - UK 12.2 7.6Current tax - Overseas 2.8 3.4Deferred tax 0.4 1.1 Income tax expense for the year 15.4 12.1 The UK standard rate of corporation tax is 30 per cent. Taxation for otherjurisdictions is calculated at the rates prevailing in the relevantjurisdictions.The total charge for the year can be reconciled to the profit per the incomestatement as follows: 2005 2004 ‚£million % ‚£million % Profit before tax 47.9 41.4 Tax at the domestic income tax rate of 30% (2004: 30%) 14.4 30.0% 12.4 30.0% Tax effect of expenses not deductible 2.0 4.2% 2.1 5.0% in determining taxable profitEffect of different tax rates of subsidiaries (0.3) -0.6% (1.2) -2.9%operating in other jurisdictionsEffect of overseas losses unrelieved 1.0 2.1% 0.3 0.7% Prior period adjustments (1.7) -3.5% (1.5) -3.6% Tax expense and effective tax rate for the year 15.4 32.2% 12.1 29.2% In addition to the income tax charged to the income statement, a deferred taxcharge of ‚£0.4 million (2004: credit of ‚£0.6 million) has been charged directlyto equity in the year (‚£1.3 million credit (2004: ‚£0.6 million credit) relatingto actuarial losses on the Group's defined benefit pension scheme and ‚£1.7million charge (2004: ‚£nil) relating to fair value adjustments on interest rateswaps and available-for-sale financial assets within the Group's PFI SpecialPurpose Companies).5. Dividends 2005 2004 ‚£million ‚£million Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31 December 2004 11.0 10.6of 9.7p (2003: 9.3p) per share Interim dividend for the year ended 31 December 2005 5.3 5.0of 4.6p (2004: 4.4p) per share 16.3 15.6 Proposed final dividend for the year ended 31 December 2005 11.5 11.0of 10.1p (2004: 9.7p) per share The proposed final dividend is subject to approval by shareholders at theAnnual General Meeting and has not been included as a liability in thesefinancial statements.6. Earnings per shareThe calculation of the basic and diluted earnings per share is based on thefollowing data:Earnings 2005 2004 ‚£million ‚£million Earnings for the purposes of basic earnings per share 29.9 27.5being net profit attributable to equity holders of the parent Less: profit on sale of property and investments (0.2) (2.2)Tax effect of above adjustments - 0.7 Headline earnings 29.7 26.0 Earnings for the purposes of diluted earnings per share 29.9 27.5 Number of shares 2005 2004 Number Number Weighted average number of ordinary shares 113,990,232 113,756,332for the purposes of basic earnings per share Effect of dilutive potential ordinary shares: Share options 602,944 277,004 Weighted average number of ordinary shares for the purposes of diluted earnings per share 114,593,176 114,033,336 p p Headline earnings per share 26.1 22.9 Basic earnings per share 26.2 24.2 Diluted earnings per share 26.1 24.1 7. Interests in joint venturesJoint ventures-PFI investments: 2005 2004 ‚£million ‚£million Revenues 59.4 30.3 Operating profit 2.4 1.8Interest receivable 19.4 9.8Interest payable (28.2) (23.0)Less: interest capitalised 7.2 12.2Taxation (0.2) (0.2) Profit 0.6 0.6 8. Retirement benefit schemesThe principal pension schemes within the Group have been valued for thepurposes of IAS 19 (Employee Benefits). For each of these pension schemesvaluation information has been updated by Lane Clark & Peacock LLP, qualifiedindependent actuaries, to take account of the requirements of IAS 19 in orderto assess the liabilities of the various schemes as at 31 December 2005.Actuarial gains and losses are recognised in full in the period in which theyoccur. As permitted by IAS 19, actuarial gains and losses are recognisedoutside profit or loss and presented in the statement of recognised income andexpense. The liability recognised in the balance sheet represents the presentvalue of the various defined benefit obligations, as reduced by the fair valueof plan assets. The cost of providing benefits is determined using theProjected Unit Credit Method.The following table sets out the key IAS 19 assumptions used to assess thepresent value of the defined benefit obligation. Assumptions 2005 2004Retail price inflation 2.6% pa 2.9% paDiscount rate 4.9% pa 5.5% paPension increases in payment: LPI/RPI 2.5%/2.6% 2.7%/2.9%Fixed 5% 5.00% 5.00%3% or RPI if higher (capped at 5%) 3.30% 3.70%General salary increases 3.35 - 4.1% pa 3.65 - 4.4% pa The expected rate of return on assets for the financial year ending 31 December2005 was 7.6% pa (2004: 7.7%). The rate is derived by taking the weightedaverage of the long-term expected rate of return on each of the asset classesthat the pension schemes were invested in at 31 December 2005. For 2005 adeduction of 0.3% was then made from the expected return on assets for theexpenses incurred in running the schemes (where these were not met separately).The post-retirement mortality assumption used to value the benefit obligationallows for future improvements in mortality and implies for the majority of theobligation (that associated with the Interserve Pension Scheme) that a 65 yearold current pensioner is expected to live until age: male 84.0 (2004: age 82.6)and female 86.9 (2004: age 85.6). A future pensioner who is aged 65 in 2025 isexpected to live until age: male 85.1 (2004: age 84.0) and female 87.9 (2004:age 86.9).The amount included in the balance sheet arising from the Group's obligationsin respect of the various pension schemes is as follows: 2005 2004 ‚£ ‚£ million million Present value of defined benefit obligation 514.6 440.5Fair value of scheme assets (382.0) (311.6) Liability recognised in the balance sheet 132.6 128.9 The amounts recognised in the income statement are as follows: 2005 2004 ‚£ ‚£ million million Employer's part of current service cost 9.6 10.4Interest cost 24.2 22.6Expected return on scheme assets (22.8) (21.2) Total expense recognised in profit and loss 11.0 11.8 The actual return on the schemes' assets over the year was ‚£65.5 million (2004:‚£32.9 million).The current allocation of the schemes' assets is as follows: 2005 2004 Current Fair value Current Fair value allocation ‚£million allocation ‚£million Equity instruments 86% 330.2 88% 273.1Debt instruments 11% 40.3 9% 27.9Other 3% 11.5 3% 10.6 100% 382.0 100% 311.6 A reconciliation of the present value of the defined benefit obligation is asfollows: 2005 2004 ‚£million ‚£million Opening defined benefit obligation 440.5 401.6Employer's part of current service cost 9.6 10.4Interest cost 24.2 22.6Contributions by plan participants 6.6 6.8Actuarial loss 47.1 13.8Benefits paid (15.8) (15.0)Bulk transfer 2.4 0.3Closing defined benefit obligation 514.6 440.5 A reconciliation of the fair value of the schemes' assets is as follows: 2005 2004 ‚£ ‚£ million million Opening fair value of the schemes' assets 311.6 274.1Expected return on plan assets 22.8 21.2Actuarial gain 42.7 11.7Contributions by scheme members 6.6 6.8Contributions by the employer 11.7 12.5Benefits paid (15.8) (15.0)Bulk transfer 2.4 0.3 Closing fair value of schemes' assets 382.0 311.6 2005 2004 ‚£ ‚£ million million Experience adjustments on the schemes' assets Amount of gain/(loss) 42.7 11.7 Percentage of the schemes' assets 11% 4%Experience adjustments on the schemes' liabilities Amount of gain/(loss) 0.7 1.5 Percentage of the present value of the schemes' liabilities 0% 0%Expense to be recognised immediately outside profit or loss Actuarial gains and (losses) (4.4) (2.1) The cumulative amount of gains and (losses) recognised in the statement of recognised income and expense is: (6.5) (2.1) Based on current contribution rates and payroll, the Group would contribute ‚£11.7 million to the various defined benefit arrangements during 2006, but thisamount is subject to the results of the triennial valuation of the InterservePension Scheme as at 31 December 2005.9. Explanation of transition to IFRSThis is the first year that the Group has presented its financial statementsunder IFRS. The following disclosures are required in the year of transition.The last financial statements under UK GAAP were for the year ended 31 December2004 and the date of transition to IFRS was therefore 1 January 2004.Reconciliation of equity at 1 January 2004 (date of transition to IFRS) UK GAAP Effect of transition to IFRS IFRS IAS 19 IAS 10 IAS 39 IAS 12 Reclass ‚£million ‚£million ‚£million ‚£million ‚£million ‚£million ‚£million Note i ii iii iv Goodwill 154.3 - - - - - 154.3Property, plant and equipment 90.1 - - - - - 90.1Associates and joint ventures 32.8 - - - - - 32.8Deferred tax - 38.3 - - - (8.0) 30.3 Total non-current assets 277.2 38.3 - - - (8.0) 307.5 Pension scheme 33.2 (33.2) - - - - -Inventories 12.5 - - - - - 12.5Trade and other receivables 244.6 - - - - - 244.6Cash and deposits 36.0 - - - - - 36.0 Total current assets 326.3 (33.2) - - - - 293.1 Total assets 603.5 5.1 - - - (8.0) 600.6 Trade and other payables (316.8) - 10.6 - - - (306.2)Bank loans and overdrafts (52.0) - - - - - (52.0)Unsecured loan notes (6.1) - - - - - (6.1)Pension scheme - (127.5) - - - - (127.5)Provisions (24.8) - - - - - (24.8)Deferred tax liability (15.9) 9.9 - - (2.0) 8.0 - Total liabilities (415.6) (117.6) 10.6 - (2.0) 8.0 (516.6) Total assets less total liabilities 187.9 (112.5) 10.6 - (2.0) - 84.0 Share capital 11.4 - - - - - 11.4Share premium account 107.9 - - - - - 107.9Capital redemption reserve 0.1 - - - - - 0.1Merger reserve 16.4 - - - - - 16.4Hedging reserve - - - - - - -Own shares (0.5) - - - - - (0.5)Retained earnings 51.9 (112.5) 10.6 - (2.0) - (52.0)Minority interest 0.7 - - - - - 0.7 Total equity 187.9 (112.5) 10.6 - (2.0) - 84.0 Notes to the reconciliation of equity at 1 January 2004i The Group has adopted IAS 19, Employee Benefits, in respect of itsdefined benefit pension schemes. The balance sheet impact of the implementationof this standard is to recognise a pension liability of ‚£127.5 million in theGroup's opening IFRS balance sheet in place of the ‚£33.2 million SSAP 24prepayment previously held under UK GAAP. Net of the deferred tax associatedwith both of these balances, the net impact is to reduce consolidated netassets by ‚£112.5 million.ii As required by IAS 10, Events After the Balance Sheet Date, noprovision is made within the opening IFRS balance sheet for the final proposeddividend for 2003 because at the balance sheet date it was still subject toapproval and is thus not considered to be an adjusting event. The result is a ‚£10.6 million increase in reported net assets due to the non-provision for the2003 final proposed dividend.iii As permitted by IFRS 1 the Group has decided to apply UK GAAP inthe comparative information in relation to financial instruments within thescope of IAS 32 and IAS 39. Had the comparative information been prepared infull compliance with IAS 32 and IAS 39, the main adjustment would have been tothe share of reserves consolidated in respect of PFI Joint Venture arrangementsreflecting the fair value of available-for-sale financial assets and interestrate swaps entered into within these special purpose companies. This wouldresult in a net increase in the net asset carrying value for these investmentsand an equal increase in consolidated reserves.iv IAS 12, Income Taxes, requires that a deferred tax liability berecognised for all non-controllable taxable temporary differences associatedwith investments in subsidiaries and associates. The Group has thus provided adeferred tax liability for the additional tax that would arise on thedistribution of reserves held by its overseas associates. It is estimated thatat 1 January 2004 this would amount to ‚£2.0 million and this is the consequentreduction in Group net assets.Reconciliation of profit or loss for the year to 31 December 2004 UK GAAP Effect of transition to IFRS IFRS IAS 19 IFRS 3 IFRS 2 IAS 28/31 IAS 12 ‚£million ‚£million ‚£million ‚£million ‚£million ‚£million ‚£millionNote i ii iii iv v Revenue 1,238.2 - - - - - 1,238.2Cost of sales (1,098.0) - - - - - (1,098.0)Gross Profit 140.2 - - - - - 140.2Distribution costs (24.8) - - - - - (24.8)Administrative expenses (85.7) (2.4) 9.5 (0.2) - - (78.8)Other operating income 0.1 - - - - - 0.1Share of associates and joint ventures 5.6 - 0.1 (1.2) - 4.5Profit on disposal of investment 1.9 - - - - - 1.9Profit on disposal of properties 0.3 - - - - - 0.3 Profit from operations 37.6 (2.4) 9.6 (0.2) (1.2) - 43.4Investment revenue 13.5 21.2 - - (9.9) - 24.8Finance costs (15.1) (22.6) - - 10.9 - (26.8) Profit before tax 36.0 (3.8) 9.6 (0.2) (0.2) - 41.4Tax expense (13.3) 1.2 - - 0.2 (0.2) (12.1) Net profit (loss) 22.7 (2.6) 9.6 (0.2) - (0.2) 29.3 Notes to the reconciliation of profit or loss for 2004i IAS 19, Employee Benefits, requires separate recognition of theoperating and finance costs of defined benefit pension schemes in the incomestatement. Any variations due to actuarial gains and losses are recognisedimmediately in the Statement of Recognised Income and Expense.The impact of the transition to IFRS in 2004 is an additionalcharge of ‚£2.4 million to profit from operations with a further ‚£1.4 millioncharge to net interest and a related tax credit of ‚£1.2 million. The actuarialloss for the year of ‚£2.1 million (net of deferred tax of ‚£0.6 million) istaken directly to reserves.ii IFRS 3 no longer permits the amortisation of goodwill. Insteadgoodwill is carried at cost and is subject to regular impairment reviews.Interserve has chosen, under the transitional arrangements of IFRS 1, to applyIFRS 3 prospectively from the transition date. Hence all prior businesscombination accounting is frozen at the transition date and the value ofgoodwill is frozen at 1 January 2004 and amortisation previously reported underUK GAAP for 2004 is reversed for IFRS statements. The impact in 2004 is areduction in the amortisation charge of ‚£9.6 million. There are no associatedtax impacts.iii As required by IFRS 2, Share-Based Payments, a charge of ‚£0.2million has been made to profit from operations recognising the fair value ofoutstanding share options granted since 7th November 2002. The fair value hasbeen calculated using the Black-Scholes options valuation model and is chargedto income over the relevant vesting periods, adjusted to reflect actual andexpected levels of vesting. There is no impact on net assets as a result ofthis charge.iv As allowed within IAS 31, Interests in Joint Ventures,Interserve has opted to equity account for its interests in joint ventures.Whilst this is a continuation of the equity accounting adopted under UK GAAP,there is a presentational change under IFRS that requires the presentation ofthe net result after tax as part of the profit from operations. There is no netprofit impact but the result is to reduce Profit from Operations by ‚£1.2million, Finance Income by ‚£9.9 million and Finance Costs by ‚£10.9 million. Taxexpense reduces by ‚£0.2 million.v IAS 12, Income Taxes, requires that a deferred tax liability berecognised for all non-controllable taxable temporary differences associatedwith investments in subsidiaries and associates. The Group has thus provided adeferred tax liability for the additional tax that would arise on thedistribution of reserves held by its overseas associates. It is estimated thatthis would amount to a further ‚£0.2 million on additional reserves accumulatedduring the year and this is the consequent reduction in Group net assets.Reconciliation of equity at 31 December 2004 UK GAAP Effect of transition to IFRS IFRS IAS 19 IFRS 3 IAS 10 IAS 39 IAS 12 Reclass ‚£million ‚£million ‚£million ‚£million ‚£million ‚£million ‚£million ‚£millionNote i ii iii iv v Property, plant and equipment 97.3 - - - - - - 97.3Goodwill 144.8 - 9.5 - - - - 154.3Associates and joint ventures 39.0 - 0.1 - - - - 39.1Deferred tax 0.5 38.7 - - - - (9.3) 29.9 Total non-current assets 281.6 38.7 9.6 - - - (9.3) 320.6 Trade and other receivables 240.5 - - - - - - 240.5Pension scheme 37.7 (37.7) - - - - - -Inventories 15.6 - - - - - - 15.6Cash and cash equivalents 52.6 - - - - - - 52.6Total current assets 346.4 (37.7) - - - - - 308.7 Total assets 628.0 1.0 9.6 - - - (9.3) 629.3 Bank loans and overdrafts (66.3) - - - - - - (66.3)Unsecured loan notes (3.9) - - - - - - (3.9)Trade and other payables (328.5) - - 11.0 - - - (317.5)Pension scheme - (128.9) - - - - - (128.9)Provisions (17.5) - - - - - - (17.5)Deferred tax liability (18.4) 11.3 - - - (2.2) 9.3 - Total liabilities (434.6) (117.6) - 11.0 - (2.2) 9.3 (534.1) Total assets less total liabilities 193.4 (116.6) 9.6 11.0 - (2.2) - 95.2 Issued capital 11.4 - - - - - - 11.4Share premium 107.9 - - - - - - 107.9Capital redemption reserve 0.1 - - - - - - 0.1Merger reserve 16.4 - - - - - - 16.4Hedging reserve - - - - - - (0.4) (0.4)Own shares (0.5) - - - - - - (0.5)Retained earnings 56.4 (116.6) 9.6 11.0 - (2.2) 0.4 (41.4)Minority interest 1.7 - - - - - - 1.7 Total equity 193.4 (116.6) 9.6 11.0 - (2.2) - 95.2 Notes to the reconciliation of equity at 31 December 2004i The Group has adopted IAS 19, Employee Benefits, in respect of itsdefined benefit pension schemes. The balance sheet impact of the implementationof this standard is to recognise a pension liability of ‚£128.9 million in theGroup's IFRS balance sheet as at 31 December 2004 in place of the ‚£37.7 millionSSAP 24 prepayment previously held under UK GAAP. Net of the deferred taxassociated with both of these balances, the net impact is to reduceconsolidated net assets by ‚£116.6 million.ii IFRS 3 no longer permits the amortisation of goodwill. Insteadgoodwill is carried at cost and is subject to regular impairment reviews.Interserve has chosen, under the transitional arrangements of IFRS1, to apply IFRS 3 prospectively from the transition date. Hence all priorbusiness combination accounting is frozen at the transition date and the valueof goodwill is frozen at 1 January 2004 and amortisation previously reportedunder UK GAAP for 2004 is reversed for IFRS statements. The impact in 2004 is areduction in the amortisation charge of ‚£9.6 million. There are no associatedtax impacts. Consequently consolidated net assets increase by ‚£9.6 million fromthose reported under UK GAAP.iii As required by IAS 10, Events After the Balance Sheet Date, noprovision is made within these accounts for the final proposed dividend becauseat the balance sheet date it was still subject to approval and is thus notconsidered to be an adjusting event. The result is an ‚£11.0 million increase inreported net assets due to the non-provision for the 2004 final proposeddividend.iv As permitted by IFRS 1 the Group has decided to apply UK GAAP inthe comparative information in relation to financial instruments within thescope of IAS 32 and IAS 39. Had the comparative information been prepared infull compliance with IAS 32 and IAS 39, the main adjustment would have been tothe share of reserves consolidated in respect of PFI Joint Venture arrangementsreflecting the fair value of available-for-sale financial assets and interestrate swaps entered into within these special purpose companies. This wouldresult in a net increase in the net asset carrying value for these investmentsand an equal increase in consolidated reserves.v IAS 12, Income Taxes, requires that a deferred tax liability berecognised for all non-controllable taxable temporary differences associatedwith investments in subsidiaries and associates. The Group has thus provided adeferred tax liability for the additional tax that would arise on thedistribution of reserves held by its overseas associates. It is estimated thatat 31 December 2004 this would amount to ‚£2.2 million and this is theconsequent reduction in Group net assets.ENDINTERSERVE PLCRelated Shares:
Interserve