Half-yearly Report

News Release

15 August 2012

HALF-YEAR RESULTS ANNOUNCEMENT

SIX MONTHS ENDED 30 JUNE 2012

Strong future workload, growing revenues and profits

Interserve, the international support services and construction group, announces its half-year results for the six months ended 30 June 2012.

Highlights

·; First-half gross revenues up 2.8 per cent and headline profit increased 8.2 per cent

·; First-half free cash flow generation of £53.9 million (HY 2011: £44.1 million)

·; Acquisition of welfare-to-work business for up to £18.25 million and£15 million of new investment in PFI portfolio

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

·; Interim dividend up 6.7 per cent

Strong future prospects and financial position

·; Over £1.4 billion of work won to the end of June 2012

·; £1.1 billion of future workload for 2013, within a substantial total future workload of £6.0 billion (FY 2011: £5.6 billion)

·; Strong operational cash generation - decrease in net debt to £39.9 million at 30 June 2012 (FY 2011: £44.2 million) after funding new investments.

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

- Ends -

For further information please contact:

Adrian Ringrose, Chief Executive 0118 932 0123

Tim Haywood, Group Finance Director 0118 932 0123

Robin O'Kelly, Director of Communications 0118 960 2313

Matt Hickman, Investor Relations Manager 0118 960 2280

Richard Campbell/Ian Brown/Michael Kinirons, Capital MSL 0207 307 5334

About Interserve

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

* Note

This news release and the Interim Management Report include a number of non-statutory measures, to reflect the impact of non-trading and non-recurring items. See note 12 to the consolidated financial statements on page 28 for a reconciliation of these measures to their statutory equivalents.

Interim management report

Chairman's statement

Performance in the first half has been encouraging despite continuing economic headwinds, benefitting from our spread of activities and geographies and the strength of our client relationships. Revenues and profit increased relative to the first half of last year and we realised significant additional value through the disposal of part of our PFI assets (completed early in the second half of this year). At the same time, we made further progress on our future growth strategy through the acquisition of Interserve Working Futures (IWF) and organic investment into the prison and wider justice market.

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

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

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

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

Dividend

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

Lord Blackwell

Chairman

15 August 2012Business review

Segmental review

We deliver our operational services through three divisions: Support Services, Construction and Equipment Services. Our Developments division is responsible for managing our investment activities (segmented as Investments) and for leading our strategic developments. In addition, Group Services consists of the Board and a range of central services.

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

Support Services

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

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

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

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

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

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

Construction

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

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

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

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

Equipment Services 

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

Results summary:

The division continued its recovery with revenues up 10 per cent to £81.9 million and contribution to Total Operating Profit up 15 per cent to £6.8 million. Revenue growth was led by the Far East and the Middle East with continued strong trading in Australasia. Europe and North America remained muted in the period. We continue to innovate and develop our customer offering; for example we have launched Ascent, a guided climbing formwork and screen product for casting tall building cores, with notable success in the UK, Hong Kong and Middle East.

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

Developments 

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

Results summary:

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

The disposal of part of our interest in the UCLH PFI project, announced in June and completed in August, realises latent value within the portfolio and reflects our ongoing strategy of managing the portfolio to be self-financing over the medium term and disposing of assets where we have added maximum value. We made equity injections of £15 million into projects at Enniskillen and West Yorkshire Police in the first half.

On 25 May 2012 our consortium was appointed preferred bidder for the redevelopment of Alder Hey children's hospital.

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

Strategic growth

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

The main components of our strategy are to:

1. Continue to build strong core businesses

2. Expand internationally in attractive markets

3. Capture and grow complementary opportunities

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

·; Developing in front-line public service provision, in particular in the justice and welfare sectors.

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

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

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

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

The key outcomes in the period were:

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

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

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

Key Performance Indicators (KPIs)

We use a set of financial and non-financial KPIs to measure critical aspects of the Group's performance. These KPIs are aligned with:

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

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

Outlook

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

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

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

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

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

Principal risks and uncertainties

The principal risks and uncertainties which could have a material impact upon the Group's performance, together with the mitigation strategies adopted, have been reviewed and have not changed significantly from those set out on pages 22 and 23 of the Business Review included in the Group's 2011 annual report and financial statements.

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

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

Responsibility statement

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

The directors confirm to the best of their knowledge:

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

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

c) The interim management report includes a fair review of the information required by DTR 4.2.8R.

By order of the Board

Adrian Ringrose Tim Haywood

Chief Executive Group Finance Director

15 August 2012

Independent Review Report to Interserve PLC

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

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

Directors' responsibilities

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

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

Our responsibility

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

Scope of review

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

Conclusion

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

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

15 August 2012

Unaudited condensed consolidated income statement

For the six months ended 30 June 2012

* £2.4 million of business unit overheads have been reallocated in the comparatives for the 6 months ended 30 June 2011, between cost of sales and administration expenses in line with the movement of business units between divisions outlined in the 2011 Annual Report. This reclassification does not impact operating profit.

Unaudited condensed consolidated statement of comprehensive income

For the six months ended 30 June 2012

Unaudited condensed consolidated balance sheet

At 30 June 2012

Unaudited condensed consolidated statement of changes in equity

For the six months ended 30 June 2012

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

Unaudited condensed consolidated statement of cash flows

For the six months ended 30 June 2012

Notes to the unaudited interim financial statements

For six months ended 30 June 2012

1. General information

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

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

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

The interim financial statements for the six months ended 30 June 2012 have been reviewed by Deloitte LLP but have not been audited (see page 13).

2. Accounting policies and principal risks

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

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

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

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

At the date of authorisation of these interim financial statements the following standards and interpretations were in issue but not yet effective, and therefore have not been applied in these interim financial statements:

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

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

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

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

3. Business and geographical segments

(a) Business segments

The Group is organised into four divisions, as set out below. The Group internally reviews and allocates resources to each of these operating divisions and each has a divisional managing director who reports into and forms part of the executive board.

·; Support Services: provision of outsourced support services to public- and private-sector clients, both in the UK and through Middle East associates.

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

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

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

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

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

(b) Geographical segments

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

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

4. Income tax expense

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

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

5. Share of results and net assets of joint venture and associated undertakings