8th Mar 2005 07:00
INTERSERVE PLC PRELIMINARY RESULTS YEAR ENDED 31 DECEMBER 2004 Interserve, the infrastructure and facilities management group, announcespreliminary results for the year ended 31 December 2004.- Turnover up 4.7 per cent to ‚£1,269 million (2003: ‚£1,211 million) - Headline profit* up 50.2 per cent to ‚£43.4 million (2003: ‚£28.9 million) - Basic earnings per share: 18.4p (2003: loss per share: 7.0p) - Future workload up 14.0 per cent to ‚£4.9 billion (2003: ‚£4.3 billion) - Full-year dividend up 4.4% to 14.1p Adrian Ringrose, Chief Executive, commented:"Interserve made excellent progress in 2004. We continue to focus on securingand managing long-term, sustainable revenue streams in both the public andprivate sectors, and these now represent around three-quarters of our business.With future workload up 14 per cent at ‚£4.9 billion and our consistently highclient retention levels, the Group is in a strong position to deliver growth in2005 and beyond."* Headline profit comprises profit on ordinary activities before taxation of ‚£36.0m (2003: loss of ‚£2.9m) adjusted for the impact of exceptional items of ‚£2.2m credit (2003: ‚£22.2m charge) and goodwill amortisation of ‚£9.6m (2003: ‚£9.6m).Chairman's StatementInterserve made excellent progress in 2004. A strong trading performance wassupported by the improved business focus resulting from significantrestructuring in the second-half of 2003. Our emphasis continues to be onsecuring and managing long-term, sustainable revenue streams, which now accountfor the substantial majority of our business.Our results, shown in the table below, are slightly ahead of marketexpectations: 2004 2003 Growth Turnover ‚£1,268.5m ‚£1,211.1m 4.7% Headline Profit (note 1) ‚£43.4m ‚£28.9m 50.2% Profit / (Loss) Before Tax ‚£36.0m ‚£(2.9)m - Headline Earnings per Share 25.5p 16.7p 52.7% Basic Earnings per Share 18.4p (7.0)p -The calculation of headline profit growth of 50.2 per cent takes into account anon-recurring operating charge of ‚£5.5 million in our 2003 results associatedwith a contract exit provision. After adjusting for this item, the headlineprofit growth achieved in 2004 was 26.2 per cent.Net debt at the year end reduced to ‚£17.8 million (2003: ‚£22.5 million). Netinterest payable of ‚£1.6 million (2003: ‚£3.2 million) was covered over 25 timesby total operating profit (note 2) of ‚£45.0 million (2003: ‚£32.1 million).DividendThe Directors are recommending a final dividend of 9.7 pence (2003: 9.3 pence),bringing the total dividend for the year to 14.1 pence (2003: 13.5 pence), anincrease of 4.4 per cent. Subject to shareholder approval at the Annual GeneralMeeting, the final dividend will be paid on 9 June 2005 to shareholders on theregister at the close of business on 18 March 2005.BoardThe Board has recently been through a period of planned change, of bothnon-executive and executive directors. John Padovan, who is the SeniorIndependent Director and who will have completed nine years in office on 13March 2005, has provided continuity throughout this period of transition. He isrequired to stand for re-election at the forthcoming AGM and is proposing,subject to re-election, to retire from the Board in September 2005. It is theBoard's view that he remains an independent member of the Board until then.Upon John Padovan's retirement it is proposed that Patrick Balfour take over asthe Senior Independent Director.PeopleI am delighted once again to thank each and every one of our people for theirhard work, dedication and professionalism. Their enthusiasm and commitment areessential to the success of the Group and these qualities have been admirablydemonstrated in our 2004 performance. We remain proud of our staff retentionrate and that so many of our people are able to pursue long and progressivecareers with the Group.ProspectsOur performance in 2004 is most encouraging. Our overall margins improved andwe maintained our established track record of client retention rates in excessof 90 per cent, demonstrating again that our clients value the services weoffer and that the relationships we form are durable. Our markets continue tooffer favourable trading conditions and excellent prospects.The value of new contracts secured once again outstripped turnover in the year,resulting in a net increase in our future workload of 14 per cent to ‚£4.9billion (2003: ‚£4.3 billion). This record level of future activity underpinsthe Group's growth potential as does the continued flow and quality ofopportunities available for the short and long term in all major clientsegments. The Board is confident that the Group is well placed to delivercontinued growth through 2005 and beyond.M C BottjerChairman7 March 2005Note 1: Headline profit comprises profit on ordinary activities before taxationof ‚£36.0m (2003: loss of ‚£2.9m) adjusted for the impact of exceptional items of‚£2.2m credit (2003: ‚£22.2m charge) and goodwill amortisation of ‚£9.6m (2003: ‚£9.6m).Note 2: Before exceptional items and goodwill amortisationChief Executive's ReviewOur strategy is to develop as an infrastructure and facilities managementprovider through long-term relationships, delivering services at each stage ofthe asset lifecycle. Interserve's services are delivered into the builtenvironment, to process plant and to selected forms of infrastructure. Ourgrowth comes from expanding existing relationships, both in terms of work scopeand geography, and from attracting new relationships, where Interserve's roleas an integrator and broad-based supplier of services offers value, certaintyand efficiency to clients. For our customers we are a trusted partner providingfront-line services, delivering major change programmes, operating complexprocess systems and undertaking key building and infrastructure projects. Thecapabilities we possess to build key relationships and the breadth of ourservice offering are what set us apart.My last annual review reflected, in part, on the restructuring programmeundertaken in 2003. The strategic rationale for that programme was to improveour focus on core activities that offer significant growth potential, and it ispleasing to see the early outcomes of these actions contributing to the successof our 2004 results.Our market positioning continues to benefit from the breadth of ourcapabilities, enabling us to enhance and differentiate our offering to clientsby resourcing activities from across our divisional structure. Client appetiteis increasing for the integrated approach we provide in infrastructure andfacilities management services. Interserve's ability to operate insafety-critical environments is a further differentiator: our focus on safetyperformance is reflected in the eight awards received during the year and weremain committed to achieving continuous improvement in this aspect of ourperformance.The effectiveness of our approach to market is reflected in our clientretention rate, which remains again above 90 per cent, and in our futureworkload, which grew by 14 per cent to stand at a record ‚£4.9 billion at theyear-end. Earnings quality was enhanced through overall operating margin (note1) improvement to 3.2 per cent (2003: 2.2 per cent), and we increased theproportion of our activities deriving from long-term client relationships.Review of OperationsThe Group reports operations under six main headings: Facilities Services,Industrial Services, Project Services, Equipment Services, PFI Investments andGroup Services. The first five of these are trading divisions and their reviewsfollow.Group Services' operating costs comprise principally the costs associated withhead office, centrally-provided services and PFI bids. There was a net increasein these operating costs to ‚£11.5 million (2003: ‚£9.6 million), largelyreflecting the full year impact of increased resourcing in certain control anddevelopment functions.The term "divisional operating profit" used hereafter excludes exceptionalitems, goodwill amortisation and charges associated with the Interserve definedbenefit pension scheme.Facilities Services had a good year, delivering divisional operating profit of‚£17.7 million (2003: ‚£10.6 million). This growth of 67 per cent is influencedby the non-recurring charge of ‚£5.5 million in 2003 associated with a plannedcontract exit referred to in the Chairman's Statement; after adjusting for thiswe achieved year-on-year growth of 9.9 per cent. Turnover was ‚£440.7 million(2003: ‚£447.8 million), within which MoD Works Bills (a category of`pass-through' cost on which no margin is earned) fell from ‚£128.4 million in2003 to ‚£114.5 million in 2004 as the migration to a new form of procurementbegan to take effect. The margin on turnover, excluding Works Bills, increasedto 5.4 per cent (2003: 5.0 per cent excluding the non-recurring charge notedabove) through improved trading and control of our indirect cost base.Interserve adds value by driving structural, cultural and performance changeinto the processes that support the occupancy of the built environment.Increasingly our clients and prospective clients are seeking to consolidatetheir supply chain solutions into larger, broader-based contracts as the UKoutsourcing market continues to become more sophisticated. By combining ananticipation of these trends with our integration, management and deliverycapabilities, we believe we are well positioned to deliver on growing clientexpectation and to maintain our competitive advantage.During the year we secured a number of significant new business wins,particularly in the defence sector: * Appointed preferred bidder on two prime contracts worth in aggregate ‚£500 million: the South Atlantic (on which contracts were finalised in June); and the South East Regional Prime in the UK. * Also appointed preferred bidder for two PFI projects, one in defence and one in education, in which the aggregate facilities services values total some ‚£150 million. * A number of contracts were extended, notably the Office for National Statistics (extended term) and the Metropolitan Police Service (extended term and scope). Our client retention rate once again remained above 90 per cent.Future workload at the end of 2004 grew by 21 per cent to ‚£3.2 billion (2003: ‚£2.7 billion). The proportion of our activities that are undertaken throughlong-term contracts continues to dominate our work mix in this part of thebusiness. Over 85 per cent of turnover (excluding Works Bills) was generatedthrough long-term relationships, with our longest contracts extending more than30 years into the future.Our strategy for Industrial Services is to focus on improved visibility andreduced risk by establishing sustainable client relationships through which wedeliver a range of maintenance-led services. In 2004 we were successful inincreasing the proportion of lower-risk, non-cyclical work won, enhancing ourmargin predictability and expanding future workload. Operating profit of ‚£10.8million (2003: ‚£11.6 million) on turnover of ‚£164.5 million (2003: ‚£148.4million) reflected a recovering margin performance in the second half when weachieved a margin of 7.3 per cent, in line with our target.We add value by delivering a complementary range of maintenance-led services,coordinated through a single point relationship with our client. Much of ourwork is undertaken in safety-critical environments, where our ability tocombine continuous safety and productivity improvements sets us apart from ourcompetitors. Our growth comes, in broadly equal measure, from incrementallyexpanding our existing relationships (through bolting on additional servicesand through adding new sites) and by securing new clients.During the year we secured contracts with a number of new clients, notably: * International Power (a three-year, renewable multi-disciplinary term agreement at Rugeley power station); * General Electric (a three-year, renewable term agreement at Baglan Bay for access, insulation and painting); * Uniqema (a two-year, renewable multi-discipline term agreement); and * Corus, Kimberley Clark and Total, each of which offer prospects for future development. We further extended our existing relationships to new sites with BP (through anew contract with the oil & gas transportation business at Dimlington,Humberside) and with British Nuclear Group at Springfield.Increasingly, clients see the benefit of our integrated service offering andare willing to explore with us opportunities to extend the remit of ouroperations by bolting on other facilities management services relating to thebuilt environment in addition to those supporting their process plantoperations.Our work profile is dominated by long-term, maintenance-led activities. We nowhave over 60 substantial term maintenance contracts. In a quarter of these, wehave had continuous presence on site for over ten years. During 2004, over 60per cent of our revenue was earned from such sustainable sources. The growth inthis type of higher quality, lower risk earnings stream, which has doubledproportionately since 2000, has displaced the historic over-dependence on`one-off' projects and on townwork tube & fittings activities that formerlycharacterised this part of our business. A further reflection of progress isour future workload, which reached ‚£690 million at the end of 2004, an increaseof some 21 per cent on the position at the end of 2003.Project Services performed strongly, delivering 13.3 per cent growth indivisional operating profit to ‚£17.9 million, slightly above its long-termtrend. Turnover was ‚£545.3 million (2003: ‚£475.7 million), the majority ofvolume growth coming from resilient activity levels from amongst ourestablished regional framework contracts together with a number of new wins. UKdivisional operating margin was 2.6 per cent (2003: 2.6 per cent), whilst thecontribution from overseas grew by 8.3 per cent to ‚£3.9 million (2003: ‚£3.6million).Our strategy in the UK remains to focus our efforts on sustainable and higherquality revenue streams such as framework agreements, accommodation PFIprojects and negotiated work with repeat clients. In 2004, 85 per cent of ouractivity came from these work types, which underlines the successfultransformation that we have achieved from `traditional' contractor to being avalue added partner to clients and to our supply chain in integrating projectsolutions through long-term relationships. Our ability to tailor an individualservice to clients' needs and to deliver on time and to budget, through anetwork of local offices, provides us with a competitive edge.We performed well in each of our principal UK markets, the highlights being: * in Health we have now secured around 20 per cent of the schemes assigned under the ProCure21 framework programme, representing well over ‚£100 million of work; * in the custodial market we were chosen by the Home Office for its new-build prison framework programme covering the whole of England and Wales; * we extended our relationship with BT; * we added two new framework agreements for the Highways Agency in south-east and north-east England respectively; and * we were selected as a framework partner by Severn Trent Water and are preferred bidder for Thames Water to provide a ‚£100m desalination plant, the first such facility to be built in the UK. Our international operations successfully pursue a parallel strategy offocusing on highly selective work-types and benefit from a number of valuablelong-term client relationships together with a consistently buoyant set ofmarket conditions: * in Dubai we have won a number of prestigious contracts including the Endurance City desert resort; * in Qatar we have undertaken a range of infrastructure projects for the Doha Asian Games and have continued our partnering arrangement with the Commercial Bank of Qatar in the roll-out of a branch renovation and remodelling programme; and * the success of our project on the Sohar Refinery in Oman has led to a significant new contract, awarded just after the year-end, for building and infrastructure works on a desalination plant on the same site. Consistent with our emphasis on longer-term relationships and work streams, ourclient retention rate was again above 90 per cent and our future workload stoodat ‚£930 million at the end of 2004 (2003: ‚£1,025 million).Equipment Services showed consistently improving performance during the year.The various changes made to management, organisational structure, procurementand logistics have re-focused the business and are yielding positive results.Second-half margins improved to 18.2 per cent which, together with encouragingvolume growth, resulted in divisional operating profit of ‚£15.1 million (2003:‚£12.6 million), an increase of some 19.8 per cent.Our focus is predominantly on providing equipment for complex infrastructureprojects in most major construction economies. We differentiate ourselves onthe basis of our design and engineering expertise, focused client relationshipmanagement and through the breadth of our integrated product range. We continueto invest in new product development and have, during 2004, experiencedsubstantial growth from the introduction of Alshor Plus, a high performancealuminium shoring system, which has up to 50 per cent increased loadingcapacity over its predecessor system and offers improved versatility,productivity and safety benefits.Results were strong in Australasia, delivered through good trading in healthymarket conditions. Notable projects included the West Link M7 motorway inSydney, the development of the Melbourne Cricket Ground and Victoria Pointshopping centre.We delivered an excellent performance in the Middle East. In Dubai we haveprovided considerable volumes of equipment on the new airport project, one ofthe largest construction projects currently underway in the world, and also onthe Mall of the Emirates retail development (one of our own constructionprojects). We have also continued to expand our cross-border activities,especially into Qatar where demand is very strong.We performed well in Europe, particularly in the UK where, under newleadership, activity levels improved and we were successful on a number ofimportant infrastructure projects such as Phase 2 of the St Pancras ChannelTunnel Rail Link, the Bishops Bridge project at Paddington station and the M77in Scotland. Our Irish and Iberian operations grew well, as a result ofimproved sales focus. We are developing a new depot in Spain, due forcompletion shortly, which should enable us to introduce a broader product rangeinto this market and to improve our operational efficiency there considerably.In the Far East, a number of major infrastructure projects have come tofruition, enabling much improved trading, predominantly in the second half ofthe year. Hong Kong and South Korea in particular have benefited from thislong-awaited upturn, whilst in Taiwan and the Philippines we have injected newideas and approaches to our sales teams and to our product range with somesuccess. In South America, our Chilean operations had a record year.Contract durations and sales lead-times are generally shorter in EquipmentServices than in other parts of our business, however, forward visibility ofour workload is improving as we invest more effort in predicting market trendsand in tracking opportunities. Our analysis suggests that our overall tradingenvironment should continue to provide growth potential, with easing in thebuoyant Australian market more than compensated for by continued strength inthe Middle East and in the Far East during 2005.PFI Investments activity continued to perform well. The operating profit fromour investments in PFI/PPP special purpose companies, was stable at ‚£1.8million (2003: ‚£1.8 million) but pre-tax profit grew by 29 per cent to ‚£2.7million (2003: ‚£2.1 million).Whilst the available rates of return are attractive and investment activity is,in its own right, a considerable undertaking, our primary motive for investingin and managing PFI projects is to support the development of core operationalearnings streams in the facilities management and the design & build phases ofthe project lifecycle. The downstream services activities associated with ourPFI/PPP project investments represent some ‚£2.4 billion, 50 per cent of ourtotal future workload, and provide an excellent source of high visibility, highquality earnings flow.We achieved financial close on two projects during the year, those beingProject Armada (the redevelopment of the Fleet Accommodation Centre for theNavy in Devonport) and a project to provide 17 schools for Cornwall CountyCouncil. In both cases Interserve will design, build and operate the facilitiesover the length of the concession. This takes the total committed value of ourPFI investment portfolio to ‚£43 million (2003: ‚£35 million).In addition we were appointed preferred bidder on two projects: the ArmouredVehicle Training Systems project for the Ministry of Defence; and a group ofschools and related facilities for the Borough of Telford & Wrekin.In December we sold our 25.5 per cent interest in the Neath & Port TalbotHospital project. Having completed the construction of this very successfulfacility in 2002 Interserve had no on-going operational role in the project. Wereceived a cash consideration of ‚£4.3 million on disposal, which created anexceptional profit of ‚£1.9 million.Demand for infrastructure projects delivered through public-privatepartnerships is strong in the UK and our bidding pipeline reflects thatpositive market dynamic. PFI projects remain an attractive channel to marketfor our facilities and projects businesses and we are well positioned in ourchosen sectors, offering whole-life accommodation solutions.International Financial Reporting Standards (`IFRS')The following is an extract from the Finance Director's Report:From 2005 the Group will prepare its consolidated financial statements on thebasis of IFRS, as adopted by the European Commission. In preparation for thistransition work has been undertaken since mid 2003 to identify the areas ofchange as they impact the Group, assess and quantify the impact that adoptionwill have, restate comparative financial statements for 2004 and prepare Groupreporting systems for full scale adoption in 2005.The commentary set out here is based on current interpretations of IFRS aspublished to date and assumes endorsement of all current standards and guidanceby the European Commission. Changes to these assumed circumstances could leadto variations to this information before full adoption.We anticipate that the impact of the adoption will be a reduction in headlineearnings per share of approximately 12 per cent, reflecting principally theexpected impact of higher pension costs under IAS19. Basic earnings per shareare expected to be approximately 29 per cent higher as goodwill is no longeramortised annually under IFRS3.Net assets are expected to be reduced by approximately 50 per cent,representing recognition of the Group pension funding deficit under IAS 19.These estimates do not include the impact of IAS 39, requiring marked-to-marketrevaluation of financial instruments at the balance sheet date.A M RingroseChief Executive7 March 2005Note 1: operating profit, excluding the contribution from Associates and fromPFI joint ventures, expressed as a percentage of total turnoverCONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended 31 December 2004 Before Exceptional 2004 exceptional items and Total items and goodwill goodwill amortisation amortisation Notes ‚£million ‚£million ‚£million Turnover 2 Continuing operations 1,268.5 - 1,268.5 Discontinued operations - - - 1,268.5 - 1,268.5 Less: Share of joint ventures-PFI (30.3) - (30.3)investments 1,238.2 - 1,238.2 Cost of sales 3 (1,098.0) - (1,098.0) Gross profit 140.2 - 140.2 Net operating expenses 3 (100.9) (9.5) (110.4) Operating profit (loss) Continuing operations 39.3 (9.5) 29.8 Discontinued operations - - - 39.3 (9.5) 29.8 Share of joint ventures-PFI 5.7 (0.1) 5.6investments and associated undertakings Total operating profit 2 45.0 (9.6) 35.4 Exceptional items 5 Net profit on sale of operations - 1.9 1.9 (continuing operations) Profit on sale of tangible fixed - 0.3 0.3 assets (continuing operations) Net (loss) on sale or termination - - - of operations (discontinued operations) Net interest payable (1.6) - (1.6) Profit (loss) on ordinary activities 43.4 (7.4) 36.0before taxation Tax on profit (loss) on ordinary 6 (12.6) (0.7) (13.3)activities Profit (loss) on ordinary activities 30.8 (8.1) 22.7after taxation Minority interest (1.8) - (1.8) Profit (loss) for the financial year 29.0 (8.1) 20.9attributable to members of Interserve Plc Dividends 7 (16.0) - (16.0) Profit (loss) for the year 9 13.0 (8.1) 4.9transferred to (from) reserves p p p Basic earnings (loss) per share 8 18.4 Adjust for exceptional items and 7.1 goodwill amortisation Headline earnings per share 25.5 Diluted earnings (loss) per share 18.3CONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended 31 December 2004 - continued Before Exceptional 2003 exceptional items and Total items and goodwill goodwill amortisation amortisation Notes ‚£million ‚£million ‚£million Turnover 2 Continuing operations 1,170.6 - 1,170.6 Discontinued operations 40.5 - 40.5 1,211.1 - 1,211.1 Less: Share of joint ventures-PFI (23.5) - (23.5)investments 1,187.6 - 1,187.6 Cost of sales 3 (1,069.9) - (1,069.9) Gross profit 117.7 - 117.7 Net operating expenses 3 (91.0) (9.6) (100.6) Operating profit (loss) Continuing operations 28.5 (9.6) 18.9 Discontinued operations (1.8) - (1.8) 26.7 (9.6) 17.1 Share of joint ventures-PFI 5.4 - 5.4investments and associated undertakings Total operating profit 2 32.1 (9.6) 22.5 Exceptional items 5 Net profit on sale of operations - - - (continuing operations) Profit on sale of tangible fixed - 2.7 2.7 assets (continuing operations) Net (loss) on sale or termination - (24.9) (24.9) of operations (discontinued operations) Net interest payable (3.2) - (3.2) Profit (loss) on ordinary activities 28.9 (31.8) (2.9)before taxation Tax on profit (loss) on ordinary 6 (9.3) 4.9 (4.4)activities Profit (loss) on ordinary activities 19.6 (26.9) (7.3)after taxation Minority interest (0.6) - (0.6) Profit (loss) for the financial year 19.0 (26.9) (7.9)attributable to members of Interserve Plc Dividends 7 (15.4) - (15.4) Profit (loss) for the year 9 3.6 (26.9) (23.3)transferred to (from) reserves p p P Basic earnings (loss) per share 8 (7.0) Adjust for exceptional items and 23.7 goodwill amortisation Headline earnings per share 16.7 Diluted earnings (loss) per share (7.0)BALANCE SHEETAt 31 December 2004 Consolidated 2004 2003 #Restated Notes ‚£million ‚£million Fixed Assets Intangible fixed assets - goodwill 144.8 154.3 Tangible fixed assets 97.3 90.1 Investments Joint ventures-PFI investments Share of gross assets 387.4 326.5 Share of gross liabilities (360.5) (304.9) Share of net assets 26.9 21.6 Associated undertakings 12.1 11.2 Subsidiary undertakings - - 281.1 277.2 Current assets Stocks and work in progress 15.6 12.5 Debtors 240.5 244.6 Pension scheme prepayment 4 37.7 33.2 Short term cash deposits 11.6 12.1 Cash at bank and in hand 41.0 23.9 346.4 326.3 Creditors falling due within one year Bank overdrafts (20.0) (2.3) Unsecured loan notes (3.9) (6.1) Trade creditors (150.6) (161.4) Other creditors (170.1) (148.0) (344.6) (317.8) Net current assets 1.8 8.5 Total assets less current 282.9 285.7liabilities Creditors falling due after more than one year Bank loans (46.3) (49.7) Other creditors (7.8) (7.4) Provisions for liabilities and (35.4) (40.7)charges Net assets 193.4 187.9 Capital and reserves Called up share capital 11.4 11.4 Share premium account 107.9 107.9 Capital redemption reserve 0.1 0.1 Acquisition reserve 16.4 16.4 Profit and loss account 56.4 51.9 Investment in own shares (0.5) (0.5) Shareholders' funds - equity 2&9 191.7 187.2interest Minority interest - equity interest 1.7 0.7 193.4 187.9 These financial statements were approved by the Board of Directors on 7 March 2005 Signed on behalf of the Board of Directors A M Ringrose T C Jones 7 March 2005 CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESFor the year ended 31 December 2004 2004 2003 ‚£million ‚£million Profit (loss) for the financial year attributable to members 20.9 (7.9)of Interserve Plc Currency translation differences on foreign currency net (0.4) 1.4investments Total recognised gains and losses in the year 20.5 (6.5)# Certain comparative figures have been restated as explained in Note 1.CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 December 2004 Notes 2004 2003 ‚£million ‚£million Net cash inflow from operating activities (i) 44.0 40.4 Dividends received from associated undertakings 2.4 2.7 Returns on investment and servicing of finance Interest received 3.7 5.3 Interest paid (4.3) (7.0) (0.6) (1.7) Taxation (4.9) (4.9) Capital expenditure and financial investment Purchase of tangible fixed assets (31.7) (15.8) Sale of tangible fixed assets 14.2 19.2 (17.5) 3.4 Acquisitions and disposals Investment in joint ventures-PFI investments (7.3) (6.1) Sale of investment in joint venture 4.3 - (3.0) (6.1) Equity dividends paid To equity shareholders (15.6) (15.1) To minority shareholders (0.8) - (16.4) (15.1) Cash inflow before management of liquid resources and 4.0 18.7financing Management of liquid resources (ii) 0.5 (5.3) Financing (iii) (5.1) 5.1 (Decrease) increase in cash in the year (0.6) 18.5 Reconciliation of net cash flow to movement in net (iv) debt (Decrease) increase in cash in the year (0.6) 18.5 Cash flow from (decrease) increase in liquid resources (0.5) 5.3 Cash flow from decrease (increase) in debt 2.7 (13.7) Repayment of unsecured loan notes 2.2 9.9 Cash flow from finance lease rentals 0.2 0.3 Change in net debt resulting from cash flows 4.0 20.3 Translation differences 0.7 - Movement in net debt in year 4.7 20.3 Net debt at 1 January (22.5) (42.8) Net debt at 31 December (17.8) (22.5)NOTES ON CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 December 2004 2004 2003 ‚£million ‚£million (i) Net cash inflow from operating activities Operating profit before 39.3 26.7exceptional items and goodwill amortisation Exceptional items* - (20.5) Profit on sale of fixed assets (5.4) (3.7) Depreciation charges 15.4 14.9 (Increase) decrease in stocks and (3.1) 2.4work in progress (Increase) in debtors (0.4) (10.0) (Decrease) increase in creditors (2.0) 29.7 Currency adjustments 0.2 0.9 44.0 40.4 *2003 Exceptional items includes the loss on termination of operations of ‚£24.9million less the goodwill write off of ‚£4.4 million (ii) Management of liquid resources Cash withdrawn from (invested 0.5 (5.3)in) short term deposits (iii) Financing Net issue of ordinary shares - 1.6 (Decrease) increase in bank loans Due within one year - (0.4) Due after more than one (2.7) 14.1 year Repayment of unsecured loan (2.2) (9.9)notes Capital element of finance (0.2) (0.3)lease rental payments (5.1) 5.1 (iv) Analysis of net debt 1 Cash flow Exchange 31 January movements December 2004 2004 ‚£million ‚£million ‚£million ‚£million Cash at bank and in hand 23.9 17.1 - 41.0 Bank overdrafts (2.3) (17.7) - (20.0) 21.6 (0.6) - 21.0 Short term cash deposits 12.1 (0.5) 11.6 Bank loans Due after more than one (49.7) 2.7 0.7 (46.3) year (49.7) 2.7 0.7 (46.3) Net bank balances (16.0) 1.6 0.7 (13.7) Unsecured loan notes Due within one year (6.1) 2.2 - (3.9) Finance leases Due within one year (0.2) 0.1 - (0.1) Due after more than one (0.2) 0.1 - (0.1) year (0.4) 0.2 - (0.2) Net debt (22.5) 4.0 0.7 (17.8)NOTES ON THE ACCOUNTSFor the year ended 31 December 20041. Accounting policies The preliminary announcement has been prepared in accordance with accounting policies set out in the Group's 2003 statutory accounts, with the exception of the adoption of UITF 38 as explained below. The Group continues to comply with the transitional arrangements under FRS 17 "Retirement Benefits". These had no effect upon the results for the year, as set out in not 4b. During the period the Group adopted UITF 38 "Accounting for ESOP trusts". The effect of UITF 38 is to reclassify the presentation of the Group's investment in own shares from current assets to be a deduction from shareholders' funds. Comparative figures have been reclassified accordingly. 2. Segmental analysis The turnover, total operating profit (excluding exceptional items and goodwill amortisation) and net assets (liabilities) (less minority interest) attributable to the different classes of the Group's business are: Turnover Total operation Net assets (external) profit (loss) (liabilities) (excluding (less minority exceptional items interest) and goodwill amortisation) #Restated 2004 2003 2004 2003 2004 2003 ‚£million ‚£million ‚£million ‚£million ‚£million ‚£million By business segment: Facilities Services 440.7 447.8 17.7 10.6 (48.4) (42.7)(note i) Industrial Services 164.5 148.4 10.8 11.6 44.2 44.4 Project Services 545.3 475.5 17.9 15.8 (64.4) (66.9) Equipment Services 87.7 74.8 15.1 12.6 83.1 68.4 1,238.2 1,146.7 61.5 50.6 14.5 3.2Related Shares:
Interserve