12th Sep 2005 06:39
INTERSERVE PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005 - Pre-tax profit up 23% to ‚£19.9 million (H1 2004: ‚£16.2 million) - Earnings per share up 15% to 10.5p (H1 2004: 9.1p) - Net debt reduced by 29% to ‚£22.5 million (H1 2004: ‚£31.8 million) - Interim dividend per share up 4.5% to 4.6p (H1 2004: 4.4p) Adrian Ringrose, Interserve's Chief Executive, states:"The Group continues to make good progress through 2005. We have deliveredstrong earnings growth in the first half of the year from attractive markets.Prospects both in the near and longer term are positive."For further information please contact:Adrian Ringrose, Chief Executive 0118 932 0123Tim Jones, Group Finance Director 0118 932 0123Elizabeth Morley / Tom Siveyer 020 7379 5151The Maitland ConsultancyAbout InterserveInterserve Plc (www.interserveplc.co.uk) is an infrastructure and facilitiesmanagement group. It provides services throughout an asset's life cycle, frominvesting to building, maintaining, operating and replacing. Interserve isbased in the UK, is listed on the London Stock Exchange in the support servicessector (IRV.L) and trades in the FTSE 250 index. It has a revenue of more than‚£1.2 billion and employs more than 11,000 people worldwide.2005 INTERIM REPORT & ACCOUNTSCHAIRMAN'S STATEMENTStrong progress, in line with expectations, has been achieved in the first halfof this year, further underpinning Interserve's development and future growthpotential as an infrastructure and facilities management business.ResultsI am pleased to report that pre-tax profit in the first half of the yearincreased by 22.8 per cent to ‚£19.9 million (H1 2004: ‚£16.2 million). Earningsper share increased by 15.4 per cent to 10.5p (H1 2004: 9.1p).Net debt at 30 June was ‚£22.5 million (H1 2004: ‚£31.8 million). Net interestpayable in the period reduced to ‚£0.2 million (H1 2004: ‚£1.2 million) and wascomfortably covered by operating profits.DividendThe directors have approved an interim dividend of 4.6p (H1 2004: 4.4p) whichwill be paid on 31 October 2005 to shareholders on the register at the close ofbusiness on 23 September 2005.BoardFollowing his retirement from the Board on 30 September, John Padovan will besucceeded by Patrick Balfour as Senior Independent Director and by NicholasKeegan as Chairman of the Audit Committee. At the same time David Trapnell willbecome Chairman of the Remuneration Committee. John has been a non-executivedirector for some nine years and I would like to thank him for his mostvaluable contribution to the progress of Interserve throughout that time.I am delighted to welcome Norman Blackwell to the Board as a non-executivedirector as from 1 September. Norman will succeed me as Chairman following myretirement from the Board at the end of this year.As this is my last scheduled report I would like to thank my colleaguesthroughout the Group for their support over many years, it has been a privilegeto work with such dedicated and talented people. I am sure that my successorwill both enjoy and welcome that same support.ProspectsThe visibility of our forward revenue streams remains excellent: at thehalf-year our future workload amounted to ‚£4.9billion (H1 2004: ‚£4.3 billion),we had secured some 60 per cent of our planned 2006 revenue and also had bidsin preparation with an aggregate whole-life value of over ‚£5.0 billion (H12004: ‚£4.5 billion).We are well-established in markets that offer significant opportunities forgrowth, we have a record workload and our management team has the skill anddetermination to drive Interserve forward. These are among the key factorswhich provide the Board with confidence in delivering growth through 2005 andin a successful long-term future for the Group.Mike BottjerChairman12 September 2005CHIEF EXECUTIVE'S REVIEWBusiness ReviewIn the UK, demand has been largely underpinned by public-sector spending,wherein our key segments of education, health, defence, custodial andinfrastructure afford us excellent forward visibility of both opportunity andrevenue expected from existing contracts and relationships. Spending by ourprivate-sector UK clients remained stable, sourced mainly through frameworkagreements and term maintenance contracts. Internationally, our other Europeanmarkets offered good trading conditions in the period and the Middle Eastremained very buoyant. Market conditions for Equipment Services in Australasiahave cooled following a particularly buoyant period.Significant developments in the half-year included:- signing and mobilising the ‚£400 million South East Regional Prime contract with the MoD; - being chosen by BAA as its preferred maintenance contractor at Heathrow airport in a five-year contract; - winning a ‚£175 million, seven-year framework agreement with Her Majesty's Prison Service; - growing our Equipment Services profits by 44 per cent; and - reaching financial close on two PFI contracts with an aggregate service value to Interserve of over ‚£230 million. In addition, after the end of the period we were named preferred bidder on thesubstantial Addiewell prison PFI project.Financial PerformanceThe business performed well in the period, delivering growth in Total OperatingProfit of 15.5 per cent to ‚£20.1 million (H1 2004: ‚£17.4 million) on underlyingrevenue* of ‚£571.6 million (H1 2004: ‚£572.9 million).Our operating margin** strengthened to 3.2 per cent (H1 2004: 2.7 per cent),with strong progress made in three divisions, particularly Equipment Services.Free cash flow*** showed further improvement, with an inflow of ‚£4.2 millionachieved in the period (H1 2004: ‚£0.2 million). Net debt at 30 June was ‚£22.5million (H1 2004: ‚£31.8 million).The interim results, including the re-stated 2004 comparatives, have beenprepared under International Financial Reporting Standards (IFRS). Guidance toassist readers in interpreting the effect of applying IFRS to the Group's 2004financial statements is available on the Group website (www.interserveplc.co.uk) or from the Registered Office.Segmental ReviewA segmental analysis is shown below. The Group reports under six headings: wehave five market-facing divisions and a sixth, Group Services, representing arange of centrally provided services and our PFI bidding costs. Group Services'overall cost was ‚£6.9 million in the period (H1 2004: ‚£5.2 million). This netincrease was substantially due to a greater level of investment in PFI biddingcosts year-on-year as we pursue growth in this long-term market, with someincremental impact from share-based payments (under IFRS2).Facilities Services contributed ‚£6.8 million to Total Operating Profit (H12004: ‚£5.5 million) on revenue, excluding Works Bills, of ‚£180.9 million (H12004: ‚£161.9 million), much of the growth coming from recently-won contracts.Operational focus in the defence sector was on mobilising the South EastRegional Prime and South Atlantic (Ascension and Falkland Islands) contractsand on managing growth in demand and related opportunities from the ArmyTraining Estate project (through our subsidiary, Landmarc Support Services).In health, the new hospitals in Dudley and at University College London bothbecame operational in the period. These required significant mobilisationactivities on our part to transfer live operations from a large number ofexisting facilities, in which we have been delivering services since 2001 and2000 respectively, to the new hospitals.In the private sector we have continued our long-standing relationships withclients such as Boots, British Airways, Syngenta and Barclays. We aredeveloping relationships with a number of new clients, including MEPCProperties, Ladbrokes, Central TV and Nestlƒ©.Industrial Services made further progress in switching its future revenue mixfrom being largely one-off capital projects in generally cyclical end-userclient segments towards a focus on term maintenance and facilities managementcontracts across a broader range of customers. The changes we are undertakingare designed to reduce risk and to increase earnings quality and marginstability. This process is temporarily impacting volume, which in the periodresulted in a reduction in revenue to ‚£79.4 million (H1 2004: ‚£85.4 million).Margins remained at 5.4 per cent, contributing ‚£4.3 million (H1 2004: ‚£4.6million) to Total Operating Profit.During the first half-year we secured a number of new contracts that positionus well for the future, notable amongst which are: a five-year agreement withBAA for building fabric, mechanical and electrical maintenance in Terminals 1-4at Heathrow Airport; further work for BAE Systems associated with its programmeto deliver Type 45 Destroyers for the Royal Navy; and a five-year,multi-service agreement for SITA Waste in Teesside. Our environmental servicesbusiness, launched during the first-half of 2004, has had a successful first 12months, securing orders from clients such as Computer Sciences Corporation,British Gas, Nottingham City Council and Slough Borough Council.Project Services generated a contribution to Total Operating Profit of ‚£6.8million (H1 2004: ‚£6.1 million). UK margins increased to 2.0 per cent (H1 2004:1.7 per cent) as a number of projects were completed during the period,including the Peterborough Prison PFI project in March and the new 20,000-seatMorfa international sports stadium in Swansea.Workflow remained solid, with new contract or framework wins in all majorclient segments. Notable successes during the first-half include: a furtherfive-year framework agreement with United Utilities; a new seven-year, ‚£175million, agreement with HM Prison Service; and the Telford & Wrekin schools PFIproject, worth some ‚£60 million in the design & build phase. Progress hascontinued within the NHS ProCure21 framework agreement, through which we havenow secured, cumulatively, orders worth in excess of ‚£200 million.In the private sector, BT awarded us projects (through our framework agreement)towards the end of June worth around ‚£30 million associated with the roll-outof its `21st Century Network', with the prospect of further opportunities indue course.Our international associate companies increased their aggregate operatingprofit contribution by 23.1 per cent to ‚£1.6 million (H1 2004: ‚£1.3 million) astrading in the Middle East remained buoyant. Demand in Qatar, already strong,is being further bolstered as preparations for the 2006 Asian Games and for thenew international airport in Doha continue. In Dubai, we are making goodprogress towards completion, due later in the year, of our works on the Mall ofthe Emirates (a large retail and leisure development) and have successfullynegotiated a fifth phase, for a 240-room hotel, of the Wafi Hotel and Malldevelopment.Equipment Services traded well, delivering an increase of 44.3 per cent, to ‚£8.8 million, in its contribution to Total Operating Profit (H1 2004: ‚£6.1million). Revenue growth of 34.8 per cent to ‚£53.9 million (H1 2004: ‚£40.0million) was generated from increased activity in most markets, the mainexception being in Australia where softening in the housing market has occurredas anticipated.In Europe we made good progress in the UK and Spain, with each businessbenefiting from a number of changes to their operational, sales and customerfocus. Our equipment was used in many projects in the period, notably the A249Swale crossing in Kent, new Liquefied Natural Gas storage tanks at MilfordHaven and specialist faƒ§ade retention works at the Plaza Toros in Barcelona.Progress in our Middle Eastern markets was very strong both in terms oflocally-generated activity, such as from the Mall of the Emirates in Dubai, andin export orders generated in the UK. Our growth in the Middle East has beenachieved in large part through timely investment of additional human resourcesand of new fleet into the region in order to take advantage of theopportunities in this growth market.Elsewhere, performance was mixed. We made good progress in Hong Kong, throughprojects such as the East Tsing Yi viaduct and in the Philippines where growthcame from a number of key infrastructure and building projects. Conditions inTaiwan and Korea have been challenging in the period, although in the lattercase this is expected to be largely a timing issue relating to projectcommencements on new manufacturing facilities. Sales volumes held up well inNew Zealand, although the mix of work was less profitable than in the prioryear. Albeit from a relatively small base, we made excellent progress in Chile,where sales were up over 80 per cent in a buoyant market.We have made a number of incremental improvements to the product range so farthis year, with pleasing feedback received from clients in a number of marketson Alshor Plus, the new shoring system introduced in 2004.Our Investments team is responsible for coordinating Group-wide businessdevelopment activities, particularly in the Public/Private Partnerships market.This involves leading the bidding process for PFI opportunities, managing ourinvestment portfolio and, in many cases, delivering management services toSpecial Purpose Companies. The contribution to profit (including interestreceivable on subordinated debt investments) from PFI investments grew to ‚£1.4million (H1 2004: ‚£1.3 million).We achieved financial close on two projects in the period (Telford & Wrekinschools and Newcastle-upon-Tyne Hospitals NHS Trust). The whole-life value ofservices to be performed by Interserve in these two projects is over ‚£230million.As at the end of the first half-year our portfolio of signed contractscomprised 23 investments (H1 2004: 21) with a total commitment of ‚£50.6 million(H1 2004: ‚£38.4 million). There were no disposals during the period. Threeprojects (Dudley Group of Hospitals, University College London Hospital andPeterborough Prison) became operational during the period, taking the total to16 projects in this stage of maturity (H1 2004: 12).The SPCs in which we have invested are responsible for delivering facilitiesmanagement services to many thousands of patients a year in over 2,800 NHSin-patient bed spaces, for running custodial establishments with a combinedcapacity of over 1,200 places and, following financial close of the Telford &Wrekin project in March, for providing whole-life services to support theeducation of almost 23,000 pupils through our portfolio of 37 schools.Health and SafetyWe continue to invest in ensuring that we provide a safe and healthyenvironment for our employees, the contractors working with us and for theclients to whom we deliver our services. We operate under established safetymanagement arrangements that are actively monitored through audit by safetyprofessionals and inspection by senior management. Our approach to, andperformance in, health and safety management was recognised through a number ofawards in the period. From RoSPA (the Royal Society for the Prevention ofAccidents), these included a President's Award for our Industrial Servicesbusiness (having earned 10 consecutive Gold Awards) and Gold Medal Awards forour Project Services and Facilities Services businesses (having earned fiveconsecutive Gold Awards). In addition, both Industrial Services and ProjectServices received International Safety Awards from the British Safety Council.The incidence rate of reportable injuries was further improved in the period aswe made solid progress towards our 2005 targets and objectives.Strategy and OutlookOur strategy is to develop, through long-term relationships, as aninfrastructure and facilities management provider, delivering services at eachstage of the asset lifecycle into a range of end-user environments. We have animpressive breadth of capabilities, delivering tailored solutions for ourclients. Around three-quarters of our revenue is generated from long-term,sustainable sources such as PFI concessions, framework agreements, termmaintenance contracts and repeat business.The UK facilities management market continues to grow at a healthy rate,generating a strong flow of opportunities, particularly in relation to theintegrated, broad-based service offering on which we focus. Future workload inFacilities Services at 30 June was ‚£3.33 billion (H1 2004: ‚£2.69 billion).In Industrial Services the changes we are implementing in the cost and riskprofile, whilst continuing to impact divisional results in the short term, arepositioning us better to access the significant opportunities that thesemarkets offer in terms of growth and quality of earnings. The benefits of anintegrated outsourced solution are increasingly being realised by our potentialclient base as we continue to penetrate new market segments. At the end ofJune, Industrial Services' future workload stood at ‚£680 million (H1 2004: ‚£620million).In addition to a future workload of ‚£845 million (H1 2004: ‚£930 million),Project Services' forward visibility is enhanced through the award of thesignificant framework agreements mentioned above. Our immediate bid pipeline isstrong and our future workload has been further augmented since the end of theperiod with our position as preferred bidder on the 700-place Addiewell prisonPFI project. We continue to enjoy a healthy flow of opportunities in all majorclient segments in the UK, and in the Middle East, based on the growth in ourfuture workload and on the continuing flow of opportunities, the outlookremains positive.Overall, our existing Equipment Services markets continue to offer usattractive growth prospects in both the infrastructure and building sectors,with the outlook particularly favourable in the Middle East. Our strategy is todevelop in new territories and to grow new segments in existing markets.The pipeline of potential PFI opportunities remains strong, with around a thirdof our visible opportunities being generated through this channel to market.The Group continues to make good progress through 2005. We have deliveredstrong earnings growth in the first half of the year from attractive markets.Prospects both in the near and longer term are positive.Adrian RingroseChief Executive12 September 2005* Revenue excluding Works Bills (non-profit throughput on certain MoDcontracts) of ‚£37.7 million (H1 2004: ‚£76.7 million)** Operating profit expressed as a percentage of total revenue excluding WorksBills*** Before dividend of ‚£11.0 million (H1 2004: ‚£10.6 million), investment inPFI of ‚£0.3 million (H1 2004: ‚£0.9 million) and one-off exceptional assetdisposal proceeds of ‚£2.4 million (H1 2004: ‚£2.0 million)UNAUDITED CONSOLIDATED INCOME STATEMENT For the six months ended 30 June 2005 Six months Six months Year ended 31 ended 30 ended 30 June December 2004 June 2005 2004 # # ‚£million ‚£million ‚£million Continuing operations Revenue 609.3 649.6 1,238.2 Operating profit 18.2 15.7 36.7 Share of joint ventures and associated 1.9 1.6 4.5undertakings Profit on sale of property and - 0.1 2.2investments Total operating profit 20.1 17.4 43.4 Investment income 13.4 11.8 24.8 Finance costs (13.6) (13.0) (26.8) Profit before taxation 19.9 16.2 41.4 Taxation (note 4) (6.7) (5.3) (12.1) Profit for the period 13.2 10.9 29.3 Attributable to: Equity holders of the parent 11.9 10.3 27.5 Minority interest 1.3 0.6 1.8 13.2 10.9 29.3 p p p Earnings per share (note 5) Basic 10.5 9.1 24.2 Diluted 10.4 9.0 24.1 Dividend per share (note 6) 4.6 4.4 14.1UNAUDITED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the six months ended 30 June 2005 Six months Six months Year ended 31 ended 30 ended 30 June December 2004 June 2005 2004# # ‚£million ‚£million ‚£million Exchange differences on translation of 2.3 (1.9) (0.4)foreign operations Actuarial (losses) gains on defined (1.1) 17.8 (2.1)benefit pension schemes Losses on cash flow hedges (12.1) - - Gains on revaluation of 17.2 - -available-for-sale financial assets Deferred tax on items taken directly to (1.3) (5.3) 0.6equity Net income (expense) recognised directly 5.0 10.6 (1.9)in equity Profit for the period 13.2 10.9 29.3 Total recognised income and expense for 18.2 21.5 27.4the period Prior period adjustment - adoption of 7.4 - -IAS 39 Prior period adjustment - deferred tax (2.2) - -on adoption of IAS 39 Total recognised income and expense 23.4 21.5 27.4 Attributable to: Equity holders of the parent 22.1 20.9 25.6 Minority interest 1.3 0.6 1.8 23.4 21.5 27.4 # Restated under IFRS (see note 3) UNAUDITED CONSOLIDATED BALANCE SHEET At 30 June 2005 30 June 30 June 2004 31 December 2005 # 2004 # ‚£million ‚£million ‚£million Non-current assets Goodwill 154.3 154.3 154.3 Property, plant and equipment 98.7 85.9 97.3 Interests in joint ventures and 49.9 34.3 39.1associated undertakings Deferred tax asset 30.2 24.5 29.9 333.1 299.0 320.6 Current assets Inventories 16.2 11.9 15.6 Trade and other receivables 259.6 259.2 240.5 Cash and deposits 40.4 38.0 52.6 316.2 309.1 308.7 Total assets 649.3 608.1 629.3 Current liabilities Trade and other payables (322.5) (308.6) (309.7) Unsecured loan notes (3.1) (5.6) (3.9) Bank overdrafts and loans (20.3) (0.5) (20.0) Short-term provisions (0.6) (1.4) (1.5) (346.5) (316.1) (335.1) Net current liabilities (30.3) (7.0) (26.4) Non-current liabilities Trade and other payables (7.8) (7.8) (7.8) Bank loans (39.3) (63.5) (46.3) Retirement benefit obligation (130.2) (109.9) (128.9) Long-term provisions (16.8) (15.9) (16.0) (194.1) (197.1) (199.0) Total liabilities (540.6) (513.2) (534.1) Net assets 108.7 94.9 95.2 EQUITY Share capital 11.4 11.4 11.4 Share premium account 108.6 107.9 107.9 Capital redemption reserve 0.1 0.1 0.1 Acquisition reserve 16.4 16.4 16.4 Hedging and translation reserves 1.9 (1.9) (0.4) Retained earnings (32.2) (39.7) (41.4) Investment in own shares (0.5) (0.5) (0.5) Equity attributable to equity holders of 105.7 93.7 93.5the parent Minority interest 3.0 1.2 1.7 Total equity 108.7 94.9 95.2UNAUDITED CONSOLIDATED RECONCILIATION OF MOVEMENT IN EQUITY For the six months ended 30 June 2005 Six months Six months Year ended 31 ended 30 ended 30 June December 2004 June 2005 2004 # # ‚£million ‚£million ‚£million Profit for the period attributable to 11.9 10.3 27.5equity holders of the parent Exchange differences on translation of 2.3 (1.9) (0.4)foreign operations Actuarial (losses) gains on defined (1.1) 17.8 (2.1)benefit pension schemes Share based payments 0.4 0.1 0.2 Issue of shares 0.7 - - Losses on cash flow hedges (12.1) - - Gains on revaluation of 17.2 - -available-for-sale financial assets Deferred tax on items taken directly to (1.3) (5.3) 0.6equity Equity dividend paid (note 6) (11.0) (10.6) (15.6) Net addition to equity attributable to 7.0 10.4 10.2equity holders of the parent Opening equity attributable to equity 93.5 holders of the parent as previously stated Prior period adjustment - adoption of 7.4 IAS 39 Prior period adjustment - deferred tax (2.2) on adoption of IAS 39 Opening equity attributable to equity 98.7 83.3 83.3holders of the parent restated Equity attributable to equity holders of 105.7 93.7 93.5the parent Minority interest 3.0 1.2 1.7 108.7 94.9 95.2 # Restated under IFRS (see note 3) UNAUDITED CONSOLIDATED CASH FLOW STATEMENT For the six months ended 30 June 2005 Six months Six months Year ended 31 ended 30 December 2004 June 2005 ended 30 June 2004 ‚£million ‚£million ‚£million OPERATING ACTIVITIES Operating profit 20.1 17.4 43.4 Adjustments for: Depreciation of property, plant and 8.0 7.4 15.4equipment Share of results of associates and joint (1.9) (1.6) (4.5)ventures Gain on disposal of investment in joint - - (1.9)venture Non-cash charge relating to share based 0.4 0.1 0.2payments Gain on disposal of property, plant and (1.8) (2.7) (5.7)equipment Currency 0.6 - 0.2 Operating cash flows before movements in 25.4 20.6 47.1working capital Increase in working capital (7.1) (15.4) (3.1) Cash generated by operations 18.3 5.2 44.0 Income taxes paid (6.6) (1.4) (4.9) Net cash from operating activities 11.7 3.8 39.1 INVESTING ACTIVITIES Net interest received (paid) 0.1 (0.4) (0.6) Dividends received from associates 0.7 0.9 2.4 Proceeds on disposal of property, plant 6.9 9.6 14.2and equipment Purchases of property, plant and (12.9) (11.7) (31.7)equipment Investment in joint ventures-PFI (0.3) (0.9) (7.3)investments Disposal of investment in joint venture - - 4.3 Net cash used in investing activities (5.5) (2.5) (18.7) FINANCING ACTIVITIES Dividends paid to equity shareholders (11.0) (10.6) (15.6) Dividends paid to minority shareholders - - (0.8) Issue of shares 0.7 - - (Repayment) drawdown of borrowings (7.6) 13.8 (2.7) Repayments of obligations under finance - (0.1) (0.2)leases Redemption of loan notes (0.8) (0.5) (2.2) Net cash used in investing activities (18.7) 2.6 (21.5) NET (DECREASE) INCREASE IN CASH AND CASH (12.5) 3.9 (1.1)EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING 32.6 33.7 33.7OF PERIOD Effect of foreign exchange rate changes - (0.1) - CASH AND CASH EQUIVALENTS AT END OF 20.1 37.5 32.6PERIOD Cash and cash equivalents comprise Cash and deposits 40.4 38.0 52.6 Bank overdrafts and loans (20.3) (0.5) (20.0) 20.1 37.5 32.6 Reconciliation of net cash flow to movement in net debt Net (reduction) increase in cash and (12.5) 3.9 (1.1)cash equivalents Decrease (increase) in borrowings 7.6 (13.8) 2.7 Repayments of obligations under finance - 0.1 0.2leases Redemption of loan notes 0.8 0.5 2.2 Change in net debt resulting from cash (4.1) (9.3) 4.0flows Effect of foreign exchange rate changes (0.6) - 0.7 Movement in net debt during the period (4.7) (9.3) 4.7 Net debt - opening (17.8) (22.5) (22.5) Net debt - closing (22.5) (31.8) (17.8) UNAUDITED SEGMENTAL ANALYSIS For the six months ended 30 June 2005 The revenue, total operating result and net assets attributable to the different classes of the Group's business are: Revenue (external) Six months Six months Year ended 31 ended 30 ended 30 December 2004 # June 2005 June 2004 # ‚£million ‚£million ‚£million By business segment: Facilities Services 218.6 238.6 440.7 Industrial Services 79.4 85.4 164.5 Project Services 257.4 285.6 545.3 Equipment Services 53.9 40.0 87.7 609.3 649.6 1,238.2 Joint ventures - PFI investments - - - Group Services - - - 609.3 649.6 1,238.2 By geographical segment: United Kingdom 564.1 618.8 1,168.3 Rest of Europe 9.8 8.7 17.0 Middle East & Africa 16.6 4.0 14.5 Australasia 13.0 13.6 27.7 Far East 4.7 3.9 9.2 South America 1.1 0.6 1.5 609.3 649.6 1,238.2 Joint ventures - PFI investments - - - Group Services - - - 609.3 649.6 1,238.2(i) Facilities Services revenue includes ‚£37.7m in respect of works bills (30.6.04: ‚£76.7m; 31.12.04 ‚£114.5m). Works bills are costs relating to services and materials procured on behalf of the Ministry of Defence on which no margin is allowed but for which a management fee is received. (ii) Inter-segment revenue is not material and has been excluded from the above figures. The segmental analyses of revenue are stated by source and there is no material difference from analysis by destination. # Restated under IFRS (see note 3) and for inclusion of the UK defined benefit pension scheme cost within the operating segments. Total operating profit Six months Six months Year ended 31 ended 30 ended 30 December 2004 June 2005 June 2004 # # ‚£million ‚£million ‚£million By business segment: Facilities Services 6.8 5.5 12.8 Industrial Services 4.3 4.6 10.1 Project Services 6.8 6.1 15.1 Equipment Services 8.8 6.1 14.6 26.7 22.3 52.6 Joint ventures - PFI investments 0.3 0.3 0.6 Group Services (6.9) (5.2) (9.8) 20.1 17.4 43.4 By geographical segment: United Kingdom 14.8 15.0 33.0 Rest of Europe 1.2 0.9 1.5 Middle East & Africa 7.7 2.8 10.3 Australasia 3.1 4.8 8.5 Far East (0.4) (1.2) (0.9) South America 0.3 - 0.2 26.7 22.3 52.6 Joint ventures - PFI investments 0.3 0.3 0.6 Group Services (6.9) (5.2) (9.8) 20.1 17.4 43.4# Restated under IFRS (see note 3) and for inclusion of the UK defined benefit pension scheme cost within the operating segments. Net Assets (excluding minority interest) 30 June 2005 30 June 2004 31 December # 2004 # ‚£million ‚£million ‚£million By business segment: Facilities Services (86.7) (75.5) (75.9) Industrial Services 40.0 45.0 32.6 Project Services (94.8) (68.5) (95.4) Equipment Services 88.6 68.0 82.3 (52.9) (31.0) (56.4) Joint ventures - PFI investments 36.3 22.7 26.9 Group Services (9.5) (20.5) (13.5) (26.1) (28.8) (43.0) Goodwill 154.3 154.3 154.3 Net debt (22.5) (31.8) (17.8) 105.7 93.7 93.5 By geographic segment: United Kingdom (128.4) (89.2) (127.9) Rest of Europe 13.5 12.2 14.9 Middle East & Africa 19.6 12.3 14.0 Australasia 21.4 13.9 19.9 Far East 17.2 17.2 19.6 South America 3.8 2.6 3.1 (52.9) (31.0) (56.4) Joint ventures - PFI investments 36.3 22.7 26.9 Group Services (9.5) (20.5) (13.5) (26.1) (28.8) (43.0) Goodwill 154.3 154.3 154.3 Net debt (22.5) (31.8) (17.8) 105.7 93.7 93.5# Restated under IFRS (see note 3) and for inclusion of the UK defined benefit pension scheme cost within the operating segments. NOTES TO THE UNAUDITED INTERIM RESULTS For the six months ended 30 June 2005 1 General information The information for the year ended 31 December 2004 does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. The interim results for the six months ended 30 June 2005, and the six months ended 30 June 2004, have been reviewed but have not been audited. The financial information set out in these statements does not constitute full accounts as defined by section 240 of the Companies Act 1985. 2 Accounting policies The interim financial report has been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Other than the additional accounting policy noted below, the same accounting policies and methods of computation are followed in the interim financial statements as published by the company on 7th June 2005, which are available on the company's website at www.interserveplc.co.uk. The accounting policies used in the interim financial statements are consistent with those that the Directors intend to use in the annual financial statements, but some changes to these policies may be necessary if there are changes to IFRIC's draft interpretations on service concessions or those standards yet to be endorsed by the European Commission. During the period the Group adopted IAS 39 "Financial Instruments: Recognition and Measurement" and IAS 32 "Financial Instruments: Disclosure and Presentation". The Group has taken advantage of the exemption in IFRS 1 that enabled the Group to apply these standards from 1 January 2005 - accordingly comparatives are not restated. The effect of adopting IAS 32 and IAS 39, following the fair valuing of certain of the Group's financial assets and derivatives, is to increase shareholders' funds at 1 January 2005 by ‚£5.2m (net of deferred tax) and to introduce the following accounting policy: Financial Instruments Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. Transactions in derivative financial instruments are for risk management purposes only. The Group uses derivative financial instruments to hedge its exposure to interest rate and foreign currency risk. To the extent that such instruments are matched to underlying assets or liabilities, they are accounted for using hedge accounting. Changes in fair value of derivative instruments that are designated and effective as hedges of future cash flows are recognised directly in equity and the ineffective portion is recognised immediately in the income statement. If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of an asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had been previously recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognised in the income statement in the same period in which the hedged item affects net profit or loss. Changes in fair value of derivative instruments that do not qualify for hedge accounting are recognised in the income statement as they arise. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not carried at fair value. Gains and losses arising from changes in fair value of available-for-sale financial assets are recognised directly in equity, until the asset is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the period. From 1 January 2005 onwards, assets constructed by PFI concession companies are classified as available-for-sale financial assets. 3 Explanation of transition to IFRS This is the first year that the company has presented its financial statements under IFRS. The last financial statements under UK GAAP were for the year ended 31 December 2004 and the date of transition to IFRSs was therefore 1 January 2004. Reconciliations of equity at 30 June 2004 and at 31 December 2004 and profit and loss for the six months to 30 June 2004 and the 12 months to 31 December 2004 are available on the company's website at www.interserveplc.co.uk or from the Registered Office. 4 Taxation Six months Six months Year ended 31 ended 30 ended 30 December 2004 June 2005 June 2004 ‚£million ‚£million ‚£million UK taxation 5.1 3.0 7.6 Overseas taxation 1.6 1.8 3.4 Deferred taxation - 0.5 1.1 6.7 5.3 12.1 Corporation tax for the interim period is charged at 33.5% (2004: 32.7%), representing the best estimate of the weighted average annual corporation tax rate expected for the full financial year. In addition to the amount charged to the income statement, deferred tax of ‚£1.3m has been charged directly to equity (‚£0.3m credit relating to actuarial losses on the Group's defined benefit pension scheme and ‚£1.6m charge relating to fair value adjustments on interest rate swaps and available-for-sale financial assets within the Group's PFI special purpose companies). 5 Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: EARNINGS Six months Six months Year ended 31 ended 30 ended 30 December 2004 June 2005 June 2004 ‚£million ‚£million ‚£million Earnings for the purposes of basic 11.9 10.3 27.5 earnings per share being net profit attributable to equity holders of the parent Less: profit on sale of property and - (0.1) (2.2) investments Less: IAS 39 fair value adjustment 0.1 - - Tax effect on above adjustments - - 0.7 Headline earnings 12.0 10.2 26.0 Earnings for the purposes of diluted 11.9 10.3 27.5 earnings per share NUMBER OF SHARES Six months Six months Year ended 31 ended 30 ended 30 December 2004 June 2005 June 2004 Number Number Number Weighted average number of ordinary 113,866,615 113,756,332 113,756,332 shares for the purposes of basic / headline earnings per share Effect of dilutive potential ordinary shares: Share options 728,834 63,416 277,004 Weighted average number of ordinary 114,595,449 113,819,748 114,033,336 shares for the purposes of diluted earnings per share p p p Headline earnings per share 10.5 9.0 22.9 Basic earnings per share 10.5 9.1 24.2 Diluted earnings per share 10.4 9.0 24.1 6 Dividends Six months Six months Year ended 31 ended 30 ended 30 December 2004 June 2005 June 2004 Final dividend for the year ended 31 11.0 10.6 10.6 December 2004 of 9.7p (2003: 9.3p) per share Interim dividend for the year ended - - 5.0 31 December 2004 of 4.4p per share Amount recognised as distribution to 11.0 10.6 15.6 equity holders in the period The proposed interim dividend of 4.6p per share, amounting to ‚£5.2m, was approved by the Board on 12 September 2005 and has not been included as a liability as at 30 June 2005. 7 Share capital During the period 316,700 ordinary shares of 10p each were issued for a cash consideration of ‚£0.7m to participants in the Executive Share Option Scheme (2004: none). 8 The interim statement is being sent to all shareholders and copies will be available for members of the public at the Company's registered office. ENDINTERSERVE PLCRelated Shares:
Interserve