INTERIM MANAGEMENT REPORT

Transcription

1 09 August 2017 INTERIM MANAGEMENT REPORT CHAIRMAN S STATEMENT Interserve s performance in the first half of 2017 was achieved against a background of challenging market conditions, regulatory and political changes and expected cost headwinds. In our Exited Energy from Waste business we are making progress on all projects. Overall we continue to believe the provision taken in 2016 remains appropriate, although significant risks and uncertainties remain. Board changes This has been a period of transition and I am grateful for Adrian s ongoing hard work and commitment in advance of Debbie White s arrival as our new Chief Executive on 1 September. In June, we announced that Group Finance Director, Tim Haywood, is to step down from the Board in September and will leave the business at the end of November. I d like to thank Tim for his significant contribution to the business over the past seven years and wish him well for the future. The process to identify Tim s replacement is underway and we will make a further announcement on this in due course. People In spite of recent challenges, when I meet Interserve employees I am always encouraged by the enthusiasm and positive attitude I encounter and on behalf of the Board, I d like to take this opportunity to thank our people for their continuing hard work and dedication. Outlook In the UK, we expect actions taken in the first half, both in construction and support services to lead to a better performance in the second half. In the Middle East, we see the outlook in the region as broadly favourable, notwithstanding the potential impact on general economic activity in the region of continuing political tensions between Qatar and other GCC states. Construction International has made good progress, while the actions we have taken to reduce our cost base in Support Services International has created a smaller but more resilient business. We expect our global Equipment Services business will continue to perform well in the second half of the year. Glyn Barker, Chairman 9 August 2017

2 BUSINESS REVIEW The Group delivered a resilient performance in the first half of the year against the backdrop of mixed trading conditions and increasing uncertainty in a number of markets. Revenue was stable at 1.6 billion (H1 2016: 1.6 billion) although headline total operating profit was 46.1 million (H1 2016: 64.3 million), reflecting the impact of cost headwinds absorbed and restructuring actions taken in the period. In the UK, Support Services generated stable revenues, although profitability was impacted by a number of anticipated regulation-driven cost headwinds, the upfront costs associated with further efficiency improvements and by the phasing of profit recognition during the early stages of mobilisation of major new contracts. Construction UK continues to face an ongoing period of challenging market conditions which, coupled with areas of underperformance in operational delivery on a small number of contracts, resulted in a small loss for the division. We expect the restructuring and cost reduction measures we have taken in recent months to benefit both divisions performance during the second half of the year and beyond. In our Exited Energy from Waste business we are making progress on all projects. Overall we continue to believe the provision taken in 2016 remains appropriate, although significant risks and uncertainties remain. Internationally, we performed well in construction throughout the Middle East with Support Services International returning a modest profit, as a result of cost reduction actions taken in the second half of Equipment Services produced another strong and geographically broad-based performance, driven by focussed expansion and selective new product and fleet investment together with rationalisation of under-performing business units. Results summary H H Revenue 1,647.7m 1,632.9m Headline total operating profit 46.1m 64.3m 1 Gross operating cash flow 8.1m 129.7m 1 Headline Earnings per share 21.5p 32.3p 1 H bn YE bn Future Workload excl Exited Business Net debt 387.5m 274.4m 1 As restated

3 DIVISIONAL REVIEW We segment our results into three main areas of service Support Services, Construction and Equipment Services each of which is supported by central Group Services. SUPPORT SERVICES Support Services focuses on the management and delivery of outsourced operational activities, including facilities management, a broad range of process - and accommodationrelated services and services direct to the citizen. Our customer base is comprised of both public and private-sector organisations in the UK and overseas. Operations in mainland Europe, which are managed from the UK, are disclosed under Support Services UK. Results summary H H Revenue - UK (consolidated 897.5m 899.3m revenue) - International (incl share of associates) 102.3m 147.2m Contribution to total operating profit 29.0m 43.2m - UK 28.1m 36.7m - International 0.9m 6.5m Operating margin (UK) 3.1% 4.1% Operating margin 1.2% 4.5% (International)* Future workload H YE UK 5.6bn 5.7bn - International 207m 192m (including share of associates) *Blended underlying margins of associates and subsidiaries Support Services UK Revenue was stable at million, reflecting the hiatus in government procurement around the 2016 EU referendum and this year s General Election as well as our increased margin discipline and selectivity in the work we bid for. As expected, operating profit was impacted by new regulatory-driven cost including an additional three months of impact of the National Minimum Wage increases (introduced in April 2016), the Apprenticeship Levy, increased IAS 19 pension service charges and changes to the application of holiday pay and travelling time on our large workforce. Profits were also impacted by a number of large contract mobilisations and some underperforming accounts which are being remedied through contract improvement programmes. We have taken a range of actions to mitigate the impact of these factors and to enhance our operational efficiency through investing further in automation and technology. We expect to realise the benefits to profitability of these actions during the second half of the year. We continue to maintain strong revenue visibility through our order book ( 5.6 billion in UK Support Services) and are encouraged by the levels of contract bidding opportunities we are now starting to see across our core markets, as clients continue to look to outsource work to offset their own rising costs and to conclude procurement activity that had stalled during the recent political hiatus.

4 We reinforced our position as one of the Ministry of Defence s largest infrastructure partners during the period, winning a two-year contract extension worth up to 265 million to continue as the infrastructure support provider for four overseas UK Armed Forces bases (in the Falkland Islands and Ascension Island in the South Atlantic Ocean, as well as Gibraltar and Cyprus in the Mediterranean). We were also awarded a one-year contract extension to provide total facilities management services to the Ministry of Justice (MoJ) worth 16 million, building upon our longstanding and wide-ranging relationship with the MoJ, which has seen us provide facilities and probation services to the department for a number of years. In the transport sector we secured a further five-year facilities management contract with Network Rail worth 65 million. We will deliver a range of facilities services across 11 of Network Rail s managed stations in London, Reading and Bristol, which include eight of the UK s 10 busiest stations. The new contract, which will be delivered by a single provider for the first time, builds upon Interserve s existing relationship with Network Rail, which has included providing cleaning services across the organisation s estate for the last five years. We continued to develop our growing frontline public-services business during the period by investing further in our learning and skills division to maximise the opportunities presented by the Apprenticeship Levy and expect to build on recent contract wins with BT Group, Stagecoach Group, Grafton and Unilever, during the second half. Our capability in designing, delivering and evaluating apprenticeship training within our learning and skills business is now playing an increasingly valuable role as higher employment costs and regulatory requirements drive employers to invest more in training and skills, either to defray their Apprenticeship Levy or to gain additional productivity from an increasingly costly workforce. In the justice sector, we were named as preferred bidder to run a range of employment training schemes at Wrexham s HMP Berwyn, where inmates can improve their skills, employability and qualifications to ensure they are work-ready when they are released. Support Services International Internationally, we provide outsourced services in sectors such as hospitality, leisure, education, defence, retail and oil and gas across the Middle East region. In the face of reductions in client spending during 2016 we took decisive action to address the cost base in our oil and gas operations, which form the majority of the divisional activities. As a result of this, and despite volumes falling a further 20 per cent since the second half of 2016, we returned to profit, delivering 0.9 million of operating profit (H million loss). Market conditions in the Middle East facilities management market in which we delivered a small profit during the period - are more favourable, enabling us to leverage our extensive UK experience and longstanding customer relationships in the region. This was exemplified in the period through securing a 34 million facilities management contract with Musanada, which delivers maintenance and infrastructure projects for the Abu Dhabi government. We also won a 10 million contract to provide facilities management services at Qatar s Doha Festival City Mall and a 5 million support services contract with Emirates Aluminium. The division s future workload at the end of June was up 8 per cent at 207 million (YE 2016: 192 million).

5 CONSTRUCTION We provide advice, design, construction and fit-out services for buildings and infrastructure. Our focus is on forming long-term relationships, developing sector expertise and delivering repeat business, predominantly through framework agreements. Results summary H H Revenue 1 - International (share of 145.3m 141.0m associates) - UK (consolidated revenue) 536.2m 468.3m Contribution to total operating profit 1 6.3m 10.5m - International 8.3m 6.0m - UK ongoing business ( 2.0m) 4.5m Operating margin International 2 5.8% 3.9% UK -0.4% 1.0% Future workload H YE International (share of 302m 365m associates) - UK 1.1bn 1.3bn 1 Excludes Exited Business 2 Underlying margins of associates Construction International Our associate businesses in the Middle East grew well with contribution to operating profit increasing by 38 per cent to 8.3 million (H1 2016: 6.0 million) while margins strengthened to 5.8 per cent, above both our 2016 half-year (3.9 per cent) and 2016 full-year (5.5 per cent) margins. Work-winning during the period remained resilient, especially in Dubai s hospitality sector where we won refurbishment and fit-out contracts worth c 80 million with the Jumeirah Group (Jumeirah Beach Hotel) and Dubai Properties (Double Tree Hilton). In Qatar, we won a 102 million contract to build a range of substations and continue to make good progress (with our joint-venture partner ALEC) in delivering Doha Festival City. The recent political developments in the region have led to some isolated project deferrals in Qatar and remain a clear risk to the business that could impact during the second half of the year and beyond. We continue to monitor the situation closely and prepare contingency plans for our people and our operations in the region. During the period we won contracts for civil and building works for the new 445 MW combined power plant in Oman for SEPCO and for 74 million worth of buildings, civils and underground piping work on the Liwa Plastics project, which is part-funded with the support of UK Export Finance.

6 Construction UK The continuation of a long period of challenging market conditions, coupled with areas of underperformance in operational delivery on a small number of contracts, resulted in a 2.0 million net loss for the UK Construction business. In response to these difficulties and those involving the Exited Business (reported separately, below), we have made further management, systems, procedural and other organisational changes across the division to enhance our financial and commercial controls and reporting. As well as further strengthening operational controls, we have also narrowed our strategic focus, restricting work winning activity to core sectors and activities and have refined our risk appetite in new work that we take on. As such, we anticipate an improved performance in the second half of the year and beyond as older, less favourable contracts are completed. Our future workload fell by 0.2 billion during the period, reflecting the recalibration of our risk appetite and our selective approach to the work that we take on. We expect to see the workload reduction feed into more modest revenue from 2018 onwards. The substantial majority of our UK Construction activity is now focused on projects with an average value of less than 10 million, constructing a range of buildings and infrastructure, plus selective larger contracts within our core competences, such as the Defence National Rehabilitation Centre, which is progressing well. Our operating model combines a strong regional presence and exposure to framework agreements with infrastructure and public-sector customers, in sectors such as defence, education and healthcare, along with a growing presence in fit-out markets. While we expect this business to be smaller in the future, we are encouraged by the evolution of our forward order book, with an increasing emphasis on higher quality, repeat business within our core competence, as evidenced by our success in winning work in the education and health sectors two of our most important and established markets. We won contracts with an average value of c 20 million to build four schools in Yorkshire and Wales and secured a place on a new construction framework launched by specialist healthcare property company, Prime, and Yeovil District Hospital NHS Foundation Trust (YDH). This continues our 15-year role on UK health frameworks, through which we have delivered over 1 billion of diverse healthcare facilities across more than 250 projects, including the UK s first Proton Beam therapy unit, currently under construction at The Christie in Manchester. Exited Business Work on our remaining Energy from Waste projects is progressing albeit with some delays. We expect to complete substantially the construction of the projects in the first half of Overall we continue to believe the provision taken in 2016 remains appropriate, although significant risks and uncertainties remain. During the period, the Waste Treatment Centre we are building in Derby started accepting the first loads of waste, which marks the start of testing the facility.

7 EQUIPMENT SERVICES Equipment Services, which trades globally as RMD Kwikform (RMDK), provides engineering solutions in the specialist field of temporary structures needed to deliver major infrastructure and building projects. Our engineers solve complex problems for our customers through the application of world-class design and logistics capabilities, backed up by technology and fulfilled through an extensive fleet of specialist equipment. Results summary 1 H H Revenue 111.0m 108.0m 2 Contribution to Total operating profit 24.9m 24.9m 2 Margin 22.4% 23.1% 1 Excluding exited geographies 2 As restated Equipment Services performed well during the first half, matching the record performance delivered during the first half of 2016, achieved through geographic expansion, engineering excellence, product innovation and fleet investment over the last few years. Further investment was made in people, technology and systems in the period that will help to drive the next phase of growth in the business and the evolution of our engineering and technology-led customer proposition. Margins remained well above 20 per cent, reflecting healthy demand, strong pricing and market positioning across the broad range of global infrastructure markets in which we operate. The division continues to have good momentum across its international markets, particularly the Far East, Middle East and UK. In Asia-Pacific, we delivered strong performances in Hong Kong and the Philippines, driven by our ongoing work on large-scale infrastructure projects, including the Kowloon Rail Terminus, the Hong Kong Macau Bridge and the Manila Bay Development. We again performed well in the Middle East, with demand continuing to grow in the UAE, where we won work on the Dubai Ports Bridge project and in Saudi Arabia, where we continue to work on the Riyadh Metro scheme. We delivered a strong performance in the UK, with work on several ongoing major projects continued, including the Mersey Gateway Bridge, the Medway crossing and Defence National Rehabilitation Centre. Work also continues on sizeable rail improvement projects in Reading and on the Stockley Viaduct project near Heathrow airport. As part of our ongoing improvement programme we have invested further in innovation and new product development. As part of this we have launched new products within the UK ground shoring market, which are performing well, while we have also rolled out further new technologies to our global sales teams. Additionally, we have made good progress with the restructuring of our operational footprint, and have exited two of our smaller, less attractive markets. The remaining markets selected for closure are expected to be exited by the end of the year. GROUP SERVICES All central costs and income, including those related to our financing, central bidding and asset management activities are disclosed within the Group Services segment.

8 Group Services costs during the period were 14.1 million (H1 2016: 14.3 million), reflecting the ongoing investment in back-office capabilities, IT infrastructure, people development and communications. OUTLOOK UK We expect Support Services to deliver a stronger second half performance than the usual seasonal weighting following the actions we have taken to reduce the division s cost base, which include headcount reductions, increased automation of back-office tasks and increased profit contributions from mobilised contracts. In Construction, we expect the management, systems, procedural and other organisational changes that we have implemented across the division in recent months coupled with our more selective and risk averse approach to the work we take on to return the division to profitability in the second half of the year and beyond. International We expect Equipment Services to continue to perform well in the second half of the year, helped by our improved fleet utilisation and capital efficiency and the continued impact of actions arising from our improvement programme. In the Middle East, the oil and gas market slowdown, the impact of which was witnessed by Support Services International in the second half of 2016, is likely to continue to dampen volumes during the second half of the year. However, we believe the mitigating actions we have taken on our cost base has created a smaller, more resilient business, which can deliver a profit in a market where volumes are suppressed, while being agile enough to react when market conditions improve. Current trading conditions are positive and the outlook in the region s construction market is broadly favourable, with a less certain near-term outlook in Qatar given recent political events in the region. However, strategic development plans such as the UAE s plans for Expo 2020 and the ongoing need for infrastructure development, to keep pace with rapid population growth across the Gulf, all continue to stimulate activity.

9 NET DEBT AND OPERATING CASHFLOW Net debt at 30 June was million. Aggregate bank facilities were extended in February 2017, as previously disclosed in our 2016 annual report, and stand at 640 million with a weighted average expiry of April 2022.The key covenant of net debt to EBITDA stood at 2.5x (max 3x). Covenant compliance is measured on 30 June and 31 December each year. Average net debt, measured as an average of month end net debt balances, was million for the first six months of The average for the full 12 months of 2017 is expected to be in the range of 475 million to 500million. This compares to our previous guidance of c 450 million, the movement being driven principally by revised timing assumptions on insurance receipts in the Exited business and by working capital investment in major public sector outsourcing contracts. Year-end 2017 net debt is expected to be in the range of 400 million- 425 million. million H H Total operating profit before exceptional items and amortisation of intangible assets Depreciation & other amortisation EBITDA Net capex (14.4) (13.8) Dividends in (deficit) / excess of JVA profits (1.0) 5.4 Working capital movements (34.8) 60.2 Other (11.4) (4.1) Gross operating cash flow Exited business (Energy from Waste) (67.1) (52.8) Gross operating cash flow incl Exited business (59.0) 76.9 Pension contributions in excess of income (8.1) (10.6) statement charge Tax & interest (12.7) (13.9) Investments (31.4) 3.8 Dividends paid to equity shareholders 0.0 (23.7) Other (1.9) 0.7 Movement in net debt (113.1) 33.2 Net capex was 14.4 million in the period. We continue to invest in both our back-office IT and front-office operational systems and expect to see the efficiency benefits of this coming through from the second half of 2017 onwards. We generated a net 6.7 million of cash from hire fleet disposals whilst continuing to grow the business as the actions of our strategic review continue to drive increased utilisation and efficiency. Following an exceptionally strong year for cash repatriation in 2016 the 2017 dividends returned from JVAs more closely mirrored profit generated.

10 Working capital outflow of 34.8 million in 2017, excluding Exited Businesses, predominantly reflects an increase in Group receivables. Significant contract mobilisations in our UK Support Services business lead to a temporary increase in debt and WIP as contract procedures bedded in; we expect this to be reversed in the second half of This was paired with slower than expected cash receipts in our Saudi education business, where the timing of Eid holidays delayed period-end cash collections. Within the exited Energy from Waste business we incurred cash outflows of 67.1 million in the first half with the costs of completing our construction obligations in line with our earlier expectations. We continue to prepare and pursue a number of material insurance claims and the net cash profile of the Exited business remains sensitive to the timing of any cash receipts on these. Our approach continues to be to prioritise the quality and strength of our case rather than seeking a quick cash settlement. This has led to slower receipt of cash during the first half of Albeit we have received some cash in from insurance claims and expect additional significant inflows in the second half of 2017, we anticipate aggregate net outflows of c 25 million in the second half of the year. We expect net cash inflows in 2018 as commercial matters on the portfolio of contracts begin to conclude. Joint venture investments of 31.4 million comprise planned equity injections into Derby Waste and a further investment into our Haymarket development. 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 26 to 29 of the Strategic Report included in the Group's 2016 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 deliver 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 to manage health and safety adequately. The financial risks discussed in the Financial Review on pages 30 to 36 of the Group's 2016 Annual Report and Financial Statements. Damage to reputation resulting from issues arising within contracts, the management of our business and its IT systems or the behaviour of our employees. Environmental change which could have uncertain implications for our business and for many of our customers. The Group continues to have no material exposure to currency risks. Whilst it does not trade in commodities, the Group operates in countries where their economies depend upon commodity extraction and are therefore subject to volatility in commodity prices. The Group's principal businesses operate in countries which we regard as politically stable.

11 AUDITOR Grant Thornton UK LLP has been the Group's auditor since Reappointment will be subject to approval by the shareholders at the next general meeting. RESPONSIBILITY STATEMENT A list of current directors and their functions is maintained on the Group website at 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; 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 Guidance and Transparency Rules of the Financial Conduct 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 Chief Executive Tim Haywood Group Finance Director 09 August 2017

12 Unaudited condensed consolidated income statement For the six months ended 30 June 2017 Continuing operations Six months ended 30 June 2017 Six months ended 30 June 2016 Year ended 31 December 2016 Before exceptional items and amortisation of acquired Exceptional items and amortisation of acquired Before exceptional items and amortisation of acquired Exceptional items and amortisation of acquired Before exceptional items and amortisation of acquired Exceptional items and amortisation of acquired intangible intangible intangible intangible intangible intangible assets assets assets assets assets assets (note 4) Total (note 4) Total (note 4) Total restated # restated # million million million million million million million million million Revenue including share of associates and joint ventures 1, , , , , ,685.2 Less: Share of associates and joint ventures (233.2) - (233.2) (220.7) - (220.7) (440.6) - (440.6) Consolidated revenue 1, , , , , ,244.6 Cost of sales (1,408.7) (35.1) (1,443.8) (1,338.1) (139.0) (1,477.1) (2,713.7) (253.1) (2,966.8) Gross profit/(loss) (74.8) (157.8) Administration expenses (167.3) (1.6) (168.9) (175.6) 1.4 (174.2) (334.0) (12.9) (346.9) Amortisation of acquired intangible assets - (11.4) (11.4) - (15.5) (15.5) - (29.8) (29.8) Total administration expenses (167.3) (13.0) (180.3) (175.6) (14.1) (189.7) (334.0) (42.7) (376.7) Operating profit/(loss) 35.1 (11.5) (88.9) (33.9) (200.5) (98.9) Share of result of associates and joint ventures Amortisation of acquired intangible assets - (0.1) (0.1) - (0.1) (0.1) - (0.1) (0.1) Total share of result of associates and joint ventures 11.0 (0.1) (0.1) (0.1) 22.5 Total operating profit/(loss) 46.1 (11.6) (89.0) (24.7) (200.6) (76.4) Investment revenue Finance costs (11.9) - (11.9) (11.6) - (11.6) (23.3) - (23.3) Profit/(loss) before tax 36.5 (11.6) (89.0) (33.8) (200.6) (94.1) Tax (charge)/credit (note 5) (4.2) 1.9 (2.3) (6.8) 4.9 (1.9) (12.2) 4.7 (7.5) Profit/(loss) for the period 32.3 (9.7) (84.1) (35.7) 94.3 (195.9) (101.6) Attributable to: Equity holders of the parent 31.3 (9.7) (84.1) (37.1) 92.2 (195.9) (103.7) Non-controlling interests (9.7) (84.1) (35.7) 94.3 (195.9) (101.6) Six months Six months Year ended ended ended 30 June 30 June 31 December pence pence pence Earnings per share (note 7) Basic 14.8 (25.5) (71.2) Diluted 14.8 (25.5) (71.2) #See note 2

13 Unaudited condensed consolidated statement of comprehensive income For the six months ended 30 June 2017 Six months Six months Year ended ended ended 30 June 30 June 31 December million million million Profit/(loss) for the period 22.6 (35.7) (101.6) Items that will not be reclassified subsequently to profit or loss: Actuarial gains/(losses) on defined benefit pension schemes - (53.8) (90.2) Deferred tax on above items taken directly to equity (note 5) (43.0) (74.9) Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign operations (17.9) Gains/(losses) on cash flow hedging instruments (excluding joint ventures) (12.2) Recycling of cash flow hedge reserve to profit and loss account 15.1 (25.1) (48.4) Deferred tax on above items taken directly to equity (note 5) (0.5) (1.3) 0.9 Net impact of Items relating to joint-venture entities 0.2 (3.6) (5.3) (15.3) Other comprehensive income/(expense) net of tax (15.3) (2.9) (18.0) Total comprehensive income/(expense) 7.3 (38.6) (119.6) Attributable to: Equity holders of the parent 6.3 (40.2) (122.0) Non-controlling interests (38.6) (119.6) #See note 2

14 Unaudited condensed consolidated balance sheet At 30 June June June December 2016 million million million Non-current assets Goodwill Other intangible assets Property, plant and equipment Interests in joint-venture entities Interests in associated undertakings Deferred tax asset Current assets Inventories Trade and other receivables Derivative financial instruments Cash and deposits , Total assets 1, , ,851.2 Current liabilities Bank overdrafts (10.1) (5.6) (11.1) Trade and other payables (834.9) (818.9) (899.3) Current tax liabilities (1.7) (3.9) (2.6) Short-term provisions (26.6) (39.8) (21.8) (873.3) (868.2) (934.8) Net current assets Non-current liabilities Borrowings (589.3) (436.2) (449.4) Trade and other payables (13.8) (16.1) (16.6) Long-term provisions (43.4) (49.1) (42.9) Retirement benefit obligation (note 10) (44.9) (25.5) (52.4) (691.4) (526.9) (561.3) Total liabilities (1,564.7) (1,395.1) (1,496.1) Net assets Equity Share capital Share premium account Capital redemption reserve Merger reserve Hedging and revaluation reserve (6.2) 3.2 (8.8) Translation reserve Investment in own shares (1.9) (2.4) (1.9) Retained earnings (9.4) Equity attributable to equity holders of the parent Non-controlling interests Total equity

15 Unaudited condensed consolidated statement of changes in equity For the six months ended 30 June 2017 Attributable Capital Investment to equity Non- Share Share redemption Merger Hedging and revaluation Translation in own Retained holders of controlling capital premium reserve reserve 1 reserve 2 reserve shares 3 earnings the parent interests Total million million million million million million million million million million million Balance at 31 December (1.5) Profit for the period (37.1) (37.1) 1.4 (35.7) Other comprehensive income (42.9) (3.1) 0.2 (2.9) Total comprehensive income (80.0) (40.2) 1.6 (38.6) Dividends paid (note 6) (23.7) (23.7) (1.0) (24.7) Shares Issued Purchase of Company shares (0.9) - (0.9) - (0.9) Company shares used to settle share-based payments Share-based payments Transactions with owners (0.9) (23.2) (24.0) (1.0) (25.0) Balance at 30 June (2.4) Profit for the period (66.6) (66.6) 0.7 (65.9) Other comprehensive income (12.0) (32.0) (15.2) 0.1 (15.1) Total comprehensive income (12.0) (98.6) (81.8) 0.8 (81.0) Dividends paid (note 6) (11.8) (11.8) (0.6) (12.4) Purchase of Company shares Company shares used to settle share-based payments (0.5) (0.5) - (0.5) Share-based payments (0.5) (0.5) - (0.5) Transactions with owners (12.8) (12.3) (0.6) (12.9) Balance at 31 December (8.8) (1.9) (9.4) Profit for the period Other comprehensive income (17.9) - - (15.3) - (15.3) Total comprehensive income (17.9) Dividends paid (note 6) Purchase of Company shares Company shares used to settle share-based payments Share-based payments (1.3) (1.3) - (1.3) Transactions with owners (1.3) (1.3) - (1.3) Balance at 30 June (6.2) 91.8 (1.9) The million merger reserve represents 16.4 million premium on the shares issued on the acquisition of Robert M. Douglas Holdings Plc in 1991, 32.6 million premium on the shares issued on the acquisition of MacLellan Group Plc in 2006 and 72.4 million premium on the shares placed on the acquisition of Initial Facilities in The hedging and revaluation reserve includes 21.9 million relating to the revaluation of available-for-sale financial assets within the joint ventures ( 19.9 million at December 2015 and 24.1 million at 30 June 2016). 3 The investment in own shares reserve represents the cost of shares in Interserve Plc held by the trustees of the Interserve Employee Benefit Trust. The market value of these shares at 30 June 2016 was 1.1 million ( 1.6 million at 31 December 2016 and 1.8 million at 30 June 2016).

16 Unaudited condensed consolidated statement of cash flows For the six months ended 30 June 2017 Six months Six months Year ended ended 30 June 2017 ended 30 June December 2016 million million restated # million Operating activities Total operating profit/(loss) 34.5 (24.7) (76.4) Adjustments for: Amortisation of acquired intangible assets Amortisation of capitalised software development Depreciation of property, plant and equipment Pension payments in excess of income statement charge (8.1) (10.6) (19.5) Share of results of associates and joint-venture entities (10.9) (9.2) (22.5) (Credit)/Charge relating to share-based payments (1.3) 2.9 (0.2) Gain on disposal of plant and equipment hire fleet (10.0) (6.9) (16.0) Operating cash flows before movements in working capital 39.2 (15.3) (65.8) (Increase)/decrease in inventories (Increase)/decrease in receivables (46.5) Increase/(decrease) in payables (55.8) Cash generated by operations before changes in hire fleet (62.7) Capital expenditure - hire fleet (6.4) (16.5) (30.9) Proceeds on disposal of plant and equipment - hire fleet Cash generated by operations (56.0) Cash used by operations - Energy from Waste exited business (67.1) (52.8) (116.9) Cash used by operations - strategic review of Equipment Services (0.1) (1.4) (7.7) Cash generated by operations - ongoing business Taxes paid (3.7) (4.3) (10.2) Net cash from operating activities (59.7) Investing activities Interest received Dividends received from associates and joint ventures Proceeds on disposal of plant and equipment - non-hire fleet Capital expenditure - non-hire fleet (21.8) (15.9) (38.3) Investment in joint-venture entities (31.4) (0.8) (9.8) Proceeds on disposal of investments Net cash generated by/(used in) investing activities (39.7) Financing activities Interest paid (11.9) (11.6) (23.3) Dividends paid to equity shareholders - (23.7) (35.5) Dividends paid to non-controlling interests - (1.0) (1.6) Proceeds from issue of shares and exercise of share options Purchase of own shares - (0.9) (0.4) Increase in bank loans (5.0) Movement in obligations under finance leases (0.5) Net cash from/(used in) financing activities (31.4) (63.5) Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Effect of foreign exchange rate changes (1.8) Cash and cash equivalents at end of period Cash and cash equivalents comprise Cash and deposits Bank overdrafts (10.1) (5.6) (11.1) Reconciliation of net cash flow to movement in net debt Net increase/(decrease) in cash and cash equivalents Increase in bank loans (155.0) (5.0) 5.0 Movement in obligations under finance leases 0.5 (0.7) (2.2) Change in net debt resulting from cash flows (111.3) Effect of foreign exchange rate changes (1.8) Change in net debt during the period (113.1) Net debt - opening (274.4) (308.8) (308.8) Net debt - closing (387.5) (275.6) (274.4) #See note 2

17 Notes to the unaudited interim financial statements For the six months ended 30 June 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 2017 (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, noting in particular that: the majority of the Group's revenue is derived from long-term contracts; the Group had visibility of 1.6 billion of work scheduled for 2018 at the balance sheet date; and the Group has access to committed debt facilities of $350 million with a weighted average maturity of 7 years and a further 433 million with a weighted average maturity of 3.7 years. 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 2016 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 The interim financial statements for the six months ended 30 June 2017 have been reviewed by Grant Thornton UK LLP but have not been audited. 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 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 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 2016 and which are available on the Group's website at Various presentational changes have been made, as described in note 2(c) below. In addition, the 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 Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual earnings. (a) Adoption of new and revised standards 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: IFRS 9 Financial instruments 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 through profit or loss' or 'amortised cost'. As a result, movements in the fair value will no longer be taken to 'Other comprehensive income'. IFRS 15 Revenue from contracts with customers The new standard will replace IAS 18 Revenue and IAS 11 Construction contracts. It will become effective for accounting periods on or after 1 January The main impact of the standard will be to require the recognition and disclosure of revenue to be based around the principle of disaggregation of discrete performance obligations.

18 IFRS 16 Leases The new standard will replace IAS 17 Leases. It will become effective for accounting periods on or after 1 January It will require nearly all leases to be recognised on the balance sheet as liabilities, with corresponding assets being created. In advance of the adoption of IFRS 15 and 16, the Group is conducting a systematic review of all existing major contracts and leases to ensure that the impact and effect of the new standards are fully understood, and changes to the current accounting procedures are highlighted and acted upon. Any impact is neither known nor possible to estimate at this time. Except for IFRS 9, IFRS 15 and IFRS 16 noted above, the directors do not currently anticipate that the adoption of any other standard and interpretation that has been issued but is not yet effective will have a material impact on the financial statements of the Group in future periods. (b) Principal risks In the directors' view, there have been no changes to the principal risks and uncertainties facing the Group from those described on pages 26 to 29 of the Group's Annual Report and Financial Statements for the year ended 31 December The directors expect that the Group's Headline profits will continue to be weighted to the second half. (c) Restatement of comparatives As disclosed in the statutory accounts for the year ended 31 December 2016, the 2016 results included exceptional losses relating to decisions made in a strategic review of our Equipment Services division, which was concluded in the second half of These included the exit from a number of smaller and less attractive markets. The results of markets in the process of being exited are treated as Exceptional in nature (see note 4) and excluded from the calculation of Headline Earnings per Share (see note 7). The presentation of comparative information for the first half of 2016 has been restated to be consistent with this presentation. There is no impact on comparative net assets or statutory profit before taxation.

19 3. Business and geographical segments (a) Business segments The Group is organised into three operating divisions, as set out below. Information reported to the Executive Board for the purposes of resource allocation and assessment of segment performance is based on the products and services provided. Support Services: provision of outsourced support services to public- and private-sector clients, both in the UK and internationally. Construction: design, construction and maintenance of buildings and infrastructure, both in the UK and internationally. Equipment Services: design, hire and sale of formwork, falsework and associated access equipment. Costs of central services, including the financial impact of our PFI investments, are shown in "Group Services". Revenue including share of associates and joint ventures Consolidated revenue Result Six months Six months Year Six months Six months Year Six months Six months Year ended ended ended 31 ended ended ended 31 ended ended ended June 30 June December 30 June 30 June December 30 June 30 June December million million million million million million million million million restated # restated # restated # Support Services UK , , Support Services International Support Services 1, , , , , Construction UK (2.0) 4.5 (3.1) Construction International Construction , Equipment Services Group Services (14.1) (14.3) (25.2) Inter-segment elimination (5.2) (32.6) (50.1) (5.2) (32.6) (50.1) , , , , , , Exceptional items and amortisation of acquired intangible assets (note 4) (11.6) (89.0) (200.6) Revenue/Total operating profit/(loss) 1, , , , , , (24.7) (76.4) Investment revenue Finance costs (11.9) (11.6) (23.3) Profit/(loss) before tax 24.9 (33.8) (94.1) Tax charge (2.3) (1.9) (7.5) Profit/(loss) after tax 22.6 (35.7) (101.6) #See note 2

20 (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 table below provides an analysis of the Group s sales by geographical market, irrespective of the origin of the goods/services. Revenue including share of associates and joint ventures Consolidated revenue Six months Six months Year Six months Six months Year ended ended ended ended ended ended 30 June 30 June 31 December 30 June 30 June 31 December million million million million million million restated # restated # United Kingdom 1, , , , , ,714.6 Rest of Europe Middle East & Africa Australasia Far East Americas Group Services Inter-segment elimination (5.2) (32.6) (50.1) (5.2) (32.6) (50.1) 1, , , , , ,149.3 Exceptional items and amortisation of acquired intangible assets (note 4) , , , , , ,244.6 Total operating profit Six months Six months Year ended ended ended 30 June 30 June 31 December million million million restated # United Kingdom Rest of Europe Middle East & Africa Australasia Far East Americas Group Services (14.1) (14.3) (25.2) Exceptional items and amortisation of acquired intangible assets (note 4) (11.6) (89.0) (200.6) 34.5 (24.7) (76.4) # See note 2

21 4. Exceptional items and amortisation of acquired intangible assets Six months ended 30 June 2017 Six months ended 30 June 2016 Exited business 1 Exited business 1 Energy from Waste Strategic review of Equipment Services Amortisation of acquired intangible assets Total Energy from Waste Strategic review of Equipment Services Amortisation of acquired intangible assets Total million million million million million million million million Consolidated revenue Cost of sales (34.2) (0.9) - (35.1) (138.0) (1.0) - (139.0) Gross profit/(loss) (75.7) (74.8) Directly associated management costs - (1.6) - (1.6) 3.7 (2.3) Amortisation of acquired intangible assets - - (11.4) (11.4) - - (15.5) (15.5) Total administration (11.4) (15.5) expenses - (1.6) (13.0) 3.7 (2.3) (14.1) Operating profit/(loss) - (0.1) (11.4) (11.5) (72.0) (1.4) (15.5) (88.9) Amortisation of acquired intangible assets of associates - - (0.1) (0.1) - - (0.1) (0.1) Profit for the period/(loss) - (0.1) (11.5) (11.6) (72.0) (1.4) (15.6) (89.0) Tax on exceptional items On exited business Amortisation of acquired intangible assets Tax on exceptional items Profit/(loss) after taxation - (0.1) (9.6) (9.7) (70.0) (1.4) (12.7) (84.1) Year ended 31 December 2016 Exited business 1 Energy from Waste Strategic review of Equipment Services Amortisation of acquired intangible assets Total million million million million Consolidated revenue Cost of sales (251.0) (2.1) - (253.1) Gross profit/(loss) (160.0) (157.8) Directly associated management costs - (12.9) - (12.9) Amortisation of acquired intangible assets - - (29.8) (29.8) Total administration expenses - (12.9) (29.8) (42.7) Operating profit/(loss) (160.0) (10.7) (29.8) (200.5) Amortisation of acquired intangible assets of associates - - (0.1) (0.1) Profit for the period/(loss) (160.0) (10.7) (29.9) (200.6) Tax on exceptional items On exited business Amortisation of acquired intangible assets Tax on exceptional items Profit/(loss) after taxation (160.0) (10.7) (25.2) (195.9) 1 T he construction of Energy from Waste facilities, where there was contractual responsibility taken for process risk, and business streams exited as a result of the strategic review of Equipment Services, along with directly associated costs, are considered to be exited businesses. Exited businesses are presented as exceptional items and are excluded from the calculation of headline earnings per share (reflecting their material and non-recurring nature). The exited businesses do not meet the definition of discontinued operations as stipulated by IFRS 5 Non-current assets held for sale and discontinued operations because the business has not been disposed of and there are no assets classified as held for sale. Accordingly the disclosures within exceptional items differ from those applicable for discontinued operations. # See note 2