Interserve Plc 2011 Annual Report and Financial Statements
Every day, we’re planning, creating
and managing the world around you.
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Interserve AnnuAl report 2011 overvIew HIGHlIGHts
Across the world, people
wake to a new day. we help
make it a great day.
proud of tHe
vAlue we CreAte In
plAnnInG, CreAtInG,
And MAnAGInG tHe
world Around you
Every day people wake to put
their plans, dreams and goals
into action.
To make this happen they need the
places around them – their schools,
their workplace, hospitals, shops
and infrastructure – to function well,
to support, inspire and add value to
their lives.
We help build and look after this
world and we do this through the
lasting relationships our people
have built with a range of partners
and clients worldwide to ensure we
create value for everyone involved.
fInAnCIAl
HIGHlIGHts
HeAdlIne eps*
profIt before tAx
full-yeAr dIvIdend
49.3p
+ 15%
£67.1m
+ 5%
19.0p
+ 6%
vIew 2011 AnnuAl report onlIne: Http://Ar2011.Interserve.CoM
Interserve AnnuAl report 2011 overvIew HIGHlIGHts
Across the world, people
wake to a new day. we help
make it a great day.
proud of tHe
vAlue we CreAte In
plAnnInG, CreAtInG,
And MAnAGInG tHe
world Around you
Every day people wake to put
their plans, dreams and goals
into action.
To make this happen they need the
places around them – their schools,
their workplace, hospitals, shops
and infrastructure – to function well,
to support, inspire and add value to
their lives.
We help build and look after this
world and we do this through the
lasting relationships our people
have built with a range of partners
and clients worldwide to ensure we
create value for everyone involved.
fInAnCIAl
HIGHlIGHts
HeAdlIne eps*
profIt before tAx
full-yeAr dIvIdend
49.3p
+ 15%
£67.1m
+ 5%
19.0p
+ 6%
vIew 2011 AnnuAl report onlIne: Http://Ar2011.Interserve.CoM
Interserve AnnuAl report 2011 overvIew HIGHlIGHts
Interserve AnnuAl report 2011 overvIew HIGHlIGHts And Contents
HIGHlIGHts
CHAIrMAn’s stAteMent
our busIness
our MArkets
our strAteGy
our work
CHIef exeCutIve’s Q&A
operAtIonAl revIew
prInCIpAl rIsks And
unCertAIntIes
fInAnCIAl revIew
sustAInAbIlIty revIew
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key fACts
over 50,000 people in our
workforce worldwide
record-low all-labour
accident incidence rate (air):
310 per 100,000 workforce
future workloAd
£5.6bn
+6%
dIreCtors And AdvIsers
dIreCtors’ report
CorporAte GovernAnCe
dIreCtors’ reMunerAtIon
report
dIreCtors’ responsIbIlIty
stAteMent
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Gross operAtInG CAsH
ConversIon*
118%
+ 38%pts
net debt
£42.2m
- 18%
* see notes 10 and 31 to the consolidated financial statements on pages 85 and 106
respectively for a reconciliation of non-statutory measures to their statutory equivalents.
Independent AudItors’ report
(ConsolidaTEd FinanCial
sTaTEmEnTs)
ConsolIdAted fInAnCIAl
stAteMents
notes to tHe ConsolIdAted
fInAnCIAl stAteMents
64
65
71
CoMpAny fInAnCIAl stAteMents 108
prInCIpAl Group undertAkInGs 117
fIve-yeAr AnAlysIs
sHAreHolder InforMAtIon
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127
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Interserve AnnuAl report 2011 overvIew ChAIrmAn’s stAtement
“ I am pleased to report a year of significant
achievement and progress for Interserve.
In continued difficult markets we have
delivered growing earnings, strong cash flows
and an improved order book. At the same
time we have undertaken significant new
developments towards our strategic objectives
to grow shareholder value.”
Lord Blackwell Chairman
In recent years the Group has begun a
significant transformation in the scope
of our business, applying our core
skills in new markets where we believe
we can both grow and deliver high
value.
In the UK our Support Services
business, as well as taking steps to
improve customer value, efficiency and
margins in our existing markets, has
invested in extending our management
skills into new areas of outsourcing
activity. During this last year, for
example, we started up our innovative
partnership serving the Department
for Work and Pensions in its Work
Programme, and are now shortlisted
in bidding to support the Ministry of
Justice in its framework programme for
management of offenders.
Overseas we have invested in
developing the scope of business
activities in our existing high growth
markets as well as extending into major
new territories – such as Saudi Arabia,
India and the USA.
We believe the ongoing opportunities
for continuing this transformation of
our business - both in the UK and
overseas - provide significant upside
potential in the medium and long term,
notwithstanding the ongoing economic
uncertainties. This is the primary
engine for achieving our growth
ambitions.
Managing long-term client
relationships is a major strength
and one of the key ingredients in the
excellent forward visibility of our future
workload. The actions we have been
taking in Support Services should
continue to improve margins. There
are also indications that the recovery
in Equipment Services’ international
markets, begun in the second half of
2011, will now be maintained. Together
we anticipate these developments
can more than offset the short-term
impact on Construction’s performance
resulting from the current margin and
volume pressures.
Interserve AnnuAl report 2011 overvIew ChAIrmAn’s stAtement
Chairman’s statement
Doing the important things well
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This year I am reporting separately on
the role and effectiveness of the Board
in our Corporate Governance review.
However, on behalf of the Board I
would like to thank all of our people
for their continued commitment and
for their willingness to go the extra
mile in delivering outstanding service
to our customers. The success of
our business is founded on having
the right people and supporting
them in their development. One of
our key programmes identifies and
develops the people who will form
the core of our senior leadership
in the years to come. We offer all
our people a wealth of training and
development opportunities including
apprenticeships and a ‘Skills for Life’
numeracy and literacy programme. We
also run return-to-work schemes for
the long-term unemployed.
Reflecting our confidence in the
medium-term prospects and in our
strategy for developing the Group,
we are recommending an increased
final dividend of 13.0p (2010: 12.4p),
bringing the total dividend for the year
to 19.0p (2010: 18.0p), an increase of
5.6 per cent. The final dividend will be
paid on 24 May 2012 to shareholders
on the register at the close of business
on 10 April 2012.
Lord Blackwell Chairman
29 February 2012
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Interserve AnnuAl report 2011 overvIew our busIness
Interserve offers good prospects for long-term value and
growth, underpinned by a strong balance sheet and cash flows
which enable an attractive dividend yield.
sectors (by GrOss reveNUe)
1%
JustIce 1%
13% heAlth
15%
13%
educAtIon 15%
15%
15% defence
commerce 23%
8%
8% Industry
23%
InfrAstructure 14%
11% centrAl/locAl govt
14%
11%
• Our international risk is contained
by operating through strong local
partnerships and by deploying key
people into our international operations.
• We have reduced our pension funding
risk by utilising the value of our PPP
investments.
our expertIse
strength And resIlIence
• Our Group combines businesses with
differing working capital profiles and
requirements, generating a high overall
conversion of profit to cash through
economic cycles.
• Our earnings are diversified both
geographically and through business
and sector mix, enabling us to
capitalise on different phases of market
growth in global cycles.
• Our UK construction activities are
de-risked through an emphasis on
long-term framework contracts.
• Listening to and understanding our
clients’ needs, so that we can design
a bespoke solution, is at the core of
our offering.
• Our added value comes from:
• Combining front-end design and
consultancy with programme
management and delivery skills
under one roof.
• Managing change, whilst at the
same time maintaining, or enhancing
service quality.
• Nurturing and managing a complex
supply chain, often comprising small
and medium-sized enterprises, to
offer the optimum combination of
global and local inputs.
Interserve AnnuAl report 2011 overvIew our busIness
our business
how we create shareholder value
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geogrAphIc
(by CONtribUtiON tO tOtaL
OPeratiNG PrOfit)
rest of world 11%
11%
mIddle eAst & AfrIcA 24%
24%
65%
unIted KIngdom 65%
growth prospects –
mArKet posItIonIng
• We are positioned to take
advantage of growth in the
UK support services and
infrastructure markets in both the
public and private sectors.
• around 35 per cent of our profits
are from international markets,
where we have access to growth
in infrastructure spend and
to opportunities for support
services contracts as markets
mature.
• We have proven expertise in
exporting our core UK skills to
build a presence in emerging
markets.
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segmentAl (by CONtribUtiON tO tOtaL OPeratiNG PrOfit)
43%
37%
14%
6%
segmentAl (by GrOss reveNUe)
46%
40%
7%
7%
support servIces
constructIon
equIpment servIces
Investments
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Interserve AnnuAl report 2011 overvIew our mArkets
Interserve operates in the outsourced services and construction
markets in the uk and internationally.
our markets
outsourCeD servICes
UK
InTErnaTIonal
• The market includes facilities
management (FM) – i.e. activities
concerned both with maintaining
buildings or estates and with
supplying services to people
using the facilities – as well as
a broader range of services
for specific groups, such as
employment assistance, waste
management, prison operation
and training.
• Our particular skills are in
the design, management and
delivery of such services.
• The FM market – which represents
only a fraction of our addressable
support services market – is the
largest in Europe. It is estimated at
£19 billion, with a further £13 billion
of services still currently undertaken
in-house (source: Frost and Sullivan).
• In a fragmented market with many
small players, Interserve is among the
leaders (Frost and Sullivan estimated
FM market share: 3.9 per cent).
• The UK leads the way in the adoption
of modern outsourcing and co-
sourcing concepts. The trend is
towards both bundling (where a single
provider provides several services)
and integrating (where the provider
also manages the whole package and
advises the client on how best to run
its operational services).
• almost all international markets for
outsourcing are significantly less
developed than the UK. UK providers
therefore have an opportunity to
use their experience to enter these
markets at an advantage.
• We have capitalised on our presence
in the Middle East construction
market, using it as a base from which
we have been able to introduce our
support services in several countries.
These include conventional building
repairs, plant maintenance, health
and safety training, and assurance
services in the oil and gas field.
• The Middle East outsourcing market
is only now emerging, following the
significant increase in infrastructure
development over recent years.
ConstruCtIon
UK
InTErnaTIonal
• Our focus is on long-term,
• as a contractor we undertake a range
repeat business with clients
who know they can rely on us to
deliver what they need.
• We have two areas of expertise:
– as a contractor, taking
responsibility for the
construction of buildings and
infrastructure; and
– as a designer and provider of
specialised shoring equipment
used in creating concrete
structures.
of projects, from large strategic
developments such as Sandwell
College (see page 18) to framework
agreements where we deliver a
programme of work spread across
several locations and over a period of
time.
• our main international markets are
in the Middle East and australia.
We have construction operations in
Qatar, the UaE and oman, and our
Equipment Services business is also
present there, as well as in Saudi
arabia, australia and a number of
locations throughout the world.
• We are thus insulated to some
• although we are active across a
extent from the effects of the current
contraction in the UK construction
market.
• The UK construction industry is worth
some £83 billion, over 5 per cent of
the country’s GDP (source: Business
Monitor International). approximately
16 per cent of this is in infrastructure
and 84 per cent in building.
variety of sectors in all our locations,
our focus in our primary markets is:
– Qatar: buildings and infrastructure
supporting the oil and gas industry
– UaE: infrastructure; hospitality and
leisure
– Saudi arabia: government buildings
and infrastructure
– australia: mining and infrastructure
Interserve AnnuAl report 2011 overvIew our mArkets
our markets
where our growth comes from
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UK
InTErnaTIonal
• Both central and local government,
• Given their relative immaturity,
as well as large private sector
organisations, are increasingly
looking to comprehensive
outsourcing arrangements as a way
of reducing costs while maintaining or
improving service levels.
• The trend towards integration in
outsourcing is likely to lead to more
contracts being awarded to the major
suppliers – of which Interserve is one.
Middle Eastern outsourcing markets
should grow substantially over the
coming years. outsourcing (certainly
in relation to the built environment
and infrastructure) tends to follow
construction, and the extent of
construction that has taken place
over the last few years is driving an
increasing requirement for planned
asset management and maintenance.
• By virtue of our construction-based
presence in a number of markets,
we have the opportunity to introduce
support services more widely and
emulate our success in Qatar.
UK
InTErnaTIonal
• Market forecasts vary. The consensus
is for a decline during 2012 and into
2013 and recovery thereafter. Private
sector recovery is expected to lead
the public sector.
• We believe that our strategy
of working through long-term
relationships and of maintaining our
capabilities through the short term
will leave us in good shape to benefit
from the resumption of growth when
the market turns.
• Qatar’s construction output is
forecast to grow at a compound
rate of 7.9 per cent per annum up
to 2016 (source: Business Monitor
international). We anticipate an
increase in demand from 2013. The
compound forecast for the UaE is
5.5 per cent for the same period,
Saudi arabia 4.5 per cent and oman
6.4 per cent (source: BMI).
• We expect that the solid construction
demand in the australian mining and
infrastructure sectors will continue in
the short-to-medium term, while the
commercial sector is likely to remain
subdued.
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Interserve AnnuAl report 2011 overvIew our strAteGY
Objectives
DRivERS
Build strong core
businesses
ALBERT BRiDGE PAGE 10
SiNO iRON PROJECT PAGE 12
expand
internationally
DUCAB-Hv PAGE 10
expand the
scope of our core
businesses
DEFENCE iNFRASTRUCTURE
ORGANiSATiON PAGE 12
keY performAnce IndIcAtors
Attractive UK demand environment despite
short-term pressures:
• Structural growth in outsourcing
• Rising population, increasing pressure on ageing
infrastructure
• Drive for public sector efficiencies
• High-growth international markets
• Markets moving closer to UK outsourcing model
• Opportunities to introduce services through
existing relationships
• Demand for increased integration and efficiencies
across the asset life cycle
• Economic pressures driving consolidation
We use a set of clear financial and non-financial KPIs to measure critical aspects of the Group’s performance. These KPIs are
aligned with (a) achieving the Group’s strategic objectives of delivering a substantial future workload and generating strong
2011
2010
2009
2008
2007
Target
78%
73%
79%
79%
70%
2011
2010
2009
2008
2007
49.3p
42.8p
49.7p
46.7p
39.9p
2011
2010
2009
2008
2007
Target
155.3%
122.1%
116.9%
88.6%
108.7%
workloAd for next YeAr
Target: Visibility over 70% of next 12 months’
revenue (consensus)
HeAdlIne eArnInGs per sHAre
Target: Double headline EPS over the five years
to 2015
operAtInG cAsH conversIon1,
3-YeAr rollInG AverAGe
Target: 100% over medium term
Interserve AnnuAl report 2011 overvIew our strAteGY
our strategy
How we deliver growth
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STRATEGy
OUTCOMES
Focus on long-term, added-value client relationships:
Substantial future workload:
• Understand clients in depth
• Adviser/manager role in outsourcing
• Framework agreements
• Public-private partnerships
• Strong revenue visibility afforded by a future
workload in excess of £5bn
Strong earnings growth:
• Attractive medium-term revenue growth
• Margin trends over medium term:
UK outsourcing c. 5%
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• Extend our full range of services across existing markets
international outsourcing c. 13%
• Enter new growth markets with attractive economic
fundamentals
• Operate in a range of markets to diversify and
reduce risk
• Capture emerging opportunities for increasingly
integrated solutions
• Organic growth supplemented by selective, accretive
acquisitions
UK construction c. 2%
international construction c. 6%
equipment services c. 15%
Strong cash conversion, supporting:
• Selective, accretive acquisitions
• Progressive dividend policy
• Elimination of pension deficit
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earnings growth and cash conversion; and (b) the Group’s key behavioural goals, specifically regarding our employees and the
health and safety of everyone working both directly and indirectly for Interserve.
2011
2010
2009
2008
2007
Target
7.0%
8.6%
8.6%
9.9%
5.6%
2011
2010
2009
2008
2007
310
377
344
429
444
AnnuAlIsed stAff turnover2
Target: Below 10 per cent
AnnuAlIsed All-emploYee
AccIdent IncIdence rAte
Target: Halve the rate by 2020 from a 2010 base
1See note 31 on page 106 for a definition of cash conversion.
2Staff turnover measures the proportion of managerial,
technical and office-based staff leaving voluntarily over the
course of the period.
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Interserve AnnuAl report 2011 overvIew our worK
Delivering every day
around you
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DuCAB-Hv
AlBert BrIDge
To satisfy the UAE’s continued
development and demand for power, the
region had become dependent on imported
cables. How did we help to address this
issue, using entirely local resources?
Albert Bridge is one of only 12 bridges
across the Thames in central London,
used by 16,000 vehicles a day. How did
we keep the bridge open when corrosion
threatened its permanent closure?
DUCAB-HV is a joint venture comprising three key national
stakeholders. It was established to develop a high-voltage cable
manufacturing plant in Jebel Ali, 35km south-west of Dubai.
The £40 million construction project has been delivered entirely
through our associate company in the UAE, Khansaheb Civil
Engineering. Located on a 22,000m² waterfront area the
development consists of factory buildings, offices, an extra-high-
voltage test laboratory, utility buildings, two large substations
housing 19 transformers and associated infrastructure. At
the heart of the facility are two cable-manufacturing towers
approximately 45m and 150m (44 storeys) high respectively,
making this what is believed to be the tallest industrial
structure in the region. Unlike other high-rises, the buildings
are each effectively just one large ‘core’, with slabs inside the
structure rather than around it. Building them involved a unique
construction process, enabled by the design expertise of our
Equipment Services division and the use of its “Tru-Lift” self-
lifting core-forming system for the first time in the Middle East.
The completed Ducab High Voltage Cable Systems plant can
now manufacture enough high-voltage cables to meet the
demands of the whole UAE and the wider Gulf region in times
to come. Its main customers include the utilities providers, big
industrial users of cables, and oil and gas companies.
This substantial project has provided an essential facility for the
region and demonstrates our ability to deliver local projects with
local expertise and our continued commitment to commercial
growth in the Gulf.
Located in the Royal Borough of Kensington and Chelsea,
Albert Bridge has been a vital transport link - and London
landmark - since 1870. The 220m-long structure was beautiful
but not strong, and had been subject to traffic load restrictions
for much of its life. To stay open, new regulations demanded an
upgrade from its 2-tonne limit to 7.5 tonnes. Interserve took on
this challenge.
A 3-D analysis of the structure revealed the corrosion to be
even more severe than previous assessments suggested. We
needed a strengthening and repair solution that would both
save the bridge and overcome a number of constraints. These
included limitations on materials and strengthening details imposed
by the Grade II* listed status and handling of contaminated
waste including existing lead paint. We also had to ensure that
Londoners could go about their business around us, including
working over and adjacent to other works and keeping the
bridge open to pedestrians throughout the repairs.
The repair programme involved several key stakeholders
including Transport for London, the Port of London Authority
and English Heritage. We made 750 separate steelwork repairs
and replaced the entire running surface with new steelwork. We
then repainted the bridge (three coats of paint in seven different
colours) and replaced the old electrical fittings with over 4,000
lights and more than 6km of cabling.
The work was completed with minimum disruption and we
are proud to have restored this historic bridge to its original
splendour, fit for modern-day use and for generations to come.
Interserve AnnuAl report 2011 overvIew our worK
“we can be proud of the level of workmanship in the restoration of
Albert Bridge. It proved even more challenging than we originally
thought as… we discovered much worse corrosion to the iron and steel.
the amount of work… has been truly monumental with over 10,000
bolts, 40,000 litres of paint and 1,000 tonnes of grit used.
I hope that residents and all bridge-users now appreciate the need
for the work we carried out – for surely, when lit up, the Albert Bridge
is one of the most beautiful night-time sights in london.”
CoUNCILLoR NICk PAGET-BRowN
DEPUTy LEADER AND CABINET MEMBER foR TRANsPoRT, RoyAL BoRoUGH of kENsINGToN & CHELsEA
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Interserve AnnuAl report 2011 overvIew our worK
Delivering every day
around you
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sIno Iron projeCt
DeFenCe InFrAstruCture orgAnIsAtIon
Mining iron ore requires significant upfront
investment in infrastructure and the speed
of return on the capital outlay is critical.
so how do you help get a new mine ready
for operations in the shortest time possible
– especially when it’s 1,500km away from
your nearest branch?
With an estimated value of $5.2 billion, CITIC Pacific’s SINO Iron
project is the largest magnetite mining and processing facility in
Australia. Time is money and CITIC has deadlines to meet whilst
building the mine. At peak construction there were around 4,000
people on site.
We were awarded the contract based on the excellent
productivity levels of our Alshor Plus falsework system in
conjunction with our formwork designs. These were used to
speed up construction of the ‘Area 20 Concentrator Stockpile
Tunnel’. The main core of this tunnel is approximately 325m long,
with six 55m feeder tunnels running perpendicular to the core
and two approach tunnels each 40m long.
Our greatest challenge, however, was the logistics involved in
getting materials and equipment to the mine. The project is
located at Cape Preston, 100km from the nearest town and
1,500km from our Perth depot. Perth sourced equipment from
throughout Australia and our worldwide network of depots, and
delivered it in time to meet the client’s strict time frames on the
build.
When construction on the mine is completed it will produce in
the region of 140 million tonnes of magnetite each year. We are
delighted with the role we have played in getting the site ready
for operation on time.
British military bases are located all over
the world, defending our overseas
territories and playing a major role in
global security. But who takes care of
the essential services the military needs
to carry out its role protecting us?
Interserve has been trusted for a number of years to support
British military bases on Ascension Island, Cyprus and the
Falklands on behalf of the Defence Infrastructure Organisation
(DIO) - part of the MoD responsible for managing and maintaining
the military estate. Our record in delivering mechanical, electrical
and building-related support services gives more than 50,000
personnel the reassurance that they’ll always receive the specialist
support they need, sometimes in very challenging circumstances.
Our ability to respond to emergencies and unexpected changes is
fundamental to the peace of mind we provide.
Our strong track record and in-depth understanding of both the
requirements of the serving soldier and the MoD were key factors
when we won a new set of contracts in 2011 to continue our work
in these locations and to take on similar activities in Gibraltar as
well. The contracts are worth some £300 million over five years
with the possibility of extensions for two more.
In addition to our core support services, in Gibraltar we will also
deliver additional specialist marine work and nuclear services.
On Ascension Island our extended role includes provision of
facilities management services including logistics, catering, aircraft
handling, flight planning and site security.
Equally important for the MoD, we are providing value for money
and delivering ‘More for Less’. By delivering a single, strategic, UK-
based management structure and a bundled package of services
for all the territories, we have created efficiencies and significant
cost savings to the DIO.
Interserve AnnuAl report 2011 overvIew our worK
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“our strong track record and in-depth understanding of the
Defence Infrastructure organisation’s requirements enables us to
carry out their activities in sometimes very difficult circumstances.”
ADRIAN RINGRosE CHIEf ExECUTIvE, INTERsERvE
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Interserve AnnuAl report 2011 BusIness revIew chIef executIve’s Q&A
chief executive Adrian ringrose discusses some of the topics
most frequently raised by shareholders.
Gross revenue*
headline pre-tax profit*
profit before tax
headline earnings per share
net debt
full-year dividend
2011
£2,320m
£72.8m
£67.1m
49.3p
£44.2m
19.0p
2010
£2,315m
£69.6m
£64.1m
42.8p
£53.8m
18.0p
+0.2%
+4.6%
+4.7%
+15.2%
-17.8%
+5.6%
Q. How has Interserve performed
in 2011?
A. I think we can feel proud of what
Interserve has achieved for shareholders
in 2011.
We continued to make excellent progress
in increasing the margins in Support
Services and are on track to reach our
target for the division of 5 per cent by the
end of 2013. Construction has done well
both in the UK and internationally in a
tough market where margin pressure and
increased competition have had an effect.
Equipment Services is emerging from
the bottom of the cycle in good shape,
maintaining healthy margins and a good
return on capital employed.
We’ve also had a successful year for new
business – we won more work than we
consumed in revenue, with the result that
our future workload rose from £5.3 billion
to £5.6 billion.
Where we’ve needed to, we have
reduced costs. But we have also
continued investing for future
development where we can see new
opportunities – for instance in the justice
sector, in welfare and in local government.
It has been pleasing to see our
performance reflected in a 39 per cent
increase in our share price at a time when
the FTSE 250 index fell by 13 per cent.
Adrian Ringrose Chief Executive
Interserve AnnuAl report 2011 BusIness revIew chIef executIve’s Q&A
chief executive’s
Q&A
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Q. How do you see the uK
construction market developing?
A. We expect to see a further decline
in the short term before an upturn in
volume, probably from 2014. Our ability
to maintain a fundamentally healthy
business through this period is due in
large part to our focus on sectors and
clients with long-term construction needs
and to the strong reputation we have built
for quality and value for money.
Q. where do you see the
opportunities in the middle East?
A. Qatar is our largest overseas market,
where we focus on civil engineering,
building and engineering services.
We’ve been there since 1996 and have
a workforce of over 10,000 people.
Qatar offers strong growth prospects: its
investment in natural gas gives it a very
secure financial base and the resources
to back development for many years
to come. In addition, hosting the World
Cup in 2022 provides a renewed focus
on infrastructure, generating new road,
rail and port schemes and investment in
power, water and drainage. Interserve is
a key provider in many of these areas and
we anticipate that we’ll see the impact
of these requirements from 2013 and
onward.
In Saudi Arabia our start-up Equipment
Services business has had a good
first couple of years and this provides a
strong platform from which to explore
further opportunities. The Kingdom is
the largest projects market across the
Gulf Co-operation Council, accounting for
45 per cent of the total, and has ambitious
construction and infrastructure plans.
Q. there has been talk of the uK
government’s need to outsource
more in order to cut costs without
having too great an impact on front-
line services. Are you seeing this
translate into reality?
A. The pace of change is variable. We are
seeing exciting developments in welfare
and justice; health could be another
growth opportunity, while the picture in
local government is more fragmented.
Overall, we continue to see UK public
services as a good area for growth.
As part of our strategy we have identified
several areas where we can apply our
management capabilities in new sectors
to generate additional business. In 2011
we won two regions in the Department
for Work and Pensions’ (DWP’s) Work
Q. Has the business reached the
end of cost cutting?
A. We always have to look for ways to
improve efficiency and deliver better
value to our customers – that’s part of
why they choose us to work with them.
In addition we did, correctly as it turns
out, anticipate the pressures on some
of our businesses from the recession
and take the necessary action to reduce
our fixed costs in good time. However,
that has not stopped us investing in
new opportunities. Our markets offer
the potential for sustained medium-
term growth at attractive margins and
it is important that, while making any
necessary cost savings, we hold our
shape to enable us to capitalise on
these opportunities as they emerge.
“our markets offer the potential for sustained
medium-term growth at attractive margins.”
Programme, and in January 2012 we
were selected by the Ministry of Justice
(MoJ) in its new framework for the
provision of custodial services. The
MoJ has indicated that it has broader
outsourcing plans, and our involvement
has the potential to lead to activity in
further areas such as the delivery of
probation services. We are seeing further
opportunities emerge as the health,
local government and defence markets
develop.
Q. You said last year that you
believed Interserve had the
capability to double earnings per
share over a five-year period.
Does that still stand?
A. Yes. We have come through the
last two years well, our existing
markets have good potential, we are
exploiting new markets and we have
a strong balance sheet to support
our growth. Our medium-term
prospects remain strong.
* See notes 10 and 31 to the consolidated financial statements on pages 85 and 106 respectively for a reconciliation of non-statutory measures to their statutory equivalents.
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Interserve AnnuAl report 2011 BusIness revIew operAtIonAl revIew
operational review
We deliver our operational services
through three divisions: Support
Services, Construction and Equipment
Services. We also have a Group Services
function, which consists of the Board
and a range of central services, and
our Developments division, which is
responsible for managing our investment
activities and for leading our strategic
developments.
We allocate all central costs to Group
Services, including those related to
our financing and central bidding
activities, and show the performance
of our investments separately as the
Investments segment. Group Services’
costs in 2011 were £20.4 million
(2010: £20.0 million).
Future workload
Our future workload comprises forward
orders and pipeline. Forward orders
are those for which we have secured
contracts in place, and pipeline covers
contracts for which we are in bilateral
negotiations and on which final terms are
being agreed. We include our share of
work won by our international associates.
Forward orders
Pipeline
Future workload
Coverage of next year’s revenue
(analyst consensus)
31 December
2011
31 December
2010
£4.5 billion
£1.1 billion
£5.6 billion
78%
£4.3 billion
£1.0 billion
£5.3 billion
73%
support services provides a broad
range of outsourced services to
the public and private sectors,
predominantly in the uK but also
increasingly in the Middle east, the
majority of which we integrate and
deliver ourselves.
support servIces
Our support service activities in the
Middle East have previously been
reported within our Construction
segment. In view of the increasing scale
of these operations we have moved them
into our Support Services results (the
2010 figures have been adjusted to the
same basis – see note 3 to the financial
statements).
Operational efficiencies in Support
Services delivered a further significant
improvement in contribution to total
Operating Profit, despite flat revenue.
as usual in this business the profit
was somewhat second-half weighted,
although we anticipate that there will
be less difference between the first and
second-half margins – which were 3.1 per
cent and 4.1 per cent respectively – once
the gains from our margin-improvement
programme are fully achieved.
Bruce MelIzAn
ManaGInG DIrECtOr,
SuPPOrt SErvICES
Interserve AnnuAl report 2011 BusIness revIew operAtIonAl revIew
there were three main contributors to our
margin-improvement programme: first,
the integration of our Security operation
into our Commercial business, which has
had an important impact on the indirect
cost base; second, we have continued
to make significant improvements to
procurement; and third, we have further
developed systems and procedures to
increase productivity across our major
contracts.
the uK market for outsourced services is
not yet exhibiting the full growth potential
that was expected to result from the
government’s austerity programme and
from continued private sector efficiency
drives. While there is still a reasonable
flow of opportunities, we have not yet
seen the anticipated shift in thinking,
particularly among local authorities, that
will lead to a more structural approach to
outsourcing as a way to maintain services
while addressing costs. Meanwhile clients
seek to restrain discretionary spend,
resulting in some volume pressure.
However, we believe that the rise in
demand for services from a growing and
ageing population will accelerate the
long-term trend towards public services
outsourcing, and we continue to see
good potential in this market given the
limited number of service providers with
our ability to deliver full-scope, integrated
services contracts. Opportunities
such as the MoJ’s custodial services
framework show that there is an appetite
for innovation in the public sector and we
are actively pursuing such new business
streams. Equally, in the private sector
we continue to see growing evidence of
clients seeing the benefit of outsourcing,
albeit the operating models through
which opportunities arise are more varied.
the Work Programme is another example
of government seeking to gain the
benefits of competition and payment
by results, and one in which we were
successful in 2011. the DWP took the
decision to replace all existing welfare-
to-work programmes with a regionally-
based series of contracts in which the
successful bidders would be responsible
for delivering vocational training, skills
development and employment-focused
support to the long-term unemployed.
We were successful, in our joint venture
with rehab Group, an Irish charity, in
winning both the Wales and south-west
England contracts, which last for five
years and are worth approximately
£130 million in aggregate.
Other significant uK contract wins
include: contracts with the Defence
Infrastructure Organisation (DIO)
supporting the military bases in Cyprus,
the Falkland Islands, ascension Island
and Gibraltar, worth £300 million over five
years with possible two-year extensions;
a £108 million, two-year extension to
our South East regional Prime contract,
also with the DIO; a three-year extension
to our total Facilities Management
contract with the London Borough
of Croydon, worth £30 million; and a
three-year contract to clean William Hill’s
retail estate.
results summary
revenue
- uK
Internationally, our success was led by
industrial services work in Qatar. Dolphin
Energy awarded us a five-year contract
for maintenance services at its ras Laffan
plant and for supplying management,
manpower and equipment both there and
at its offshore platforms and pipelines.
We added infrastructure maintenance
services to our existing five-year contract
with Qatar Shell GtL and, since the year
end, have won a place on its three-year
Plant Change Construction Services
framework agreement (with a two-year
extension option).
the award of these and other contracts
means that the division’s future workload
grew from £4.0 billion to £4.2 billion
during the course of the year, and our
confidence is further underpinned
by additional identified opportunities
of around £7 billion. We are further
developing our activities in the Middle
East, where the economic progress of
the various economies is increasingly
generating requirements for outsourced
services. Qatar’s compound GDP growth
rate is forecast to be 5.2 per cent per
annum to 2015, with the uaE at 3.8 per
cent. We are also considering expanding
into other regions where we can combine
the expertise gained from our outsourcing
experience with our knowledge of the
local markets gained through our other
operational divisions.
2011
2010
Change
£1,007.3m
£1,024.8m
- International (share of associates)
Contribution to total Operating Profit
- uK
- International (share of associates)
Operating margin (uK)
Operating margin (International)1
£25.9m
£40.0m
£36.4m
£3.6m
3.6%
15.1%
£23.7m
£28.5m
£25.1m
£3.4m
2.4%
14.8%
-1.7%
+9.3%
+40.4%
+45.0%
+5.9%
+1.2%pts
+0.3%pts
1Operating margin for our associates is calculated on operating profit, comprising post-tax profit of £3.6m (2010: £3.4m) plus
interest and tax of £0.3m (2010: £0.1m)
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Interserve AnnuAl report 2011 BusIness revIew operAtIonAl revIew
constructIon
the majority of the division’s uK work
comes from low-risk projects with long-
standing clients, and over three-quarters
of this activity is in the public and utilities
sectors. In the Middle East, where we
have been active for over 30 years, our
client base is more oriented towards the
private sector. However, with the support
of our local joint-venture partners, our
associate businesses are characterised
by the same focus on developing long-
term working relationships.
DAvID pAterson
ManaGInG DIrECtOr,
COnStruCtIOn
construction works closely with
clients in the uK and internationally,
leading the design and construction
process in the creation of a broad
range of buildings and infrastructure.
features and has achieved a provisional
BrEEaM ‘Excellent’ rating. Leeds is
also the location for two groundbreaking
projects won during the year: at Leeds
East academy we shall use our innovative
modular “PodSolve” construction
technique, which saves a quarter of the
construction cost and can be applied to
both new and retrofit buildings; and we
shall be building richmond Hill Primary
School to Passivhaus standards – one of
the first such schools in the uK. During
2011 we completed the first certified,
carbon-neutral, Passivhaus, commercial
office to be built in the uK: our own
regional office in Leicester.
We have a long and successful
association with the health sector.
By the end of 2011 we had been
awarded 13 contracts, worth an
aggregate £180 million, under the
new ProCure21+ framework. Projects
awarded during the year included a
£19 million research, Innovation,
Learning and Development Centre in
Exeter and appointment by nottingham
university Hospitals nHS trust as
preferred Principal Supply Chain
Partner until 2016. We have been
similarly successful in the Welsh health
framework, and, in January 2012, were
named as a partner in all three regions in
its successor, Designed for Life: Building
for Wales 2, which lasts for four years
with a possible two-year extension.
among our infrastructure projects we
completed the challenging refurbishment
of the historic albert Bridge (see case
study, page 10) in London and reopened
it to vehicles in December following
nearly two years of intensive work. Both
our technical expertise and our project
management skills were vital in restoring
the Grade II* listed bridge to its former
glory while maintaining passage for the
busy river traffic.
united Kingdom
the uK business performed creditably
in a very competitive environment,
particularly given that the comparative
year of 2010 was, by some way, a record.
the drop in contribution to uK total
Operating Profit reflects the reduced
profitability of projects contracted since
the downturn, when competitive pressure
had increased. With stable volumes,
the margin, at 2.5 per cent, is returning
towards the levels we would expect over
the longer term.
2011 was a year of success and
innovation by our education team. We
handed over both the £77 million flagship
Sandwell College (see inset) in West
Bromwich for up to 10,000 students, and
the £32 million Leeds West academy,
which incorporates many sustainability
sAnDwell college
How are we building the schools
and colleges of the future, whilst
providing opportunities for today’s
generation at the same time?
as part of a local regeneration
project we are working in partnership
with staff at Sandwell College to
provide state-of-the-art teaching and
learning facilities that will transform
education for generations to come.
the £77 million college opened in
February 2012 and is helping to
regenerate one of the uK’s most
disadvantaged regions. throughout
the project, expenditure and
employment opportunities have been
kept within the local area and six
apprentices have been employed on
the site.
results summary
2011
2010
Change
revenue
- uK
- International (share of associates)
Contribution to total Operating Profit
- uK
- International (share of associates)
Operating margin (uK)
Operating margin (International)1
£731.1m
£223.7m
£34.6m
£18.0m
£16.6m
2.5%
8.4%
£754.3m
£239.2m
£47.3m
£24.5m
£22.8m
3.2%
10.3%
-3.1%
-6.5%
-26.8%
-26.5%
-27.2%
-0.7% pts
-1.9% pts
1Operating margin for our associates is calculated on operating profit, comprising post-tax profit of £16.6m (2010: £22.8m)
plus interest and tax of £2.2m (2010: £1.8m)
Interserve AnnuAl report 2011 BusIness revIew operAtIonAl revIew
Looking forward, we expect that the
uK construction market will continue to
recede during 2012 and into 2013, before
beginning to grow again from 2014. It is
likely that the emphasis of government
spending will shift towards infrastructure
in the shorter term and that the private
sector, particularly in south-east England,
will begin to recover before the public
sector. We are well-positioned in key
sectors and are managing our resources
flexibly so that we shall be able to
respond swiftly as and when the market
returns to growth. Significantly, our uK
Construction future workload stands
at £1.2 billion, slightly higher than the
£1.1 billion at the end of 2010.
International
the majority of our international earnings
are generated from our associate
businesses in the Middle East. Both
volumes and profits were affected by
increased caution on the part of our
clients as the global economy adjusts to
new patterns of demand. nevertheless
we made good progress with our
development plans. We acquired an
interiors business, noorco, in Qatar to
augment our capabilities in interior fit-out
and we continue to explore other potential
growth avenues across the region.
We won a number of sizeable contracts
in Qatar, our largest market, with a
mixture of new and long-standing clients.
these included two major construction
contracts at ras Laffan Industrial
City, worth £70 million together, for
infrastructure in the processing and gas
supply markets, a project with nakilat
for the construction of support facilities
at a shipyard also at ras Laffan, and
a contract for the design, construction
and maintenance of a new fitness centre
at the world-leading sports tourism
destination, aspire Zone, Doha.
the uaE is a regional hub for transport
and a range of business services.
Despite the current surplus of
residential property, demand for hotel
accommodation remains high with hotels
operating at greater than 80 per cent
occupancy (source: Ernst & Young).
the hospitality and leisure sector was
an important contributor in 2011, with
works carried out on the ritz Carlton and
fit-out projects on Saadiyat Island’s St
regis Hotel and the Sofitel resort Palm
Jumeirah Hotel. We saw a modest upturn
in infrastructure work, with contracts
such as the Dubai roads and transport
authority’s maintenance works, surfacing
works on the Dubai-Fujairah Freeway
and roads in umm al Quwain, one of the
smaller emirates. In the retail sector we
secured a £40 million contract to build
the Fujairah Mall and car park for Majid al
Futtaim.
Oman experienced a degree of civil
unrest as part of the arab Spring, which
is having an impact on the return of
tourism and leisure projects. We are
therefore increasing our focus on roads
and infrastructure projects, which we see
as more attractive in the short-to-medium
term. after the year end we won a
significant contract with Daewoo to build
the infrastructure for a new 2,000MW
power station in Sur for the Oman Power
and Water Procurement Company.
the IMF is forecasting GDP growth
of 4.0 per cent for 2012 for the Gulf
Co-operation Council (GCC) countries,
slightly reduced on previous forecasts
due to the resumption of more normal
levels of oil production in Qatar and Saudi
arabia which had ramped up in 2011 to
compensate for lower output from Libya.
nevertheless, growth rates in the region
are still attractive even if the immediate
outlook is somewhat subdued, and Qatar
in particular, with construction output
forecast to grow at a compound rate
of 7.9 per cent per annum up to 2016
(source: Business Monitor international),
remains a market with very substantial
future prospects from which we are well
placed to benefit.
nelson MAnDelA
chIlDren’s hospItAl
interserve’s health planners
are working with sheparrd
robinson international, gaPP
architects and ruben reddy
architects on the design and
development of the new nelson
mandela children’s Hospital in
Johannesburg.
the 200-bed hospital will provide
60 neonatal and paediatric intensive
care unit beds and will undertake
heart, kidney and bone-marrow
transplants. It will provide tertiary
services in oncology, cardiology,
renal, orthopaedics, plus other
specialities for children up to the age
of 16 when it becomes operational
in 2014. Currently, there are only four
dedicated children’s hospitals in africa
– two in Egypt, one in Kenya and one
in Cape town, South africa.
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equIpMent servIces
We have a strong position as one of the
leading global suppliers in our specialist
markets. We operate across a wide range
of geographies and sectors, with a fleet
of equipment which we can move around
the world to meet the changing demands
in our global markets.
equipment services (which trades
as rMD Kwikform) designs bespoke
engineering solutions and provides
temporary structural equipment
for complex infrastructure and
building projects.
steven DAnce
ManaGInG DIrECtOr,
EQuIPMEnt SErvICES
With the exception of strong
performances from australia and the
Far East, we experienced weakness
in infrastructure spending in 2011, with
pricing pressure continuing to impact
margins. this was exacerbated by the
impact of the arab Spring, particularly on
exports to north africa and to an extent
in Bahrain and Oman. to address these
pressures, we maintained a strong focus
on the cost base and cash generation of
our operations, with a number of business
units being restructured during the year.
although there is still some uncertainty in
global construction markets we believe
that the first half of the year was the low
point in our cycle and trading is showing
early signs of recovery: not only did profits
in the second half exceed those in the first
half, they were also 15 per cent stronger
than those in the second half of 2010.
results summary
revenue
Contribution to total Operating Profit
Margin
2011
2010
Change
£154.3m
£139.9m
£13.6m
8.8%
£14.4m
10.3%
+10.3%
-5.6%
-1.5% pts
regionally:
Middle east and Africa
trading in the Middle East was affected
both by the position of the construction
market generally and by the impact of the
civil disturbances in Bahrain, Oman and
north africa, in particular Libya. With the
reduction in these contributions, Saudi
arabia, which we entered for the first time
in 2009, became our most successful and
largest Middle Eastern market in 2011.
the Kingdom has extensive construction
and infrastructure plans from which we
are benefiting. an example is the Jubail
Highway upgrade connecting Dammam
to Jubail, the busiest road in the Eastern
Province, where we have been involved in
the construction of some major highway
intersections involving a number of
bridges for our customer Sinopec.
among the projects we undertook was
the ritz Carlton Hotel in Dubai Marina, for
which Khansaheb, our uaE Construction
associate, was the client. a particularly
challenging project was the design and
supply of the supporting equipment
for the construction of a 6.5km tunnel
forming part of the Lusail Light rail transit
system in Qatar. Our engineers designed,
fabricated and supplied six complete sets
of travelling formwork and shoring, each
14m long, which enabled the contractor
to achieve four-day cycles, reducing the
construction programme significantly.
We were subsequently commissioned
to design and supply all the support
and formwork equipment for the
tunnel pumping stations and ventilation
shafts and are negotiating over further
associated work.
One aspect of our growth strategy is
to develop exports to other parts of the
region. In 2011 this included the Basra
Sports City Stadium project in Iraq, a
65,000-seater football stadium due to be
complete in time for the Gulf Cup in 2013.
Australasia and Far east
We had a record year in australasia and
the Far East. this is now Equipment
Services’ largest region and is benefiting
from healthy demand in the australian
mining and infrastructure sectors. the
Sino Iron project described in the case
study on page 12 gives an idea of the
scale and complexity of the work in which
we have been involved. another example
is the victoria Desalination Plant, currently
in the final stages of construction and the
largest of its type built to date in australia.
We have designed and supplied formwork
and shoring systems to all areas of this
major development over the past two
years. Prospects in mining and natural
resources remain good, driven in part by
the country’s access to the fast-growing
Chinese and Indian markets. there is little
sign yet of a resumption of growth in the
australian commercial sector.
Elsewhere in the region Hong Kong
performed well as further infrastructure
contracts were let, and we anticipate that
this will continue in 2012. a key project
was our work on the new Cruise terminal
Interserve AnnuAl report 2011 BusIness revIew operAtIonAl revIew
building, which has a construction
programme of three years and will berth
the world’s largest cruise liners. the
project drew on not only our engineering
skills but also our logistics expertise, as
we designed and supplied some 3,000
tonnes of formwork and shoring sourced
from around the world within a very short
lead time.
europe
Demand in the uK reflected the
pressures on the construction sector.
nevertheless performance was resilient
and we undertook a number of high-
profile projects and developed further
innovative products that will maintain
our position at the leading edge of
the industry. Our specialist Paraslim
composite bridge system was used to
support the construction of the new M6
Catthorpe viaduct replacement at the
intersection of the M6/M1 motorways.
We also introduced ‘Megastair’, a stair
and access system that will be used on
the country’s two new aircraft carriers,
and ‘ascent Screens’, a unique set
of products which works in tandem
with our climbing formwork system to
shield concrete works and protect the
surrounding environment from building
debris. For the coming year, we see a
number of attractive prospects, including
Crossrail, commercial building work in
London, waste-to-energy plants and the
nuclear sector.
Our markets in Spain and Ireland were
severely depressed in 2011. We have
taken restructuring actions in both
countries and have moved excess fleet
out to markets with greater potential
DevelopMents - InvestMents
Developments is responsible for two
broad areas: directing the Group’s
PPP investment activities, leading the
bid process and managing equity
investments; and taking the primary
role in driving the Group’s strategic
development, pursuing acquisitions,
exploring new opportunities and
leading major, complex bids in market
sectors which require cross-divisional
involvement. as it is a central function its
costs are allocated to Group Centre and
its results reflect the performance of our
investments.
DougIe sutherlAnD
ManaGInG DIrECtOr,
DEvELOPMEntS
our Developments division is
responsible for managing our
investment activities and for leading
our strategic developments.
Our PPP equity investments continue
to make a healthy contribution to Group
earnings, with a total contribution to pre-
tax profit of £10.0 million. at 31 December
2011 we had 22 signed contracts
(31 December 2010: 21), of which
19 are now operational and three under
construction. During the year we were
Contribution to total Operating Profit
Interest received on subordinated
debt investments
demand. a general election in Spain
in november 2011 saw a change
in government, and a return to an
infrastructure plan is also anticipated but
with the benefit not likely to be felt until
2013. In Ireland the outlook is somewhat
improved but the country’s economic
position leaves significant uncertainty
over the infrastructure sector.
Americas
While we have made good progress
in integrating and reconfiguring the uS
operations that we acquired at the end
of 2010, the recovery of the construction
market remains slower than expected.
Our Chilean operation performed well,
responding to increased demand in
reconstruction work and from the
burgeoning mining sector. We expect this
to continue in 2012.
named preferred bidder for one more,
the Holt Park wellbeing centre in Leeds,
and reached financial close just before
the end of the year. also in January 2012
we were chosen as the successful bidder
for the West Yorkshire Police PFI. this
will involve the construction of two new
divisional headquarters, custody suites
and a specialist operational training
facility (with firearms ranges and public-
order and driver training facilities), and
the provision of FM services for 25 years
thereafter. We anticipate that the total
value of our construction and FM services
will be approximately £150 million.
We have made a significant investment
commitment on the signed contracts,
of which £45.1 million (31 December
2010: £25.8 million) has already been
paid and £13.0 million (31 December
2010: £30.1 million) remained.
We expect our portfolio to be cash
neutral over the medium term, with new
investments being funded by disposals
of mature projects. With our considerable
expertise and track record in delivering,
operating and financing using PPP
structures, we believe we are well placed
to benefit from the development of similar
funding arrangements for public sector
investments. Our bidding in 2012 will
concentrate on education, health and
strategic partnerships.
2011
£6.0m
£4.0m
2010
£4.2m
£2.8m
Change
+42.9%
+42.9%
£10.0m
£7.0m
+42.9%
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Interserve AnnuAl report 2011 BusIness revIew prIncIpAl rIsks And uncertAIntIes
principal risks and uncertainties
We operate in a business environment in which a number of
risks and uncertainties exist. While it is not possible to eliminate
these completely, the established risk-management and internal
control procedures, which are regularly reviewed by the Group
Risk Committee on behalf of the Board, are designed to manage
their effects and thus contribute to the creation of value for the
Group’s shareholders as we pursue our business objectives.
The Group continues to be dependent on effective maintenance
of its systems and controls. Over and above that, the principal
risks and uncertainties which the Group addresses through its
risk-management measures are detailed below.
potential impact
mitigation and monitoring
BusIness, economIc And polItIcAl envIronment
Among the changes which could affect our business are:
• changes in our competitors’ behaviour;
• the imposition of unusually onerous contract conditions by
major clients;
• shifts in the economic climate both in the UK and
internationally;
• a deterioration in the profile of our counterparty risk;
• alterations in the UK government’s policy with regard to
expenditure on improving public infrastructure, buildings,
services and modes of service delivery;
• delays in the procurement of government-related projects; and
• civil unrest and/or shifts in the political climate in some of the
regions in which we operate
any one or more of which might result in a failure to win new
or sufficiently profitable contracts in our chosen markets or to
complete those contracts with sufficient profitability.
We seek to mitigate these risks by fostering long-term
relationships with our clients and partners, our predominantly
governmental/quasi-governmental medium-to-long-term
revenue streams, the development of additional capabilities to
meet anticipated demand in new growth areas of public service
delivery, careful supply chain management and by operating in
various regions of the world, including the Middle East, where
we are able to transfer resources to maximum effect between
the differing economies of that region. We also have in place
committed financing of £246 million with a diversity of maturity
dates between 2015 and 2017. We constantly monitor market
conditions and assess our capabilities in comparison to those
of our competitors. Whether we win, lose or retain a contract
we analyse the reasons for our success or shortcomings and
feed the information back at both tactical and strategic levels.
We also constantly monitor our cost base and take action to
ensure it is suitable given the prevailing market environment.
potential impact
mitigation and monitoring
mAjor contrActs
As we focus on large-volume relationships with certain major
clients for a significant part of our revenue, termination of one
or more of the associated contracts would be likely to reduce
our revenue and profit. In addition, the management of such
contracts entails potential risks including mispricing, inaccurate
specification, failure to appreciate risks being taken on, poor
control of costs or of service delivery, sub-contractor insolvency
and failure to recover, in part or in full, payments due for work
undertaken. In PFI/PPP contracts, which can last for periods
of around 30 years and typically require the Special Purpose
Companies (SPCs) established by us and one or more third
parties to provide for the future capital replacement of assets,
there is a risk that such a company may fail to anticipate
adequately the cost or timing of the necessary works or that
there may be increases in costs, including wage inflation,
beyond those anticipated.
Among our mitigation strategies are targeting work within, or
complementary to, our existing competencies, the fostering
of long-term relationships with clients, operating an authority
matrix for the approval of large bids, monthly management
reporting with key performance indicators at contract and
business level, the use of monthly cost-value reconciliation,
supply chain management, taking responsibility for the
administration of our PFI/PPP SPCs, securing board
representation in them and ensuring that periodic
benchmarking and/or market testing are included in
long-term contracts.
Interserve AnnuAl report 2011 BusIness revIew prIncIpAl rIsks And uncertAIntIes
operAtIng system
potential impact
mitigation and monitoring
We enjoy demonstrable success in working with third parties
both through joint ventures and associated companies in the UK
and abroad. This success results in a material proportion of our
profits and cash flow being generated from businesses in which
we do not have overall control. Any weakening of our strong
relationships with these business partners could have an effect
on our profits and cash flow.
We have a proven track record of developing and re-enforcing
such relationships in a mutually beneficial way over a long
period of time and our experience of this places us well to
preserve existing relationships and create new ones as part
of our business model. The measures taken to limit risk in this
area include: board representation, shareholders’ agreements,
management secondments, local borrowings and rights of
audit in addition to investing time in personal relationships.
potential impact
mitigation and monitoring
key people
The success of our business is dependent on recruiting,
retaining, developing, motivating and communicating with
appropriately skilled, competent people of integrity at all levels of
the organisation.
We have a Group-wide leadership programme designed to
support the strategic aims of the Company. We have various
incentive schemes and run a broad range of training courses
for people at all stages in their careers. With active human
resources management and Investors in People accreditation in
many parts of the Group, we manage our people professionally
and encourage them to develop and fulfil their maximum
potential with the Group.
heAlth And sAfety regIme
potential impact
mitigation and monitoring
The nature of the businesses conducted by the Group involves
exposure to health and safety risks for both employees and third
parties. Management of these risks is critical to the success
of the business and is implemented through the adoption and
maintenance of rigorous operational and occupational health
and safety procedures.
A commitment to safety forms part of our mission statement
and the subject leads every Board meeting both at Group and
divisional level. Each member of the Executive Board undertakes
dedicated visits to look at health and safety measures in place
at our operational sites and we have ongoing campaigns across
the Group emphasising its importance.
potential impact
mitigation and monitoring
fInAncIAl rIsks
We are subject to certain financial risks which are discussed in
the Financial Review on pages 24 to 29.
In particular, we carry out major projects which from time to
time require substantial amounts of cash to finance working
capital, capital expenditure and investment in PFI projects.
Failure to manage working capital appropriately could result in
us being unable to meet our trading requirements and ultimately
to defaulting on our banking covenants.
We recognise a pension deficit on our balance sheet. The
deficit’s value is sensitive to several key assumptions which
are discussed on page 28 of the Financial Review, and any
significant changes in these may result in the Group having to
increase its pension scheme contribution with a resultant
impact on liquidity.
We have policies in place to monitor the effective management
of working capital, including the production of daily balances,
weekly cash reports and forecasts together with monthly
management reporting.
A number of actions have been taken including closure of the
Defined Benefit Scheme to further accrual for all non-passport
members from the end of December 2009, the contribution of
PFI investments to the pension scheme and additional employer
contributions in excess of the income statement charge.
dAmAge to reputAtIon
potential impact
mitigation and monitoring
Issues arising within contracts, from the management of our
businesses or from the behaviour of our employees at all levels
can have broader repercussions on the Group’s reputation than
simply their direct impact.
Control procedures and checks governing the operation
of our contracts and of our businesses are supported by
business continuity plans and arrangements for managing the
communication of issues to our stakeholders.
23
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Interserve AnnuAl report 2011 BusIness revIew FInAnCIAl revIew
Financial review
tIm HAywood
GROUP FINANCE DIRECTOR
summAry
Financial highlights of 2011 included:
• A robust trading performance in line with expectations
• Net pension deficit under IAS 19 materially contained
• Increase in headline earnings per share of 15.2 per cent
• Continued improvement in margins at Support Services
driven by significant operational efficiency improvements
and procurement benefits
• Continued strong cash generation. Average net debt for the
year was £3 million (2010: £20 million)
• Very low taxation charge, representing an effective rate of
9.7 per cent (2010: 16.5 per cent) on profit before taxation,
following management action taken to maximise tax
efficiency on earnings remitted from the Middle East
despite worsening market asset prices and falling liability
discount rates
• Successful refinancing completed providing committed
financing of £246 million with a diversity of maturity dates
between 2015 and 2017. Core funding of £150 million in
place for five years with bilateral arrangements running in
parallel totalling £96 million providing additional flexibility and
capacity. This is a clear demonstration of commitment from
our banking group and provides significant headroom to
fund our future growth.
FInAnCIAl perFormAnCe
revenue and operating profit
Across the Group, total gross revenues have been stable year on
year. However our three principal trading divisions experienced
different market conditions.
Strong revenue growth of 10 per cent in Equipment Services
principally reflects increased activity from our newly acquired
operations in North America. In Support Services revenues were
broadly stable at £1,007.3 million (2010: £1,024.8 million), with
measured work winning accompanying a continued focus on
margin enhancement. Our UK and International Construction
divisions reported declining revenues in continued challenging
global construction markets.
A full-year operating margin on gross revenues of 3.2 per cent
(2010: 3.2 per cent) again reflects a stronger second half
than first half with an operating margin of 3.5 per cent
(H1 2011: 2.9 per cent). Within this, the operating margin in UK
Support Services strengthened from 3.1 per cent in the first
half to 4.1 per cent in the second half, reflecting the benefits of
ongoing operational efficiency improvements and procurement
benefits. The improvement in margin over the year clearly
demonstrates the significant progress made in the division as
it tracks towards the medium-term target of a 5 per cent
operating margin. As anticipated, the UK Construction margin, at
2.5 per cent, is reverting towards more long-term norms and is
expected to drift down slightly over the next few years, impacted
by lower activity levels and increased competition. The full-year
margin in Equipment Services was down slightly year-on-year
at 8.8 per cent (2010: 10.3 per cent), having been adversely
impacted by the effects of the Arab Spring and Eurozone
conditions. Most encouragingly, however, the second half of
2011 saw resumption in growth and, led by further increases
in activity levels, the division is expected to return to a full year
of growth in 2012 with further recovery towards medium-term
margin expectations of 15 per cent.
Average and closing exchange rates used in the preparation of
these results were:
US dollar
Qatar Rial
UAE Dirham
Australian dollar
Euro
Average rates
Closing rates
2011
1.60
5.84
5.88
1.54
1.15
2010
1.55
5.64
5.68
1.69
1.17
2011
1.55
5.63
5.68
1.52
1.19
2010
1.55
5.64
5.68
1.52
1.17
Movements in exchange rates during the year had no material
impact on the results of the Group.
Interserve AnnuAl report 2011 BusIness revIew FInAnCIAl revIew
the Chairman’s statement and the Business review
provide an overview of the Group’s results for 2011.
this report provides further information on key aspects
of the performance and financial position of the Group.
25
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new segmentation
taxation
Reflecting the growing significance of our International Support
Service operations and some minor changes in the way a
few elements of our business are reported and managed,
the segmentation of our results has been amended with
comparatives restated accordingly. Note 3 to the financial
statements on pages 77 to 80 provides further details.
Investment revenue and finance costs
The net interest charge for the year of £1.0 million can be
analysed as follows:
£million
Net interest on Group debt
Interest due on sub-debt
IAS 19:
Expected return on Scheme assets
Interest cost on pension obligations
Group net interest charge
2011
(6.3)
4.0
35.3
(34.0)
(1.0)
2010
(5.4)
2.8
32.3
(34.5)
(4.8)
A continued strong focus on cash management during the year
delivered a further significant reduction in average net debt to
£3 million (2010: £20 million). The increase in net interest on Group
debt reflects the full-year impact of the refinancing in April 2010.
The interest cost on Group debt is high relative to the amounts
drawn down due to the fixed costs relating to the amortisation of
upfront arrangement fees and a commitment fee payable as a
percentage of undrawn committed facilities.
Interest receivable on sub-debt increased to £4.0 million
(2010: £2.8 million) reflecting the increasing operational maturity
of the investment portfolio and increasing associated returns.
The successful reassessment of the Interserve Pension
Scheme’s (“the Scheme”) investment strategy, carried out
over the past two years, together with relatively strong equity
markets, has resulted in significant increases in pension fund
asset values. These increases and the additional cash and
asset contributions from the Group during the period, gave rise
to increased expected returns on the Scheme assets of
£35.3 million (2010: £32.3 million).
This resulted in a (non-cash) net interest credit in the 2011
results relating to pensions.
The tax charge for the year of £6.5 million represents an effective
rate of 9.7 per cent on total Group profit before taxation. The
factors underlying this low effective rate are shown in the table
below.
£million
profit
tax
rate
Profit
Tax
Rate
2011
2010
Group
companies
Joint ventures
and associates*
Underlying tax
charge and rate
Prior period
adjustments
Middle East
remittances
39.7 13.9 35.0% 33.6 11.5
34.2%
27.4
-
0.0% 30.5
-
0.0%
67.1 13.9 20.7% 64.1
11.5
17.9%
(0.4)
(7.0)
(0.9)
-
Total per
Income Statement 67.1
6.5
9.7% 64.1 10.6 16.5%
*The Group’s share of the post-tax results of joint ventures and associates is included in profit
before tax in accordance with IFRS.
The underlying tax charge and rate, before the benefits noted
below, was slightly higher than in the previous year due to a
higher incidence of losses in overseas tax jurisdictions that are
not available for relief against other Group profits. The impact
of this is expected to normalise downwards in future years as
management action to stem these losses reduces their impact.
As previously disclosed, the Group has benefited from actions
taken that have improved the tax efficiency of earnings remitted
from a subsidiary in the Middle East. This has been achieved
through a restructuring of investment holdings in the region,
which will also have prospective benefits, and the conclusion
of negotiations on the nature, and subsequent tax treatment, of
an historical remittance. This has benefited the current year tax
charge by £7.0 million (2010: £nil).
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Interserve AnnuAl report 2011 BusIness revIew FInAnCIAl revIew
dividend
The directors recommend a final dividend for the year of
13.0 pence, to bring the total for the year to 19.0 pence, an
increase of 5.6 per cent over last year. This dividend is covered
2.6 times by headline earnings per share and 2.3 times by free
cash flow.
net deBt And CAsH Flow
Average net debt for the year was £3 million (2010: £20 million)
and year-end net debt was £44.2 million (2010: £53.8 million),
having benefited from free cash flow generation of £54.4 million
(2010: £43.1 million).
£million
Operating profit before exceptional
items and amortisation of intangible
assets
Depreciation and amortisation
Net (capital expenditure) / disposal
proceeds
Gain on disposal of property,
plant and equipment
Share-based payments
Working capital movement
Operating cash flow
Pension contributions in excess of the
income statement charge
Dividends received from associates
and joint ventures
Tax paid
Other
Free cash flow
Dividends paid
Investments, acquisitions and
disposals
Other non-recurring
Decrease / (increase) in net debt
2011
45.9
29.9
(5.5)
2010
43.4
26.3
9.5
(15.5)
(13.0)
2.3
9.5
66.6
(27.0)
1.6
(21.5)
46.3
(26.7)
20.6
32.1
(3.2)
(2.6)
54.4
(25.5)
(19.3)
-
9.6
(6.3)
(2.3)
43.1
(24.8)
(32.6)
(2.2)
(16.5)
The strong operating cash flow of £66.6 million, representing
145 per cent conversion of operating profit before amortisation
of intangible assets (2010: £46.3 million and 107 per cent
respectively), was driven by continued management action
to control capital expenditure and manage working capital
efficiently.
Despite a £5.8 million net outflow of advances received
from customers (2010: £14.3 million outflow) working capital
produced a net inflow of £9.5 million. On a three-year rolling
basis this represents an aggregate net inflow of working
capital of £40.6 million against a backdrop of continuing tough
economic conditions.
Following a year in which proceeds from disposals exceeded
new capital invested by £9.5 million, 2011 saw a return to a
modest level of net capital expenditure of £5.5 million. This
remains significantly below the annual depreciation charge.
The strong cash generation of our operations in the Middle East
and of our Investments special purpose vehicles has enabled
us to make an investment of £3.3 million during the year in the
acquisition of the trade and assets of an interiors business in
Qatar and to remit dividends from associates and joint ventures
of £20.6 million (2010: £32.1 million).
Tax paid of £3.2 million (2010: £6.3 million) remains considerably
lower than the Consolidated Income Statement charge incurred
by the Group, due principally to timing differences, the tax
deductions for pension deficit payments and the actions taken
to maximise the tax efficiency of the remittance of earnings from
the Middle East noted earlier.
Investments and acquisitions outflow of £19.3 million in
2011 reflects additional equity and sub-debt invested in PFI
joint-venture companies, as a number of projects achieved
operational status.
reFInAnCInG
Subsequent to the balance sheet date, we have been successful
in securing a long-term refinancing for the Group. This has seen
our previous £250 million syndicated revolving credit facility,
which was due to expire in October 2013, replaced with a series
of committed facilities totalling £246 million (at current exchange
rates). These new facilities run in parallel with each other and
provide a diverse maturity profile extending, in total, five years
to February 2017. The achievement of five-year funding in the
current debt market is a clear demonstration of the commitment
and backing we receive from our banking group.
The core of this financing is provided by a £150 million
committed syndicated facility extending five years until February
2017. This is augmented by two committed bilateral facilities
totalling £46 million that run in parallel to the main facility and
extend for four years until February 2016. The final element of
financing is provided by a three-year, £50 million bilateral facility
that matures in February 2015 with the option of two one-year
extensions.
£150m For 5 yeArs
£25m For 4 yeArs
€25m For 4 yeArs
£50m For 3 yeArs
1 yeAr
1 yeAr
The new funding is subject to the same covenants as the
previous facility and is on broadly similar commercial terms. It
has been secured at slightly lower rates for borrowing and non-
utilisation.
Interserve AnnuAl report 2011 BusIness revIew FInAnCIAl revIew
The Group’s principal pension scheme is the Interserve Pension
Scheme, comprising approximately 95 per cent of the total
defined benefit obligations of the Group.
The triennial actuarial valuation of the Scheme as at
31 December 2011 is currently under way. This will determine
an updated funding shortfall and an associated programme of
deficit recovery payments. The Group is currently committed to
a programme of cash deficit recovery payments of £22 million
per annum, increasing by 2.8 per cent each year, until 2017.
This deficit recovery plan was designed to eliminate a deficit of
£224 million assessed as at 31 December 2008. This plan also
included a bullet contribution of £61.5 million of PFI assets in
November 2009.
Investment risks
Scheme assets are invested in a mixed portfolio that consists
of a balance of performance-seeking assets (such as equities)
and lower-risk assets (such as gilts and corporate bonds). As
at 31 December 2011, 44 per cent of the Scheme assets were
invested in performance-seeking assets (2010: 48 per cent).
The agreed investment objectives of the Scheme are:
• to secure, with a high degree of certainty, liabilities in respect
of all defined benefit members; and
• to adopt a long-term strategy which aims to capture
outperformance from equities and move gradually into
bonds to reflect the increasing maturity of the defined benefit
membership with a view to reducing the volatility of investment
returns.
The majority of equities held by the Scheme are in international
blue-chip entities. The aim is to hold a globally diversified
portfolio of equities, with an ultimate target of 50 per cent of
equities being held in UK and 50 per cent in US, European and
Asia Pacific equities.
These new funding arrangements provide us with increased
certainty, greater flexibility, improved resilience, a diversity of
maturity dates and sufficient balance sheet capacity to deliver
our medium-term strategy.
ACquIsItIons
We maintain a disciplined approach to reviewing potential
acquisition opportunities, rejecting those which do not meet our
strict valuation and other selection criteria.
We announced on 29 March 2011 that, following several weeks
of due diligence and expenditure of some £0.7 million on
professional advisers, we were not continuing with the proposed
acquisition of Mouchel Group plc.
Nevertheless, with a strong balance sheet, and significant
available debt capacity and facilities, we remain well placed to
take advantage of appropriate acquisition opportunities as they
are identified.
pensIons
At 31 December 2011 the Group pension deficit under IAS 19,
net of deferred tax, was broadly stable at £42.2 million (2010:
£37.6 million):
£million
Defined benefit obligation
Scheme assets
Deferred tax thereon
Net deficit
2011
695.0
2010
642.3
(638.8)
(590.8)
(14.0)
42.2
(13.9)
37.6
With the benefit of additional employer cash contributions
significantly in excess of the Income Statement charge and an
investment portfolio that outperformed the market in the period,
the value of Scheme assets increased by £48.0 million during
the year. However, corporate bond yields, which are used to
discount Scheme liabilities, have fallen significantly during the
year. As a result, the value of benefit obligations has increased
by marginally more than the increase in the value of Scheme
assets.
defined benefit liabilities and funding
£0m
-£10m
dec 2010
-£20m
£37.6m
Current
year service
cost and
curtailment
gain
Cash
contribu-
tions
Increase in
liabilities
return on
assets
tax impact
of move-
ments
dec 2011
£42.2m
£26.9m
£5.2m
£5.2m
£0.1m
£72.0m
£40.4m
-£30m
-£40m
-£50m
-£60m
-£70m
-£80m
-£90m
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Interserve AnnuAl report 2011 BusIness revIew FInAnCIAl revIew
IAs 19 assumptions and sensitivities
Investments
Assumptions adopted in assessment of the Income Statement
charge and funding position under IAS 19 are reviewed by our
actuarial advisers, Lane Clark & Peacock LLP.
The credit in the Income Statement relating to the performance
of the Group’s share of the equity portfolio is analysed as
follows:
The principal sensitivities to the assumptions made with regard
to the balance sheet deficit are as follows:
Assumption adopted
2011
2010
Sensitivity
Key financial
assumptions
Indicative change
in liabilities
Taxation
Discount rate
4.8% 5.4%
+/- 0.5% -/+ 8% -/+ £54m
£million
Share of operating profit
Net finance credit
2011
1.9
7.5
(3.4)
2010
3.8
2.8
(2.4)
Share of profit included in Group Total
Operating Profit
6.0
4.2
RPI / CPI
Real salary increases
3.1% /
2.1%
3.4% /
2.8%
0.75%-
1.5%
0.75%-
1.5%
+/- 0.5% +/- 6% +/- £41m
+/- 0.5% +/- 0.2% +/- £1m
This increased contribution reflects the increasing operational
maturity of the remaining portfolio, with six projects having
achieved operational status during the year.
life expectancy
(years)
Current pensioners1
Men
Women
Future pensioners2
Men
Women
86.0
87.9
87.8
89.1
85.9
87.9
⎫
⎫
⎫ + 1 year
+3%
+21m
87.7
89.0
⎫
⎫
1Life expectancy of a current pensioner aged 65.
2Life expectancy at age 65 for an employee currently aged 45.
Assets created under investment contracts have been assessed
in relation to the balance of risks and rewards assumed by the
Group and are accounted for as financial assets, classified
as available-for-sale. As such these assets are held at their
assessed fair value at the balance sheet date, with movements
over the period being taken directly to equity.
Having achieved financial close on the Holt Park project in
December 2011, at the balance sheet date the Group had
£58.1 million of committed investment in 22 projects which had
reached financial close. Of this, £45.1 million had been invested
at that date, with the balance due to be invested over the next
two years.
Subsequent to the year end, we were appointed selected bidder
on the West Yorkshire Police project for the construction of
two new divisional headquarters, custody suites and a specialist
operational training facility. On financial close this will increase our
committed investment and is expected to provide £150 million of
construction and facilities management work over 25 years.
£million
1 January 2011
New projects achieving
financial close / increased
participation
Loans and capital advanced
Repayment of sub-debt
31 December 2011
Investment to
date
Remaining
commitment
25.8
-
19.5
(0.2)
45.1
30.1
2.4
(19.5)
-
13.0
Total
55.9
2.4
-
(0.2)
58.1
The Group’s share of gross liabilities of £805.5 million (2010:
£701.8 million) principally represents non-recourse debt within
these ventures to fund capital building programmes and working
capital requirements.
Interserve AnnuAl report 2011 BusIness revIew FInAnCIAl revIew
figure i: total life cash flows shows the profile of the post-
tax cash flows expected from the current portfolio excluding
projects at preferred bidder and future gains such as refinancing.
figure ii: Portfolio valuation demonstrates the value of these
flows as calculated along a range of discount rates.
30
30
25
25
20
20
15
15
n
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10
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£
5
5
0
0
(5)
(5)
(10)
(10)
(15)
(15)
2
1
0
2
4
1
0
2
6
1
0
2
8
1
0
2
0
2
0
2
2
2
0
2
4
2
0
2
6
2
0
2
8
2
0
2
0
3
0
2
2
3
0
2
4
3
0
2
6
3
0
2
8
3
0
2
0
4
0
2
2
4
0
2
250
200
150
n
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£
100
50
0
Return of cash Investment
4%
5%
6%
7%
8%
Discount rate
Dec 2011 Dec 2010
treAsury rIsK mAnAGement
Consolidation currency translation
We operate a centralised Treasury function whose primary role
is to manage interest rate, liquidity and foreign exchange risks.
The Treasury function is not a profit centre and it does not enter
into speculative transactions. It aims to reduce financial risk by
the use of hedging instruments, operating within a framework of
policies and guidelines approved by the Board.
liquidity risk
We seek to maintain sufficient facilities to ensure access to
funding for our current and anticipated future requirements,
determined from budgets and medium-term plans.
Having successfully refinanced subsequent to the balance sheet
date, we have access to committed syndicated revolving credit
facilities totalling £150 million until February 2017 and £96 million
of various bilateral agreements which expire between February
2015 and February 2016.
market price risk
The objectives of our interest rate policy are to match funding
costs with operational revenue performance and to ensure
that adequate interest cover is maintained, in line with Board
approved targets and banking covenants.
Our borrowings are principally denominated in sterling and
mostly subject to floating rates of interest linked to LIBOR. We
have in place interest rate caps and swaps which limit interest
rate risk. The weighted average duration to maturity of these
instruments is a little over two years.
Foreign currency risk
transactional currency translation
The revenues and costs of our trading entities are typically
denominated in their functional currency. Where a material
trade is transacted in a non-functional currency, the entity is
required to take out instruments through the centralised Treasury
function to hedge the currency exposure. The instruments used
will normally be forward currency contracts. The impact of
retranslating any entity’s non-functional currency balances into
its functional currency was not material.
We do not hedge the impact of translating overseas entities
trading results or net assets into the consolidation currency.
In preparing the consolidated financial statements, profits and
losses from overseas activities are translated at the average
exchange rates applying during the year. The average rates used
in this process are disclosed on page 24.
The balance sheets of our overseas entities are translated at the
year-end exchange rates. The impact of changes in the year-end
exchange rates, compared to the rates used in preparing the
2010 consolidated financial statements, has led to an increase in
consolidated net assets of £8.0 million (2010: £7.7 million increase).
GoInG ConCern
The Group’s business activities, together with the factors likely to
affect its future development, performance and position are set
out in the Business Review. Our financial position, cash flows,
liquidity position and borrowing facilities and details of financial
risk management are described in the Financial Review.
The majority of our revenue is derived from long-term contracts,
which provides a strong future workload and good forward
revenue visibility. We have access to committed debt facilities
totalling £246 million until a range of dates that extend beyond
February 2015. As a consequence, the directors believe that the
Group is well placed to manage its business risks successfully
despite the current uncertain economic outlook.
After making enquiries, the directors have a reasonable
expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future. For this
reason, they continue to adopt the going concern basis in
preparing the financial statements.
29
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Interserve AnnuAl report 2011 BusIness revIew sustAInABIlIty revIew
sustainability review
At the heart of everything we do
tIm HAywood
GROUP FINANCE DIRECTOR,
HEAD OF SUSTAINABILITY
This section provides a summary
of our approach to sustainability
and of our performance in
2011. A more detailed account,
including further information on
our sustainability performance, is
published in our 2011 Sustainability
Report, available via our website at
www.interserve.com/sustainability.
We are dedicated to providing a
sustainable business fulfilling our
commitments to our shareholders, our
customers, our employees and our
communities to ensure we help deliver a
better future. Our Head of Sustainability
is Tim Haywood, the Group Finance
Director. He leads the Sustainability
Board, which is embedding these
principles throughout the business.
The Sustainability Board, aided by
the wider body of experts within
Interserve and supplemented by
external consultancy, has embarked
on an extensive programme to assess
the effectiveness of our sustainability
processes and to determine how far
sustainability concepts extend into all
our day-to-day working. This programme
recognises that while successful
leadership is important, the responsibility
for delivering a sustainable business is
shared with all our employees, our supply
chain and our clients.
Our sustainability policy includes the
following commitments:
• to continue to operate safely and
responsibly and seek to continuously
improve these standards of operations;
• to develop a sustainable range
of building and support services,
underpinned by a sustainable business;
• to strive to improve our business
performance, contributing to economic,
social and environmental development;
• to help our customers create more
value in their business;
• to provide our people with every
opportunity to contribute to developing
their talents; and
• to act as responsible members of our
communities, by generating economic
growth and supporting social,
educational and cultural advancement.
Across the world we have achieved a
number of accreditations in this area
including Investors in People, ISO 14001,
OHSAS 18001, ISO 9001 and PAS 99.
Interserve is a member of the
FTSE4Good and Kempen Social
Responsibility indices.
How we vIew sustAInABIlIty
Sustainability is essential to the way
we do business. We understand the
fundamental interdependence of the
social, economic and environmental
aspects of sustainability and that the way
we behave will ensure we have a positive
impact in each of these areas.
social
Our approach to social responsibility
provides opportunities for our employees,
focuses on their wellbeing and reflects
our involvement in the economies,
markets and communities in which we
operate. We are playing a crucial role in
delivering social sustainability, economic
regeneration and transformation by
undertaking our work responsibly and by
engaging in matters of local, national and
global interest.
employee engagement
We believe in involving our people in
matters affecting them as employees,
and keep them informed of all relevant
factors concerning the Group’s
performance, strategy, financial status,
charitable activities and other issues. We
achieve this through formal and informal
briefings, through our Group magazines
and through our intranet. Employee
representatives are consulted regularly
on a wide range of matters affecting their
current and future interests.
Since 2007 we have conducted a
biennial, Group-wide survey to help
us understand how our employees
experience working in Interserve and
what improvements we may be able to
make at a local or central level.
Interserve AnnuAl report 2011 BusIness revIew sustAInABIlIty revIew
economic
environmental
Economic success is an integral part
of sustainable development, enabling
the sharing of wealth to the benefit of
society as a whole. We are aware of our
responsibilities in the locations where
we work and are passionate about the
creation of sustainable employment and
training opportunities for local people.
In November we introduced a
revolutionary new design for schools
which greatly reduced building costs and
time. The PodSolve design is being used
for Leeds East Academy and will benefit
students through an improved and flexible
learning environment, while cutting both
costs and length of time for construction
by 25 per cent.
In addition to the moral obligation to
safeguard the environment, there are
clear business advantages in taking
a lead on environmental issues. It
means we are better placed to help our
customers comply with legislation and
prepare for a changing climate, and
especially it enables us to reduce our
customers’ costs and their impact on the
environment. From cutting down waste
and water usage to better use of raw
materials and fewer emissions, we keep
our environmental impact, and those of
our clients, to a minimum.
Our Sustainability Report contains
examples of our innovative work in this
area, including our new Leicester office,
the first certified Passivhaus, carbon-
neutral office in the UK. We have also
started work on the two schools in Leeds
which will also be Passivhaus.
In 2011 we once again participated in the
Carbon Disclosure Project and we are
currently working to achieve CEMARS
accreditation for our carbon emissions
reporting.
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employee enGAGement:
‘tHe BIG pIcture’
in order for our large and diverse
workforce to feel a part of our
vision, to focus on our goals and
endorse our values, we have
developed a major employee
communications initiative called
“The big Picture”.
it has been designed, with the
input of our senior managers, to
educate and inspire our people
and forms part of our induction
process.
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Interserve AnnuAl report 2011 BusIness revIew sustAInABIlIty revIew
our performAnce
Health and safety
At the beginning of 2010 we reassessed
which measures would best help us
manage the way we work in order to
make continual improvements in our
health and safety performance. As a
result we adjusted some of our KPIs to
increase the focus on proactivity and on
enhancing behavioural change.
The health and safety data in the adjacent
table and chart cover Interserve and its
subsidiaries as well as a joint-venture
operation, KMI+, of which Interserve
owns just over 30 per cent. The accident
incidence rate (AIR) is the number
of RIDDOR-reportable injuries per
100,000 workforce.
With our formal safety management
systems well established it is clear that
further improvements in performance will
predominantly come though behavioural
change programmes and changing
attitudes towards safety. This has been
developed into our Aim to be Accident-
Free campaign with each operating
division delivering programmes of activity
most relevant to their operations.
Measure
2011 target
2011 outcome
Zero fatal injuries to
employees, contractors or
members of the public
Halve our all-labour AIR by
2020 from a 2010
base (377)
Maintain a fatal and major
injury incidence rate below
70
Executive Board members
to carry out an average
of 12 site safety visits per
annum
All employees with high
occupational risk to their
health to be engaged with
the health surveillance
programme
All site managers and
supervisors to receive
appropriate health and
safety training
All employees to work
within safety management
systems registered to
OHSAS 18001
0
341
70
0
310
85
12 each
total: 93
Average:
13.3
90%
92%
90%
87%
95%
98%
3/✗
3
2012 target
0
3
✗
3
3
✗
3
282
70
12 each
90%
90%
95%
All-lABour AccIdent IncIdence rAte
Target 494
444
429
Target 373
Target 386
344
Target 310
377
Target 341
310
2007
2008
2009
2010
2011
Interserve AnnuAl report 2011 BusIness revIew sustAInABIlIty revIew
employee development
Over the course of the year our people
engaged in more than 9,800 days’-worth of
training, in addition to external courses and
self-directed learning. We employed 78
apprentices, had 298 people undertaking
part-time or distance learning and 1,370
on management development courses.
Since the year end one of our apprentices,
Tibby Choda, was named Young
Carpenter of the Year 2012 in the BBC’s
Young Talent of the Year competition.
The success of individuals committed to
their personal training and development
is recognised through the Interserve
Training Trust, established in 1981. The
Chief Executive presented 45 people
from across the Group and around the
world with awards in September at a
ceremony in front of the entire Group’s
senior management.
charitable giving
We believe in contributing to the well-
being of the communities in which we
work. For some years we have had a
programme which operates at different
levels: at Group level we select a charity
every two years and make an annual
donation; we encourage business units
to run charitable events, either for the
Group charity or for another cause that
is important to the area or the people
involved; and we offer support for
employees to undertake sponsored
activities.
In early 2012 we set up the Interserve
Employee Foundation. The aim of the
Foundation is to improve the quality of life
for people in the communities where we
live and work, using the skills, capabilities,
resources and enthusiasm of Interserve
employees. Ambassadors from all our
business units and locations will promote
the aims of the Foundation and help get
employees involved in local projects.
The Foundation was launched with an
ambitious project to construct a learning
centre in Chennai, India.
Our chosen charity for 2010 and 2011
was Help for Heroes, a charity founded in
2007 to provide direct, practical support
to those wounded in UK military service.
As a result of the fund-raising events
and individual sponsored activities,
over £49,000 was raised in 2011 to
complement the Company donation
of £25,000, making a total of nearly
£160,000 over the two years. We have
extended our support for a further year.
We collect data in our wholly-controlled,
UK operations1. This is based around our
fixed office locations and the activities we
support from them and includes office
locations associated with contracts where
we hold lease agreements and pay utility
bills. It also includes the fuel we purchase
for use in vehicles to deliver our contracts.
We believe that the increase in the
figure for waste produced was due to
improvements in our capturing data
rather than to an actual increase in waste
itself. It is also worth noting that we have
increased the amount of recycling, so
the waste potentially going to landfill
has reduced.
1 We have included the energy used on construction sites
which we purchase directly and will have to account for
under the carbon reduction commitment. We do not include:
• fuel used by contractors to deliver their packages of work
on construction contracts;
• emissions from our associated companies overseas over
which we do not exert direct financial control; or
• the local environmental impact of our Equipment Services
international locations, as they are predominantly small
locations and we do not routinely collect data there.
Beyond our chosen charity we involve
ourselves in numerous local charities
in the UK and internationally, both as a
business and through the hard work of
many individuals who take up causes
that are close to them personally or to our
clients. We gave a corporate donation
of £10,000 to Great Ormond Street
Hospital’s Raising the Roof campaign
as well as £25,000 to the Safer London
Foundation (the Metropolitan Police’s
charity supporting community-led
crime prevention/reduction projects),
and several smaller donations to other
charities brought the corporate total to
£77,412 for the year.
environmental impact
We use a variety of indicators relevant
to each of our operating companies to
monitor environmental performance, but
the following core impacts are identified
for the Group as a whole:
• Greenhouse gas emissions from our
use of energy, including electricity, gas,
fuel in vehicles, transport and travel
• Use of resources including water and
timber
• Generation and disposal of waste
proGress AGAInst envIronmentAl tArGets (uK operAtIons)
Measure
2011 target
2011 outcome
3.38
tonnes/£m
3.33
tonnes/£m
3/✗
3
2012 target
3.25
tonnes/£m
Reduce carbon emissions
from energy used at
UK Interserve fixed site
locations (tonnes CO2e
per £million UK revenue)
by 2.5% per annum
Reduce carbon emissions
from fuel used in UK fleet
and cars (tonnes CO2e per
£million UK revenue) by
2.5% per annum
Reduce water
consumption at UK
fixed site locations (m3
water used per £million
UK revenue) by 2% per
annum
Reduce waste generated
at UK fixed site locations
(kg of waste generated
per UK employee) by
2% per annum
13.68
tonnes/£m
12.77
tonnes/£m
3
12.45
tonnes/£m
22.99 m3/£m 23.17 m3/£m ✗
22.71 m3/£m
32.79 kg/
employee
41.86 kg/
employee
✗
41.02 kg/
employee
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Interserve AnnuAl report 2011 BusIness revIew sustAInABIlIty revIew
our contributions to the social, economic and
environmental wellbeing of the communities in
which we operate are regularly recognised through
a variety of awards.
recoGnItIon
In 2011 our awards included:
social
economic
• Thames water – Excellence in
Health and Safety award: Riverside
project team
• considerate contractors
scheme – Gold Award (and
runner-up as Most Considerate
Site): Wisbech Flood Defence
project
• considerate contractors
scheme – Bronze Award: Ripon
flood alleviation scheme
• Premises and facilities
management (Pfm) awards –
Partners in Skills Development:
partnership with Asset Skills and
RICS in developing employee
career pathways
• RoSPA awards:
2 President’s Awards (10 to 14
consecutive Gold Awards)
11 Gold Medals (5 to 9 consecutive
Gold Awards)
13 Gold Awards
2 Silver Awards
• global water Awards –
Distinction for Technical
Achievement (and finalist as the
Best Desalination Plant of the
Year): Thames Gateway water
treatment works
• South west forum for the built
environment Drake awards –
Building of the Year: High View
primary school
• building better Healthcare
awards – Best Mental Health
Design: Prospect Place, Birch Hill
Hospital
• South west water – Pure Service
award: Hayle project team, for
excellence in customer service
• edinburgh Architectural
Association – Regeneration
and Conservation award: Adam
Ferguson building at Edinburgh
University
• local Authority building control
(lAbc) cYmRu building
excellence awards – Best
Healthcare Project: Adult Mental
Healthcare Unit at the Wrexham
Maelor Hospital
• lAbc South west building
excellence awards – Best
Educational Development: Torquay
Community College
• HR Technology impact Awards
– Most Innovative Use of HR
Technology: Construction’s HR
Department and the Department for
Sustainable Business
• employee benefits Awards –
Most Effective Travel Strategy for
Business and Perk Car Drivers:
Construction’s HR Department and
the Department for Sustainable
Business
• institute of civil engineers east
midlands merit awards – Best
Large Project: Stoke Bardolph
anaerobic digestion plant
• civil engineering contractors
Association – North-East
Project of the Year: Morpeth Flood
Alleviation Scheme Emergency
works
• education investors awards –
Local Education Partnership of
the Year: Sandwell Futures
Interserve AnnuAl report 2011 BusIness revIew sustAInABIlIty revIew
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• Yorkshire Post – Environment
Award: Fishlake Habitat Creation
project
• Health Service Journal
efficiency Awards – Energy
Efficiency award: UCLH Carbon
Reduction and Innovation Group
• building better Healthcare
awards – Best Use of Efficiency
Savings: lighting scheme at the
Christie Hospital’s new Oak Road
Patient Treatment Centre
environmental
• environment Agency – SHE
Exemplar award: Shaldon and
Ringmore Tidal Defence Scheme
• H2o awards 2011 (middle east
and north Africa water industry)
– Water Efficiency Leader award:
Gulf Contracting (our Qatar
associate company)
• Abercrombie Awards –
Best Sustainable Development:
High View primary school
• green Apple environmental
Awards:
Winner, Built Environment
category: Malvern Community
Hospital
Gold Award (Education):
Dartington primary school
Gold Award (Biodiversity):
Fishlake Habitat Creation project
Ripon flood alleviation scheme
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inTerServe AnnuAl reporT 2011 GovernAnce DirecTorS AnD ADviSerS
Directors
and Advisers
1
2
3
4
5
6
1. normAn BlAckwell
(lorD BlAckwell) 1 3
cHAirmAn
Norman was appointed Chairman of
Interserve in January 2006 having joined
the Group as a non-executive director
the previous September. He is the Senior
Independent Director at Standard Life,
a non-executive director at Ofcom and
Halma and a board member of the Centre
for Policy Studies. A former partner of
McKinsey & Company, Norman was
Head of the Prime Minister’s Policy Unit
from 1995-1997 and was appointed
a life peer in 1997. His past business
roles have included Director of Group
Development at NatWest Group, non-
executive directorships at SEGRO and
Dixons Group, Non-Executive Board
Member of the Office of Fair Trading and
Commissioner of Postcomm. Norman
chairs the Nomination Committee.
2. ADriAn rinGroSe 1
cHieF execuTive
Adrian was appointed Chief Executive in
July 2003 having served as Deputy Chief
Executive since the previous January. He
joined Interserve in 2000 on its acquisition
of the Building & Property Group, became
Managing Director of Interservefm a year
later and joined the parent Board in 2002.
Adrian is Chairman of the CBI’s Public
Services Strategy Board, a Member
of the CBI’s President’s Committee,
past-President of the Business Services
Association, a companion of the Chartered
Management Institute and a member of
the Chartered Institute of Marketing.
3. Tim HAywooD
Group FinAnce DirecTor
Tim joined Interserve as Group Finance
Director in November 2010. He was
previously Finance Director of St Modwen
Properties. Earlier roles included Group
Finance Director at Hagemeyer UK and
senior finance director and financial
controller positions in Williams Holdings.
Tim is a Fellow of the Institute of Chartered
Accountants in England and Wales.
4. STeven DAnce
execuTive DirecTor
Steven was appointed to the parent
Board in January 2008, having joined the
Group in 2004 as Managing Director of
RMD Kwikform, the Equipment Services
division. He was previously president of
Erico’s Fixing and Fastening business and
prior to that had been involved in M&A
transactions with ScottishPower. His
early career included a variety of general
management positions with Coats Viyella
in Germany, Portugal, South America and
the UK. Steven is a Chartered Director and
a member of the Board of Examiners at
the Institute of Directors.
5. Bruce melizAn
execuTive DirecTor
Bruce, Managing Director of the Support
Services division, was appointed to
the parent Board in January 2008. He
joined Interserve in 2003 as Managing
Director of Interserve Investments before
being appointed to his current position
in 2006. Prior to joining Interserve he
worked in a variety of roles worldwide in
organisations such as Amey, Mowlem
and Schlumberger. Bruce is a member
of the Business Services Association
Council and a Trustee of the Safer London
Foundation.
6. DAviD pATerSon
execuTive DirecTor
David, Managing Director of the
Construction division, was appointed to
the parent Board in January 2011. He
joined Interserve in 1994 and became
Managing Director of the Infrastructure
business unit in 1997. In 2005 he
was appointed Managing Director of
Construction’s UK operations before
taking on responsibility for the whole
division in 2009. David’s early career
included working on the construction of
the M25 and the Conwy Crossing and,
prior to joining Interserve, he held senior
management positions in Costain and
Birse. David sits on the CBI Construction
Council and is a Chartered Civil Engineer.
inTerServe AnnuAl reporT 2011 GovernAnce DirecTorS AnD ADviSerS
Group compAny SecreTAry
Trevor Bradbury
reGiSTereD numBer
88456
AuDiTorS
Deloitte LLP
reGiSTereD oFFice
Interserve House
Ruscombe Park
Twyford
Reading
Berkshire RG10 9JU
T +44 (0)118 932 0123
F +44 (0)118 932 0206
info@interserve.com
www.interserve.com
reGiSTrAr AnD
SHAre TrAnSFer oFFice
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
T +44 (0)20 8639 3399
F +44 (0)1484 600911
ssd@capitaregistrars.com
www.capitashareportal.com
STockBrokerS
J.P. Morgan Cazenove Limited
Oriel Securities Limited
lAwyerS
Ashurst LLP
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7. DouGie SuTHerlAnD
execuTive DirecTor
Dougie was appointed to the parent Board
in January 2011. He is Managing Director
of the Developments division, the evolution
of the previous Investments division of
which he became Managing Director on
joining Interserve in 2006. Dougie began
his career with seven years in the Royal
Engineers. Between 1995 and 1999 he
worked for HM Treasury leading deals on
behalf of the government, including the
redevelopment of the HM Treasury, GCHQ
and National Savings buildings. For the next
five years Dougie was Managing Director
of Amey Ventures, with responsibility for
a wide portfolio of bids and investments
in the education, defence, rail and roads
sectors. He then moved to Lend Lease as
Managing Director of its PFI hospitals and
schools business before joining 3i as a
partner in its infrastructure team.
8. DAviD TrApnell 1 2 3 4
non-execuTive DirecTor
David, who has extensive international
experience in manufacturing, distribution
and installation of building materials gained
in positions in the USA and Europe, was
appointed as a non-executive director
of Interserve in July 2003 and became
Senior Independent Director in May 2011.
Previous roles include non-executive
director of Newman Tonks plc and
Chairman of the Audit Committee at
The Royal Mint, Group Chief Executive
of Marley and Vice-President of the
Construction Products Association.
9. leS cullen 1 2 3
non-execuTive DirecTor
Les brings a wealth of experience from a
number of senior financial roles in the UK
and internationally. He joined Interserve
as a non-executive director in October
2005. He is a non-executive director of
F&C Global Smaller Companies and
a former director of Avis Europe and
Sustrans. He has held the post of Group
Finance Director at De La Rue, Inchcape
and Prudential. Les chairs the Audit
Committee.
10. keiTH luDemAn 1 2 3
non-execuTive DirecTor
Keith became a non-executive director in
January 2011. He is also a non-executive
director of Network Rail Infrastructure and
of Network Rail. Keith has many years’
experience in the rail and bus service
industries, including some 15 years
with Go-Ahead Group, of which he was
Chief Executive for five years and where
he was responsible for the negotiation
and operation of complex public service
contracts and the management and
motivation of large workforces. His early
career included nine years working with
Greater Manchester Transport and three
11
1 Member of the Nomination Committee
2 Member of the Audit Committee
3 Member of the Remuneration Committee
4 Senior Independent Director
years working on transport policy in
Hong Kong.
11. DAviD THorpe 1 2 3
non-execuTive DirecTor
David joined Interserve as a non-
executive director in January 2009. He
is non-executive Chairman of Arena
Leisure, Clinical Solutions, The Innovation
Group and SHL Group. David’s executive
career included a decade at Electronic
Data Systems (EDS) which culminated
in his becoming President of EDS
Europe, and senior leadership roles at
Bull Information Systems. He has also
been Chairman of the Racecourse
Association. Previous non-executive
roles include VT Group, Anite and
Tunstall Holdings. David is a County
Councillor and the Cabinet Champion
for Change for Gloucestershire County
Council. He chairs the Remuneration
Committee.
G pATrick BAlFour
reTireD DirecTor
Patrick joined Interserve as a non-
executive director in January 2003 and
was appointed Senior Independent
Director in October 2005. He is a solicitor
and was formerly a partner of Slaughter
and May. He retired from the Board on
18 May 2011.
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38
Interserve AnnuAl report 2011 GovernAnce DIrectors’ report
Interserve AnnuAl report 2011 GovernAnce DIrectors report
Directors’ report
The Board aims to provide a balanced and understandable
assessment of the Company’s position and prospects. It uses
the Chairman’s Statement and the explanation of the Company’s
business model, markets and strategy on pages 2 to 9, the
Business Review (which includes the Chief Executive’s Q&A,
Operational Review, Principal Risks and Uncertainties, Financial
Review and Sustainability Review) on pages 14 to 35 and the
Corporate Governance report on pages 44 to 51 which are
incorporated in and form part of this Directors’ Report to assist
with this.
The directors’ responsibility for the preparation of the Annual
Report and Financial Statements and the statement by the
auditors about their reporting responsibilities are set out on
pages 63 and 64, respectively, of this Annual Report.
Group results AnD DIvIDenDs
Financial reporting
The Group’s Consolidated Income Statement set out on page 65
shows an increase in Group profit before taxation to
£67.1 million (2010: £64.1 million). The detailed results of the
Group are given in the financial statements on pages 65 to
107 and further comments on divisional results are given in the
Operational Review on pages 16 to 21. There have been no post
balance sheet events that require disclosure or adjustment in the
financial statements.
Dividends
An interim dividend of 6.0p per 10p ordinary share (2010: 5.6p)
was paid on 25 October 2011. The directors recommend a
final dividend of 13.0p per 10p ordinary share, making a total
distribution for the year ended 31 December 2011 of 19.0p
per 10p ordinary share (2010: 18.0p). Subject to approval of
shareholders at the Annual General Meeting (“AGM”) on
16 May 2012, the final dividend will be paid on 24 May 2012 to
shareholders appearing on the register at the close of business
on 10 April 2012. The shares will be quoted ex-dividend on
4 April 2012.
The Company’s dividend reinvestment plan will continue to be
available to eligible shareholders. Further details of the plan are
set out in the Shareholder Information section on page 128.
EES Trustees International Limited, the trustee of the Interserve
Employee Benefit Trust (the “Trust”), waived its right to receive
a dividend over 1,089,702 shares held by the Trust in the name
of Greenwood Nominees Limited in respect of the dividend
paid in June 2011 (June 2010: 2,665 shares) and 1,083,263
shares in respect of the dividend paid in October 2011
(October 2010: 1,092,328 shares).
shAre cApItAl
General
The Companies Act 2006 (the “2006 Act”) abolished the
requirement for companies to have an authorised share capital
and shareholder approval was obtained at the 2010 AGM to
take advantage of this deregulating measure. Accordingly, the
Company no longer has an authorised share capital.
The Company’s issued share capital as at 31 December 2011
comprised a single class of ordinary shares. All shares rank
equally and are fully paid. No person holds shares carrying
special rights with regard to control of the Company.
No shares were issued during the year. The Company’s issued
share capital at the end of the year stood at 125,804,346
(2010: 125,804,346) ordinary shares of 10p each
(£12,580,434.60) (2010: £12,580,434.60). There has been no
change since the year end.
Details of outstanding awards and options over shares in the
Company as at 31 December 2011 are set out in notes 25 and
27 to the financial statements on pages 99 and 100 respectively.
Section 618 of the 2006 Act provides the rules governing the
sub-division and consolidation of shares.
Issue of shares
Section 551 of the 2006 Act provides that the directors may not
allot shares unless empowered to do so by the shareholders. A
resolution giving such authority was passed at the AGM held on
18 May 2011. This authority was not used during the year.
In accordance with the guidelines issued by the Association of
British Insurers (the “ABI”), the directors propose Resolution 18 set
out in the Notice of AGM to renew the authority granted to them
at the 2011 AGM to allot shares up to an aggregate nominal
value of one-third of the Company’s issued share capital plus a
further one-third (i.e. two-thirds in all) where the allotment is in
connection with a rights issue.
Under section 561 of the 2006 Act, if the directors wish to
allot unissued shares for cash (other than pursuant to an
employee share scheme) they must first offer them to existing
shareholders in proportion to their holdings (a pre-emptive offer).
Resolution 19 set out in the Notice of AGM will be proposed as
a special resolution in order to renew the directors’ authority
to allot shares for cash other than by way of rights to existing
shareholders. By restricting such authority to an aggregate
nominal value of no more than 5 per cent of the Company’s
total issued equity capital, the Company will be in compliance
with the Pre-Emption Group’s Statement of Principles (the
“Principles”).
Shareholders should note that the Listing Rules of the Financial
Services Authority do not require shareholders’ specific approval
for each issue of shares for cash on a non-pre-emptive basis to
the extent that under section 570 of the 2006 Act the provisions
of section 561 are disapplied generally. If given, this authority
will expire on the date of the next AGM of the Company. The
Principles also request that in any rolling three-year period a
company does not make non-pre-emptive issues for cash or of
equity securities exceeding 7.5 per cent of the company’s issued
share capital without prior consultation with shareholders. The
percentage of shares issued by the Company on a non-pre-
emptive basis in the period 2009 to 2011 pursuant to employee
share schemes (calculated by reference to the Company’s closing
issued share capital at 31 December 2011), was 0.63 per cent.
Save for issues of shares in respect of various employee share
schemes, the directors have no current plans to make use of
the authorities sought by Resolutions 18 and 19 although they
consider their renewal appropriate in order to retain maximum
flexibility to take advantage of business opportunities as they
arise.
Interserve AnnuAl report 2011 GovernAnce DIrectors’ report
repurchase of shares
The Company has authority under a shareholders’ resolution
passed at the 2011 AGM to repurchase up to 12,580,434 of
the Company’s ordinary shares in the market. The shares may
be purchased at a price ranging between the nominal value
for each share and an amount equal to the higher of (i) 105 per
cent of the average of the middle-market price of an ordinary
share for the five business days immediately preceding the date
on which the Company agrees to buy the shares concerned
and (ii) the higher of the price of the last independent trade
and the highest independent current bid on the London Stock
Exchange at the time the purchase is carried out. This authority
expires at the conclusion of the forthcoming AGM on 16 May 2012.
No shares have been repurchased by the Company under the
authority granted at the 2011 AGM.
Resolution 20 set out in the Notice of AGM will be proposed as
a special resolution in order to renew this authority. Although
the directors have no immediate plans to do so, they believe
it is prudent to seek general authority from shareholders to
be able to act if circumstances were to arise in which they
considered such purchases to be desirable. This power will
only be exercised if and when, in the light of market conditions
prevailing at that time, the directors believe that such purchases
would increase earnings per share and would be for the benefit
of shareholders generally. Any shares purchased under this
authority will be cancelled (unless the directors determine that
they are to be held as treasury shares) and the number of
shares in issue will be reduced accordingly.
Whilst the Company does not presently hold shares in treasury,
the Treasury Shares Regulations allow shares purchased by
the Company out of distributable profits to be held as treasury
shares, which may then be cancelled, sold for cash or used
to meet the Company’s obligations under its employee share
schemes. The authority sought by this resolution is intended to
apply equally to shares to be held by the Company as treasury
shares in accordance with the Treasury Shares Regulations.
rIGhts AttAchInG to shAres
General
The rights attaching to the ordinary shares are set out in the
2006 Act and the Company’s Articles of Association. A copy
of the Articles can be obtained on request from the Company
Secretary. The Articles may only be changed by special
resolution of shareholders which requires, on a vote on a show
of hands, at least three-quarters of the shareholders or proxies
present at the meeting to be in favour of the resolution or, on a
poll, at least three-quarters in nominal value of the votes cast by
shareholders or their proxies to be in favour of the resolution.
A shareholder whose name appears on the register of
members may choose whether those shares are evidenced by
share certificates (certificated form) or held in electronic form
(uncertificated) in CREST.
voting
Subject to the restrictions set out below, a shareholder
is entitled to attend (or appoint another person as his
representative (a “proxy”) to attend) and to exercise all or any
of his rights to speak, ask questions and vote at any general
meeting of the Company. A shareholder may also appoint
more than one proxy, provided that each proxy is appointed to
exercise the rights attached to a different share or shares held
by that shareholder. A proxy need not be a shareholder of the
Company.
The right to appoint a proxy does not apply to a person
who has been nominated under section 146 of the 2006
Act to enjoy information rights (a “Nominated Person”). He/
she may, however, have a right under an agreement with the
registered shareholder holding the shares on his/her behalf to
be appointed (or to have someone else appointed) as a proxy.
Alternatively, if a Nominated Person does not have such a right,
or does not wish to exercise it, he/she may have a right under
such an agreement to give instructions to the person holding
the shares as to the exercise of voting rights.
In accordance with section 327 of the 2006 Act, in order to be
valid, any form of proxy sent by the Company to shareholders
or any proxy registered electronically in relation to any general
meeting must be delivered to the Company’s registrars not later
than 48 hours before the time fixed for holding the meeting (or
any adjourned meeting). In calculating the 48 hour period no
account shall be taken of any part of a day that is not a working
day. Full details of the deadlines for exercising voting rights in
respect of the 2012 AGM are set out in the Notice of AGM.
Subject to any rights or restrictions for the time being attached
to any class or classes of shares and to any other provisions
of the Articles of Association or statutes, on a vote on a
resolution at a general meeting on a show of hands every
shareholder present in person, every proxy present who has
been duly appointed by one or more shareholders entitled to
vote on the resolution and every authorised representative of
a corporation which is a shareholder of the Company entitled
to vote on the resolution, shall have one vote. If a proxy has
been duly appointed by more than one shareholder and has
been instructed by one or more of those shareholders to vote
for the resolution and by one or more of those shareholders to
vote against it, that proxy shall have one vote for and one vote
against the resolution. On a poll, every shareholder present in
person or by proxy shall have one vote for every share held.
A resolution put to the vote at a general meeting shall be
decided on a show of hands unless the notice of the meeting
specifies that a poll will be called on such resolution or a poll is
(before the resolution is put to the vote on a show of hands or
on the declaration of the results of the show of hands) directed
by the Chairman or demanded in accordance with the Articles
of Association.
If a person fails to give the Company any information required
by a notice served on him by the Company under section 793 of
the 2006 Act (which confers upon public companies the power
to require information to be supplied in respect of a person’s
interests in the Company’s shares) then the Company may, no
sooner than 21 days later, and after warning that person, serve
a disenfranchisement notice upon the shareholder registered
as the holder of the shares in respect of which the section
793 notice was given. Unless the information required by the
section 793 notice is given within 14 days, such holder will not
be entitled to receive notice of any general meeting or attend
any such meeting of the Company and shall not be entitled to
exercise, either personally or by proxy, the votes attaching to
such shares in respect of which the disenfranchisement notice
has been given unless and until the information required by the
section 793 notice has been provided.
39
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Interserve AnnuAl report 2011 GovernAnce DIrectors’ report
General meetings
MoDIFIcAtIon oF rIGhts
No business may be transacted at a general meeting unless a
quorum is present consisting of not less than two shareholders
present in person or by proxy or by two duly authorised
representatives of a corporation. Two proxies of the same
shareholder or two duly authorised representatives of the same
corporation will not constitute a quorum.
An AGM must be called on at least 21 days’ clear notice. All
other general meetings are also required to be held on at least
21 days’ clear notice unless the Company offers shareholders
an electronic voting facility and a special resolution reducing
the period of notice to not less than 14 days has been passed.
The directors are proposing Resolution 21 set out in the Notice
of AGM to renew the authority obtained at last year’s AGM to
reduce the notice period for general meetings (other than AGMs)
to at least 14 days. It is intended that this shorter notice period
will only be used for non-routine business and where merited in
the interests of shareholders as a whole.
The business of an AGM is to receive and consider the accounts
and balance sheets and the reports of the directors and
auditors, to elect directors in place of those retiring, to elect
auditors and fix their remuneration and to declare a dividend.
Providing that notice is given to the Company no later than six
weeks before an AGM or no later than the date on which the
notice of an AGM is given, shareholders representing at least
5 per cent of the total voting rights of all the shareholders who
have a right to vote at the AGM or at least 100 shareholders who
have that right and who hold shares in the Company on which
there has been paid up an average sum per shareholder of at
least £100, may require the Company to include an item in the
business to be dealt with at the AGM.
Dividends
Subject to the provisions of the 2006 Act, the Company may,
by ordinary resolution, declare a dividend to be paid to the
shareholders but the amount of the dividend may not exceed
the amount recommended by the directors. The directors may
also pay interim dividends on any class of shares on any dates
and in any amounts and in respect of any periods as appear
to the directors to be justified by the distributable profits of the
Company.
liquidation
If the Company is wound up the liquidator may, with the sanction
of a special resolution of the Company, and any other sanction
required by law, divide amongst the shareholders the whole
or any part of the assets of the Company. He may, for such
purposes, set such value as he deems fair upon any property
to be divided and may determine how such division shall be
carried out as between the shareholders or different classes of
shareholders. The liquidator may also transfer the whole or any
part of such assets to trustees to be held in trust for the benefit
of the shareholders. No shareholder can be compelled to accept
any shares or other securities which would give him any liability.
If at any time the capital of the Company is divided into different
classes of shares, the rights attached to any class or any of such
rights may be modified, abrogated, or varied either:
(a) with the consent of the holders of 75 per cent of the issued
shares of that class; or
(b) with the sanction of a special resolution passed at a separate
general meeting of the holders of the shares of the class.
The rights attached to any class of shares shall not (unless
otherwise provided by the terms of issue of the shares of that
class or by the terms upon which such shares are for the time
being held) be deemed to be modified or varied by the creation
or issue of further shares ranking pari passu therewith.
The Company may, by ordinary resolution, convert any paid-up
shares into stock, and reconvert any stock into paid-up shares
of any denomination.
trAnsFer oF shAres
There are no specific restrictions on the transfer of securities in
the Company, or on the size of a shareholder’s holding, which
are both governed by the Articles of Association and prevailing
legislation. In accordance with the Listing, Prospectus, and
Disclosure and Transparency Rules of the Financial Services
Authority, certain employees are required to seek the approval of
the Company to deal in its shares.
The Company is not aware of any agreements between
shareholders that may result in restrictions on the transfer of
securities or on voting rights.
Subject to the 2006 Act, the directors may refuse to register any
transfer of any share which is not fully paid (whether certificated
or uncertificated), provided that the refusal does not prevent
dealing in shares in the Company from taking place on an open
and proper basis.
The directors may also decline to register the transfer of any
certificated share unless the instrument of transfer is duly
stamped (if stampable) and accompanied by the certificate
of the shares to which it relates and such other evidence as
the directors may reasonably require to show the right of the
transferor to make the transfer.
Transfers of uncertificated shares must be conducted through
CREST and the directors can refuse to register transfers in
accordance with the regulations governing the operation of
CREST.
All share transfers must be registered as soon as practicable.
AppoIntMent AnD replAceMent oF DIrectors
The Board must comprise of not less than three and no
more than twelve directors. Directors may be appointed by
shareholders (by ordinary resolution) or by the Board. Further
information regarding the re-election of directors can be found
on page 47 in the Corporate Governance report.
No person other than a director retiring at a general meeting
shall, unless recommended by the directors for election, be
eligible for election to the office of director unless, not less than
seven nor more than 21 days beforehand, the Company has
been given notice, executed by a shareholder eligible to vote at
the meeting, of his intention to propose such person for election
together with a notice executed by that person of his willingness
to be elected.
Interserve AnnuAl report 2011 GovernAnce DIrectors’ report
The Company may, by ordinary resolution, of which special
notice has been given in accordance with section 312 of the
2006 Act, remove any director before the expiration of his period
of office and may, by ordinary resolution, appoint another person
in his stead.
The directors do not have any interest in any other Group
company, other than as directors. No director has, or has had,
a material interest, directly or indirectly, at any time during the
year under review in any contract significant to the Company’s
business.
DIrectorAte AnD DIrectors’ Interests
AnD InDeMnItIes
The following (unless otherwise noted) have been directors
throughout the year:
Lord Blackwell* (Group Chairman)
Adrian Ringrose (Chief Executive)
Patrick Balfour*1
Les Cullen*
Steven Dance
Tim Haywood
Keith Ludeman*
Bruce Melizan
David Paterson
Dougie Sutherland
David Thorpe*
David Trapnell* (Senior Independent Director)
*Non-executive director.
1Mr Balfour retired from the Board on 18 May 2011.
On 1 January 2011, David Paterson and Dougie Sutherland were
appointed as executive directors and Keith Ludeman as a non-
executive director.
Patrick Balfour retired from the Board following the conclusion
of the 2011 AGM. He was succeeded as Senior Independent
Director by David Trapnell, and David Thorpe took over from
Mr Trapnell as Chairman of the Remuneration Committee.
The directors acknowledge the new Corporate Governance
Code provision which encourages board members to stand for
annual re-election at the AGM and for the first time at the AGM
on 16 May 2012 each director will submit himself for re-election.
The directors’ beneficial interests in, and options to acquire,
ordinary shares in the Company at the year end are set out in
the Directors’ Remuneration Report on pages 59 to 62 of this
Annual Report and Financial Statements.
Between the year end and the date of this report, Steven Dance,
David Paterson, Adrian Ringrose and Dougie Sutherland have
notified the Company that they have purchased an additional
82 shares each pursuant to the Interserve Share Incentive Plan
2009. Further details are disclosed on page 59 in the Directors’
Remuneration Report. There have been no further changes in
the shareholdings of the directors who held office at the year
end.
On 26 September 2007 the rules of the Interserve Pension
Scheme were amended in order to provide the directors
of Interserve Trustees Limited, the corporate trustee of the
Interserve Pension Scheme, with a qualifying pension scheme
indemnity to the extent that insurance has not been taken out
by the trustee to cover its liabilities, or such liabilities cannot
be paid from the proceeds of any insurance taken out by the
trustee. That qualifying pension scheme indemnity remains in
force at the date of this report and is available for inspection by
shareholders at the Company’s registered office.
In January 2011 an indemnity was given to the trustees of the
Douglas Group Compass Pension Plan for any claim, costs,
loss, damages and expenses which may be made against
them or which they may pay or incur (save as a consequence
of breach of trust committed knowingly and intentionally or as a
result of negligence) in connection with the administration of the
Plan and the winding-up of the Plan. Two of the trustees were
also directors of one or more Group subsidiary companies. This
Plan was formally wound up on 7 January 2011.
In January 2012 an indemnity was given to the trustees of
the Interserve Retirement Plan against all and any claims,
costs, damages and expenses which may be made against
them or which they may pay or incur in connection with their
administration of the Plan and the winding-up of the Plan (other
than liabilities arising as a consequence of breach of trust
committed knowingly and intentionally). One of the trustees was
also a director of various Group subsidiary companies. This Plan
was formally wound up on 31 January 2012.
substAntIAl shAreholDInGs
As at 31 December 2011 the Company had been notified of the
following interests in the voting rights over shares, as shown in
the table below.
Between the year end and the date of this report, the Company
has been notified that the interest of Standard Life Investments
Ltd in the voting rights over shares has decreased to 6,260,305
shares (4.98 per cent of total voting rights).
substAntIAl shAreholDInGs As At 31 DeceMber 2011
Name of holder
Henderson Global Investors Ltd
JPMorgan Asset Management Holdings Inc
Sageview Capital MGP, LLC
Standard Life Investments Ltd
Prudential plc group of companies
Mondrian Investment Partners Ltd
Legal & General Group Plc
Number of
ordinary shares
9,779,596
6,907,455
6,408,365
6,325,629
5,711,710
5,312,017
4,550,350
% of total
voting rights
7.77
5.49
5.09
5.03
4.54
4.22
3.62
Nature of
holding
Indirect
Indirect
Indirect
Direct and indirect
Direct
Indirect
Direct and indirect
41
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Interserve AnnuAl report 2011 GovernAnce DIrectors’ report
sIGnIFIcAnt AGreeMents – chAnGe oF control
provIsIons
DIversIty
our Diversity policy states:
The following significant agreements contain provisions entitling
the counter parties to exercise termination rights in the event of a
change of control in the Company:
• Under the terms of the banking facility agreements listed
on page 26 of the Financial Review, if any person, or group
of persons acting in concert, gains control of the Company
any lender (i) is no longer obliged to fund any loan, save for
a rollover loan; and (ii) may, by not less than 15 days’ notice,
cancel its commitment under the facility and declare its
participation in all outstanding loans, together with accrued
interest and all other amounts payable under the facility,
immediately due and repayable.
The Group’s share schemes also contain provisions relating to
the vesting and exercising of awards/options in the event of a
change of control of the Group.
There are no provisions in the directors’ service agreements nor
in any employees’ contracts providing for compensation for loss
of office or employment occurring because of a takeover.
chArItAble AnD polItIcAl DonAtIons
Charitable donations made by the Company during the
year amounted to £40,610 (2010: £40,785). Details of the
beneficiaries of donations are given on page 33 in the charitable
giving section of the Sustainability Review.
No political donations were made during the period
(2010: £nil). It is not the Company’s policy to make cash
donations to political parties. This policy is strictly adhered to
and there is no intention to change it. However, the definitions
used in the 2006 Act for “political donation” and “political
expenditure” remain very broad, which may have the effect of
covering a number of normal business activities that would not
be considered political donations or political expenditure in the
usual sense. These could include support for bodies engaged
in law reform or governmental policy review or involvement in
seminars and functions that may be attended by politicians.
To avoid any possibility of inadvertently contravening the 2006
Act, the directors are again seeking shareholder authority at the
AGM (Resolution 17) to ensure that the Company acts within
the provisions of current UK law when carrying out its normal
business activities.
creDItor pAyMent polIcy
It is the Group’s normal practice to agree payment terms with
its suppliers and abide by those terms. Payment becomes due
when it can be confirmed that goods and/or services have been
provided in accordance with the relevant contractual conditions.
The Group’s trade creditor days at 31 December 2011 were
82 days (2010: 76 days). The Company’s trade creditor days
at 31 December 2011 (calculated in accordance with the 2006
Act) were 19 days (2010: three days). This represents the
ratio, expressed in days, between the amounts invoiced to the
Company in the year by its suppliers and the amounts due, at
the year end, to trade creditors falling due for payment within
one year.
“Diversity in all its forms is fundamental to the Group’s business.
We operate in a variety of environments and geographies, in
numerous roles, for a wide range of clients. To do this effectively
we need an equally diverse workforce that understands our
customers’ needs and stimulates innovative solutions.
Interserve values the benefits it gains from an international
workforce with a rich diversity of skills, cultural backgrounds
and gender. Our goal is to recruit, motivate, develop and retain
outstanding people that reflect that diversity. We are committed
to ensuring that every employee has equal opportunity to
develop and progress at every level in the organisation based
on personal contribution and ability, with the aim over time
of realising the benefits of diversity in the development of our
management and executive leadership. We will continue to
monitor the extent to which our staff believe we are meeting this
objective and are committed to taking action where necessary
or helpful to promote equal opportunity.
The Group Board believes that diversity can bring insights and
behaviours that make a valuable contribution to its performance.
In considering new members, we will aim to select individuals
best able to contribute to an effective, challenging and cohesive
Board by blending a diversity of skills, experience, knowledge,
independence, cultural background and gender. Given
constraints on the size of the Board, this will be achieved by
taking into account the overall contribution to diversity alongside
other desired characteristics in new appointments rather than by
setting specific targets on any single dimension of diversity. We
would expect this to lead to greater diversity on the Group Board
and divisional boards over time. We will monitor our success
in developing the diversity of the Board as part of our annual
evaluation of Board effectiveness.”
Our Construction business was the first construction company
to be awarded the Investors in Diversity accreditation by the
National Centre for Diversity.
AuDItors
Resolutions to re-appoint Deloitte LLP as the Company’s
auditors and to authorise the directors to determine their
remuneration will be proposed at the forthcoming AGM.
statement on information to auditors
Each person who is a director at the date of approval of this
report confirms that:
(a) so far as he is aware, there is no relevant audit information of
which the Company’s auditors are unaware; and
(b) he has made such enquiries of his fellow directors and of the
Company’s auditors and has taken such other steps as
were required by his duty as a director of the Company to
exercise due care, skill and diligence in order to make himself
aware of any relevant audit information and to establish
that the Company’s auditors are aware of that information.
Interserve AnnuAl report 2011 GovernAnce DIrectors’ report
AnnuAl GenerAl MeetInG resolutIons
The resolutions to be presented at the AGM to be held on
16 May 2012, together with the explanatory notes, appear
in the separate Notice of Annual General Meeting sent to all
shareholders and which is also available on our website at
www.interserve.com.
Interserve House
Ruscombe Park
Twyford
Reading
Berkshire
RG10 9JU
Approved by the Board of
directors and signed on
behalf of the Board
t bradbury
company secretary
29 February 2012
cautionary statement
The Directors’ Report (the “Report”) set out above is the
“management report” for the purposes of paragraph 4.1.8R of
the FSA’s Disclosure and Transparency Rules.
The Report has been prepared solely for existing members
of the Company in compliance with UK company law and the
Listing, Prospectus, and Disclosure and Transparency Rules of
the FSA. The Company, the directors and employees accept
no responsibility to any other person for anything contained
in the Report. The directors’ liability for the Report is limited,
as provided in the 2006 Act. The Company’s auditors report
to the Board whether, in their opinion, the information given in
the Report is consistent with the financial statements, but the
Report is not audited. Statements made in this Report reflect
the knowledge and information available at the time of its
preparation. The Report contains forward-looking statements
in respect of the Group’s operations, performance, prospects
and financial condition. By their nature, these statements
involve uncertainty. In particular, outcomes often differ from
plans or expectations expressed through forward-looking
statements, and such differences may be significant. Assurance
cannot be given that any particular expectation will be met.
No responsibility is accepted to update or revise any forward-
looking statement, resulting from new information, future events
or otherwise. Liability arising from anything in this Annual Report
and Financial Statements shall be governed by English law.
Nothing in this Annual Report and Financial Statements should
be construed as a profit forecast.
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Interserve AnnuAl report 2011 GovernAnce corporAte GovernAnce
Interserve AnnuAl report 2011 GovernAnce DIrectors report
corporate Governance
lorD BlAcKWell
CHAIRMAN
Dear Shareholder
The Board and management of Interserve Plc are committed to high standards of corporate governance. We recognise the role
which strong governance provides in shaping and delivering effective strategy, managing risks and safeguarding shareholder
interests.
The replacement of the Combined Code by the UK Corporate Governance Code (the “Code”) for accounting periods beginning on
or after 29 June 2010 means that the Company is reporting upon compliance with the new Code provisions for the first time in this
report.
The Board provides entrepreneurial leadership, sets and subsequently keeps under review the overall Group strategy and monitors
operational and financial performance. In addition, it sets the core values and ethical standards, the key tenets of which are
contained in ‘Conducting business with Interserve’, which sets out clearly how employees are expected to behave and applies across
the Group.
In fulfilling its role we believe it is valuable for the Board to combine the knowledge and diverse experience of both executive and non-
executive directors, within an open and challenging Board culture. Executive directors are appointed to the Board on merit, reflecting
their ability to contribute as directors to the full range of issues and Board responsibilities. The two additional executive appointments
at the start of 2011 fully met those criteria and have added considerably to the strength of the Board. Although these additions
have resulted in us no longer having a majority of non-executive directors, I am satisfied – both through my own observations and
our annual Board review – that the strength and independence of the non-executive Board members and our open style of debate
continues to provide a fully effective governance check within the Board while maintaining the overall Board size at an optimum level.
The Board fully embraces the belief that diversity in all its forms can bring insights and behaviours that make a valuable contribution
to its performance. Our Board currently brings valuable diversity in executive and professional experience, but in considering new
appointments we will seek further to widen our diversity. Our criteria are to appoint those individuals best able to contribute to an
effective, challenging and cohesive Board taking into account the benefits of board diversity in its widest sense. We will monitor our
success in developing the diversity of the Board as part of our annual evaluation of Board effectiveness.
Following the Company’s re-admission to the FTSE 250 on 21 September 2011, the Board is proposing to offer all its members for
re-election at our 2012 AGM.
lord Blackwell
chairman
Interserve AnnuAl report 2011 GovernAnce corporAte GovernAnce
Interserve AnnuAl report 2011 GovernAnce corporAte GovernAnce
Interserve AnnuAl report 2011 GovernAnce DIrectors report
45
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45
complIAnce WIth the coDe
• implementation of a Group-wide Anti-Bribery and Corruption
The Financial Services Authority (the “FSA”) requires the
Company to disclose how it has applied the principles of
the Code and whether there has been compliance with its
provisions throughout the financial year. In the case of non-
compliance, the Company must specify those provisions with
which it has not complied and give reasons for this. The Code
may be found on the FRC website (www.frc.org.uk).
The directors consider that the Company has complied fully
with the provisions of the Code applicable to it throughout the
accounting period ended 31 December 2011 with the following
exception:
• Provision B.1.2 of the Code requires at least half the board,
excluding the Chairman, to comprise non-executive directors
determined by the board to be independent. The Board
comprised six executive and five non-executive directors plus
the Chairman until the retirement of Patrick Balfour on
18 May 2011 at the conclusion of the AGM. The Board
believes that the diversity of skills and experience which
the executive directors bring to the Board (particularly in
relation to their own operating divisions) is more valuable
than maintaining parity between the number of executive and
non-executive directors. Furthermore, the Board considers
its non-executive directors to be sufficiently independent and
of such calibre and number that their views may be expected
to be of sufficient weight that no individual or small group can
dominate the Board’s decision-making processes.
the BoArD
operation of the Board
The Board has a formal schedule of matters reserved for its
decision, whilst day-to-day operational decisions are managed
by the Executive Board, as referred to on page 47.
In order to facilitate the efficient use of its time the Board has
delegated certain of its powers to Board committees, details of
which are set out later in this report. From time to time the Board
also establishes certain other committees to deal with a specific
issue which the Board has approved.
Key matters dealt with by the Board during the course of the year,
in addition to ongoing monitoring of the operational and financial
performance of the Group, were:
• setting the health, safety and environmental targets for the
Group;
Policy;
• reviewing the results of the employee survey; and
• reviewing succession planning across the Group’s senior
management.
Board composition and independence
The role of the Group Chairman and Chief Executive are split
and clearly defined in written terms of reference. The Group
Chairman is responsible for the leadership of the Board and
creating the conditions for overall Board and individual director
effectiveness, both inside and outside the boardroom. The Chief
Executive bears primary responsibility for the management of
the Company and of the Group and in leading the formulation
of and, once set by the Board, implementing the strategy for the
Group. The Chief Executive chairs the Executive Board and Risk
Committee, leads the executive management team and investor
communications and is responsible for social and ethical matters
within the Group.
The Group Chairman and the non-executive directors are
considered by the Board to be independent in character and
judgement and free from any relationships or circumstances
which are likely to affect, or could appear to affect, their
judgement.
The non-executive directors have complementary skills,
experience and qualifications in a wide range of economic
sectors and so are able to bring independent judgement to bear
on matters for consideration.
On 1 January 2011 David Paterson and Dougie Sutherland were
appointed executive directors and Keith Ludeman appointed
as a non-executive director. At the AGM on 18 May 2011
Patrick Balfour retired from the Board, David Trapnell succeeded
him as Senior Independent Director and David Thorpe was
appointed Chairman of the Remuneration Committee.
As Senior Independent Director, David Trapnell is available to
shareholders should they have any concerns which contact
through other channels has failed to resolve or for which such
contact may be inappropriate. He also provides a sounding
board for the Chairman and serves as an intermediary for the
other directors when necessary.
As at 31 December 2011 the Board comprised of eleven
members: the Group Chairman, six executive and four non-
executive directors.
• reviewing the Group’s strategic direction, governance, ethics
meetings
and values;
• setting the Group’s annual budget and plan;
• approval of the annual and half-year report;
• declaration of the interim and recommendation of the final
dividend;
• ensuring the maintenance of a sound system of internal controls
and an effective risk management and assurance strategy;
• monitoring the effectiveness of the Group’s Health and Safety
Policy;
• control over major acquisitions (including joint ventures),
disposals and capital expenditure;
• implementation of a Board Diversity Policy;
The Board normally meets monthly throughout the year and on
an ad hoc basis to consider any matters which are time-critical.
Attendance at Board and committee meetings is set out in the
table overleaf.
The Board also holds a strategy day in January each year to
review the strategic direction of the Group.
The Group Chairman held one formal session with the non-
executive directors without any executive directors being present
and a number of informal discussions both with and without the
Chief Executive being present. The non-executive directors also
met once during the year, under the chairmanship of the Senior
Independent Director, without either the Group Chairman or the
executive directors being present.
business review overviewgovernancefinancial statements 46
Interserve AnnuAl report 2011 GovernAnce corporAte GovernAnce
Board
Audit Remuneration
Nomination
Number of Meetings
G P Balfour1
Lord Blackwell
L G Cullen
S L Dance
T P Haywood
K L Ludeman
D J Paterson
B A Melizan
A M Ringrose
D I Sutherland
D A Thorpe
D A Trapnell
14
7
14
14
13
14
14
13
14
14
14
13
14
5
2
5
5
5
5
7
3
7
7
7
7
7
4
2
4
4
4
4
4
4
1 Mr G P Balfour retired from the Board on 18 May 2011
The Group Chairman, assisted by the Company Secretary,
sets the agenda for Board meetings. The Group Chairman also
ensures that Board members receive timely information and
are briefed on issues arising at Board meetings to assist them
in making an effective contribution. The Company Secretary is
responsible for distributing Board papers and other information
sufficiently far in advance of each meeting for the directors to be
properly briefed, presenting certain papers to the Board and its
committees, advising on Board procedures and ensuring the
Board follows them.
The Board papers include information from management on
financial, business and corporate issues. Matters requiring
Board and committee approval are generally the subject of a
written proposal and circulated as part of the Board papers.
Appointments to the Board
On appointment, new directors take part in an induction
programme arranged by the Company Secretary. As part of this
programme, Keith Ludeman, David Paterson and
Dougie Sutherland received a detailed induction from the
Company Secretary. In addition, Mr Ludeman undertook visits
to sites covering all four of the Group’s UK divisional operations in
order to gain an appreciation of, and familiarise himself with, the
business of the Group. David Paterson and Dougie Sutherland,
having already completed the Group’s private company director
training course, were provided with specific training on the
duties of a listed company director by the Group’s lawyers,
Ashurst LLP.
Given constraints on the size of the Board, board diversity will be
achieved by taking into account the overall contribution to diversity
alongside other desired characteristics in new appointments
rather than by setting specific targets on any single dimension of
diversity. The Board expects this to lead to greater diversity on the
Board and in the divisional boards over time.
Historically, equipment and construction services were industries
into which women did not enter in great numbers. However,
the Board is encouraged that around half of all graduates now
recruited by its Construction division are women. The support
services industry has been more popular with women, thus
Support Services has more women in senior roles.
During the course of the year the Board reviewed what initiatives
were in place within the Group to develop gender diversity and
reviewed feedback from the biennial employee survey which
included, amongst other things, data on equality of treatment
and gender engagement.
commitment and development
There is an ongoing programme of site visits by the Group
Chairman and executive directors which provides additional
opportunities over and above the programme of Board site
visits for the non-executive directors to visit various operations
of the Group. The Group Chairman has also held a number
of lunchtime meetings with invited managers from across the
Company and its UK subsidiaries at which they were given
the opportunity to discuss their work and talk freely about any
issues of concern.
Presentations were made to the Board during the year covering
topics of special significance. In addition, as part of an ongoing
programme, the Board undertook three one-day visits covering
a number of the Group’s operational sites in the UK and a three-
day visit encompassing all the Group’s operations in Qatar.
The majority of the non-executive directors attended one or
more briefings or seminars relevant to their role during the year
under review and each director completed the Group’s online
anti-bribery and corruption training.
During the year a Group-wide leadership programme designed
to support the strategic aims of the Company was introduced.
The programme seeks to accelerate the development of high
performing and high potential senior leaders. The learning
experience involves a highly interactive process of exchanging
new ideas, sound advice, tools and techniques, business
concepts and best practices with tutors, mentors, coaches and
peers from across the Interserve business. Teamwork, involving
community and business projects, insight workshops, mentoring
and coaching, is a key component of the programme.
Participants in the leadership programme are also provided
with an opportunity to contribute to the development of the
Group and offered a comprehensive way of exploring business
issues and opportunities. As participants practise their own
personal leadership style, they develop further insights and
entrepreneurial and relationship skills to evaluate, develop and
manage new business opportunities to provide sustainable
growth and increased shareholder value.
Information and support
Individual directors may, after consultation with the Group
Chairman, take independent legal advice in furtherance of their
duties at the Company’s expense up to a limit of £10,000 in relation
to any one event. In the case of the Group Chairman he must
consult with the Senior Independent Director. All directors have
access to the advice and services of the Company Secretary,
whose appointment or removal is a matter reserved for the approval
of the Board or any duly delegated committee thereof.
Interserve AnnuAl report 2011 GovernAnce corporAte GovernAnce
Board performance evaluation
executIve BoArD
During the course of the year the performance of the directors
was reviewed by the Group Chairman and the Chief Executive
and, in the case of the Chief Executive, by the Group Chairman,
having consulted with other directors. The Group Chairman’s
performance was reviewed by the Senior Independent Director
who held separate meetings with each of the directors and the
Company Secretary.
The overall time commitment of the non-executive directors in
the attendance of Board meetings/visits was in the order of
16 days in addition to the time taken to read Board papers
and attend the four meetings held by the Group Chairman.
The Board also conducted a formal and thorough evaluation of
its own performance with particular emphasis on the progress
against the strategic objectives set at the strategy day. The
evaluation identified:
• ways in which the operational performance could be more
succinctly reported;
Below the Board is the Executive Board which comprises all the
executive directors and the Company Secretary. It is chaired by
the Chief Executive.
The Executive Board, which met 11 times during the course of
the year, is responsible for the operational management and
delivery against budget and forecast of the Group, implementing
resolutions of the Board, formulation of strategy, annual
budgets and other proposals for consideration by the Board,
the identification and evaluation for consideration by the Board
of risks faced by the Group and for designing, operating and
monitoring a suitable system of internal control embracing the
policies adopted by the Board. It is also responsible for devising
and implementing suitable policies and procedures for health
and safety, environmental, social and ethical, treasury, human
resources and information technology.
AuDIt commIttee
role
• an improved structure for meeting agendas;
The principal roles of the Audit Committee are:
• improvements in the Board evaluation process;
• a desire to enhance the diversity of the Board; and
• means of improving the effectiveness of communication with
both investors and the wider business community.
The Audit, Remuneration and Nomination committees also
conducted a review of their terms of reference and their
performance against them.
re-election
With a considerable number of directors already standing for
election or re-election in 2011 it was not felt necessary to move
to annual re-election of all directors at that time. However, all
directors will submit themselves for re-election at the next AGM
on 16 May 2012.
Biographical details for each of the directors standing for re-
election are set out on pages 36 and 37.
Indemnities
As permitted by the Company’s Articles of Association,
qualifying third party indemnities have been in place throughout
the period under review and remain in force at the date of
this report in respect of liabilities suffered or incurred by each
director. The Company also undertakes to loan such funds to a
director as it, in its reasonable discretion, considers appropriate
for the director to meet expenditure incurred by him in defending
any criminal or civil proceeding or in connection with any
application under section 661(3) or 1157 of the Companies
Act 2006 on terms which require repayment by the director of
amounts so advanced upon conviction of final judgment being
given against him. The deeds of indemnity are available for
inspection by shareholders at the Company’s registered office.
The Company also maintains an appropriate level of directors’
and officers’ insurance in respect of legal actions against the
directors. Neither the qualifying third party indemnities nor
the insurance provide cover where the director has acted
fraudulently or dishonestly.
• to review and monitor the integrity of the Company and the
Group’s financial statements through the statutory audit
of the annual and consolidated accounts and any formal
announcements relating to the Group’s financial performance;
• to provide an independent overview of the Company and the
Group’s systems of internal control, risk management and
financial reporting processes particularly through the co-
ordination and supervision of the quality, independence and
effectiveness of the internal and external auditors; and
• to make recommendations to the Board.
The effectiveness of the Company and the Group’s internal
control and risk management systems is reviewed by the Board.
composition
The committee is composed entirely of independent non-
executive directors and is chaired by Les Cullen. The directors
who have served on the committee during the year are:
Name
Date of appointment
to committee
Qualifications
G P Balfour1 1 January 2003
MA (Cantab), Solicitor
L G Cullen
14 November 2005 MBA BSc (Hons) FCCA
FCT
K L Ludeman 1 January 2011
BA (Hons) MSc DSc (Hon)
D A Thorpe
1 January 2009
CPFA
D A Trapnell
11 September 2003 BSc (Hons)
1Mr G P Balfour retired from the committee on 18 May 2011.
Appointments to the committee are made by the Board, on
the recommendation of the Nomination Committee and in
consultation with the committee chairman. Les Cullen and
David Thorpe are both financially qualified.
The Company Secretary is secretary to the committee.
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Interserve AnnuAl report 2011 GovernAnce corporAte GovernAnce
terms of reference
• reviewed audit effectiveness following the audit of the 2010
The committee has written terms of reference based on the FRC’s
Guidance on Audit Committees and which set out clearly its
authority and duties. These are available on the Company’s website
at www.interserve.com and on request. The terms of reference
are considered at least annually by the committee and were most
recently amended in November 2010 to take account of the UK
Corporate Governance Code and approved by the Board.
meetings
The committee met five times during the year. The external
auditors were present at four of the meetings and the Head of
Internal Audit and representatives from PricewaterhouseCoopers
LLP (“PwC”), the provider of the internal audit function, were
present at four and two of the meetings, respectively. The Group
Chairman, Chief Executive, Group Finance Director and Group
Financial Controller attended the meetings by invitation.
The committee has taken the opportunity to seek the views of
the external and internal auditors in private and both the external
and internal auditors have the opportunity to address the
committee in private at any time should they so wish.
overview of actions
During the year the committee:
• reviewed the 2010 annual report and financial statements and
the 2011 half-year report. As part of this review the committee
received a report from the external auditors on their audit of
the 2010 annual report and their review of the 2011 half-year
report;
• reviewed and approved the external auditors’ terms of
engagement for the 2011 half-yearly review and for the audit of
the 2011 annual report;
• received a briefing on audit matters from the auditors
describing their approach to and scope of the audit, explaining
their responsibilities regarding corporate governance and the
requirements of the Listing Rules and their independence
policies and procedures which encompassed their safeguards
and procedures, remuneration and evaluation policies and the
revisions to the APB ethical standards;
• made a recommendation to the Board that the external
auditors should continue in office for the next financial year;
• reviewed proposed changes to the Group’s internal controls;
• received a report from the external auditors on, and
considered the effectiveness of, the Group’s accounting and
internal control systems and monitored the actions taken by
management in response;
• reviewed, prior to their consideration by the Board, the
representation letters to be given to the external auditors
in respect of the 2010 annual report and the 2011 half-year
report;
• considered and agreed the scope and fees to be paid to the
external auditors;
• reviewed the annual report and accounts for the Interserve
Pension Scheme;
• received updates on new accounting developments,
regulation and best practice;
• monitored non-audit fees in comparison to the audit fees;
annual report;
• reviewed the extent of the Group’s control over joint ventures
and associated companies; and
• reviewed its own effectiveness and its terms of reference.
The committee chairman reported to the Board on the work
carried out by the committee, including any improvement
actions required, and copies of the minutes of its meetings were
included within the Board papers.
external audit
The committee considers and makes recommendations to the
Board as regards audit matters. The committee also seeks to
ensure co-ordination between the activities of the external and
internal auditors and reviews the effectiveness of the audit at the
end of the audit cycle.
external auditor objectivity and independence
As required by its terms of reference, the committee assessed
the external auditors’ objectivity and independence and the
effectiveness of the external audit process in March 2011 at the
end of the 2010 audit cycle and again in December 2011 and
concluded that Deloitte LLP remain independent. To assist the
committee with its assessment of auditor independence, the
committee has a policy which prohibits the auditors auditing their
own work, making management decisions, entering into any
arrangement in relation to audit work whereby a joint interest is
created between the Company and the auditors in the outcome
of the instruction, acting in the role of advocate for the Company
or being appointed as recruitment consultants to the Company
without the committee’s prior consent. The policy also contains
a set of authority limits governing the award by management of
various categories of non-audit work to the auditors.
The committee concluded from the regular reports it received that
the nature and extent of non-audit fees, which related primarily to
tax and VAT advice offered by Deloitte and the review of the half-
year report and which amounted to 17 per cent and 7 per cent
of the overall audit fees, respectively (excluding accountancy and
transactional advice given with regard to the aborted acquisition
of Mouchel Group plc – which amounted to 48 per cent of the
overall audit fee), did not compromise auditor independence.
In all cases work performed by Deloitte was approved in line with
Group policy. In the case of the work on the aborted acquisition
of Mouchel the committee concluded that Deloitte’s expertise
and experience and knowledge of the Group made them best
placed to efficiently deliver the service. The committee was
satisfied that the safeguards implemented by Deloitte, including
the use of specialists independent of the audit, were sufficient to
maintain auditor objectivity and independence.
Further details of the audit and non-audit fees paid to the
auditors are included in note 4 to the financial statements on
page 82.
A change in audit partner is made every five years when the
audit partner is rotated off the audit in accordance with latest
guidance and best practice. A new audit partner was appointed
in 2009 following interviews with the committee and the Group
Finance Director. Any decision to open the external audit to
tender is taken on the recommendation of the committee.
There were no contractual obligations that acted to restrict the
committee’s choice of external auditors.
Interserve AnnuAl report 2011 GovernAnce corporAte GovernAnce
Internal audit
overview
The function of internal audit is to provide an objective appraisal
to the Board, through the Audit Committee, of the adequacy
and effectiveness of the processes established to control the
business and to assist the Board in meeting its objectives and
discharging its responsibilities.
The internal audit programme of work was developed by PwC,
based on interviews with executive management and the
operational and finance management teams. The details of the
internal audit programme are submitted to the Audit Committee
for approval, and may be modified (subject to agreement of the
Audit Committee) based on changing circumstances.
The overall internal audit programme is risk based. This means
that a sub-set of all the business activities and financial reporting
processes are subject to internal audit review each year.
The committee received a summary of each internal audit review
covering the findings and proposed corrective actions for any
gaps in the control environment that may have been found.
The committee is required to approve the internal audit plan,
monitor and assess its role and effectiveness in the overall
context of the Company’s and the Group’s risk management
system, review and assess the scope of and progress
against the internal audit work plan and review and monitor
management’s responsiveness to the internal auditor’s findings
and recommendations.
Reports received by the committee during the year in
accordance with the 2011 internal audit plan covered matters
such as:
• the outcome of a back-to-basics review of the key controls
within each business unit in the Group;
• reviews of tendering and bidding, payroll, HR functions,
contract management, service delivery, work-in-progress and
accrued income, procure to pay controls, financial controls
health check, corporation tax and VAT controls, design and
quotation procedures, key controls and a company car
scheme in various parts of the business;
• a review of investment portfolio management; and
• a review of Group Pensions Administration.
The committee agreed an internal audit work plan for 2012,
which builds upon the work conducted over the previous two
years, the objectives of which are to:
• provide assurance that certain existing and emerging key risks
facing the Group as a whole or which are common to several
businesses within the Group are being managed effectively;
• confirm that the Group’s core assurance procedures are
being operated as intended, whether documented or
undocumented, in accordance with good practice; and
• support the management and mitigation of key risks in
specific businesses to confirm that they are being mitigated
to a sufficient degree so as not to threaten the achievement
of Group objectives or the sustainability of the individual
businesses.
The committee also received reports on investigations
conducted and actions taken as a result of notifications made
under the Group’s whistle-blowing policy.
After undertaking a review of its own performance the
committee concluded that it had been effective in discharging
the obligations entrusted to it by the Board.
The Chairman of the Audit Committee will be available at the
AGM to answer questions about the work of the committee.
conflIcts commIttee
The Conflicts Committee comprises the Group Chairman or, in
the event that he is interested in the matter to be considered, the
Senior Independent Director, and the Company Secretary.
The committee has written terms of reference and meets as and
when necessary to review any interests a director may have which
conflict or possibly may conflict with the interests of the Company.
The committee met twice during the year and reviewed the
interests declared by each director which conflicted or may
possibly conflict with the interests of the Company and the terms
of the authorisations given in respect of those interests. The
committee reported its findings to the Board and in each case
the Board concluded that the authorisations given, and the
terms which had been applied thereto, remained appropriate.
GenerAl purposes commIttee
The General Purposes Committee comprises any two executive
directors (one of whom must be the Chief Executive or, in his
absence, the Group Finance Director).
The committee has written terms of reference which authorise it to
exercise certain powers of the Board delegated to it and is required to
report upon its actions to the next meeting of the Board.
The committee met 43 times during the course of the year and dealt
with a variety of business ranging from routine approvals of matters
within its terms of reference to settlement of detailed matters in
relation to transactions approved in principle by the Board.
InsIDe InformAtIon commIttee
The Inside Information Committee comprises the Group
Chairman, Chief Executive and Group Finance Director.
The committee meets as and when required, has written terms
of reference and is empowered to assess quickly if information
is inside information, release inside information to the Regulatory
Information Service (“RIS”) in the event that it is not possible to
convene a Board meeting at very short notice and is responsible
for setting up and monitoring the systems and controls with
regard to inside information.
nomInAtIon commIttee
The Nomination Committee is chaired by the Group Chairman
and the majority of the members are independent non-executive
directors. The committee keeps the Board structure, size and
composition, balance of skills and knowledge and experience
(both executive and non-executive) under review and makes
recommendations for any changes to the Board.
The committee’s terms of reference set out clearly its authority
and duties, and are available on the Company’s website at
www.interserve.com and on request.
The committee met four times during the year. The business
conducted during the year included recommendations to the
Board for the re-election of retiring directors at the AGM, a
review of the Board structure and composition, a review of
senior management succession and development up to and
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Interserve AnnuAl report 2011 GovernAnce corporAte GovernAnce
including those at Board level, and Board succession planning.
A review of the effectiveness of the committee and its terms of
reference was also conducted.
The Company’s policy relating to the terms of appointment and
remuneration of the executive and non-executive directors is
detailed in the Directors’ Remuneration Report on pages 52 to 62.
The terms and conditions of appointment of all the non-
executive directors and those of the Group Chairman are
available for inspection at the Company’s registered office during
normal business hours. Each letter of appointment specifies the
anticipated level of time commitment including, where relevant,
additional responsibilities derived from involvement with the
Audit, Remuneration and Nomination committees.
Non-executive directors and the Group Chairman are required to
confirm, on appointment, that they have sufficient time to meet
what is expected of them and to seek the committee chairman’s
agreement, or in the case of the Group Chairman, the Senior
Independent Director’s agreement, before accepting additional
commitments that might impact upon the time they are able to
devote to their role as a non-executive director of the Company.
pfI commIttee
The PFI Committee comprises any two or more directors.
The committee has written terms of reference giving it authority
to settle and execute contractual documentation in relation to PFI
projects where Board approval has been given to the Company or
any of its subsidiaries’ participation in a particular PFI project.
The committee met once during the year.
remunerAtIon commIttee
The Remuneration Committee, composed entirely of
independent non-executive directors, is chaired by David
Thorpe (David Trapnell until 18 May 2011). The names of the
committee members are set out in the table on page 46. The
responsibilities of the committee, together with an explanation
of the work undertaken and how it applies the directors’
remuneration principles of the Code, are set out in more detail in
the Directors’ Remuneration Report on pages 52 to 62.
rIsK commIttee
The Board has overall responsibility for internal control, including
risk management, the ongoing review of their effectiveness
and sets appropriate policies having regard to the objectives
of the Group. It formally reviews the Group’s register of risks
and mitigation plans twice a year and discusses any significant
developments in risk exposure as and when appropriate.
As discussed on page 47, the Executive Board has a key role
in risk management. In order to assist it with discharging this
responsibility the Executive Board constituted a Risk Committee.
The committee, which met four times during the year, comprises
the Chief Executive, Group Finance Director, Head of Internal
Audit (until September 2011), Group Health, Safety and
Environmental Manager, Group Insurance Manager, the Group
Company Secretary (who is its secretary) and a representative
from each of the Group’s operating divisions. It has written terms
of reference and provides copies of its meeting minutes to the
Board.
The business covered during the year included a review of the
Group’s pandemic influenza, business continuity and IT disaster
recovery plans and testing, the risks presented by forthcoming
legislation, bi-annual reviews of the Group’s prime risk areas and
information security management.
fInAncIAl AnD BusIness DIsclosures
In order to present a balanced assessment of the Company’s
position and prospects, the Annual Report contains a Directors’
Responsibility Statement on page 63, an Independent Auditors’
Report about their reporting responsibilities on page 64 and
a going concern statement on page 29. An explanation of
the Company’s business model and strategy for delivering the
Company’s objectives is set out on pages 8 and 9.
The Directors’ Report contained on pages 38 to 43, of which
this Corporate Governance report forms part, contains the
information required by paragraph 13(2)(c), (d), (f), (h) and (i) of
Schedule 7 to the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008.
control processes
The Board has a continuous process for identifying, evaluating
and managing the significant risks the Group faces together
with an ongoing process to embed internal control and risk
management further into the operations of the businesses. This
has been in place for the period under review and until the date
of approval of this Annual Report and Financial Statements. The
Audit Committee, the Risk Committee and Executive Board
assist the Board in the application of these principles.
The Board has documented a risk management policy setting
out the prime risk areas including the threats, risk indicators,
control strategy and sources of assurance. The policy is included
within the Group’s internal controls manual. Internal controls are
normally reviewed by the Board in advance of the publication of
the half-year and annual reports.
The Board received and reviewed bi-annual reports from the
Executive Board on the effectiveness of the Group’s system of
internal control for the period under review and has implemented
improvements from time to time in order to strengthen the
control processes.
Because of the limitations that are inherent in any system
of internal control, the Group’s system of internal control is
designed to manage rather than eliminate the risk of failure to
achieve business objectives, and can only provide reasonable,
but not absolute, assurance against material misstatement or
loss.
The Group’s governance framework distinguishes between
entities which are wholly controlled and joint ventures and
associate companies in which the Group does not have overall
control. For these joint-ventures and associate companies,
systems of internal control are applied as agreed between the
Group and the other joint-venture parties or members of the
associate company, as the case may be.
financial reporting
Based on submissions from the trading divisions, a budget is
prepared by the Group for approval by the Board before the
start of each financial year. Subsequently, based on submissions
from the trading divisions, forecasts of prospective financial
performance are prepared by the Group for approval by the
Board as at the end of March, May and September of each year.
Budgets and forecasts include the financial results, financial
position and cash flows for each division and the Group Centre.
Interserve AnnuAl report 2011 GovernAnce corporAte GovernAnce
The Group has documented the accounting policies to be
applied by all entities in the Group in submitting their financial
statements for consolidation. These accounting policies are in
compliance with International Financial Reporting Standards and
are available on the Group’s intranet.
Each month, entities within the Group submit management
accounts in local currency to the Group Finance team. The
Group Finance team translates foreign currency submissions
into sterling using published exchange rates, eliminates all
intercompany trading and balances, and then prepares
the consolidated management accounts of the Group. The
consolidated management accounts include the financial results,
financial position, cash flows and projections and are submitted
to the Executive Board and subsequently the Board for review.
Analysis is included on monthly and year-to-date financial data
compared with the latest budgets or forecasts approved by
the Board and also compared with prior year data. Analysis is
prepared on both a divisional and consolidated basis.
The management accounts of the Group are accompanied by a
written report from the Group Finance Director explaining operating
and financial performance, the cause and effect of variance from
the approved budgets and forecasts and other information that may
be relevant from time to time. The written report includes analysis
on both a divisional and consolidated basis.
Monthly written divisional trading reports on the performance of
each division are provided as part of the Board papers. These
are then updated by oral reports from the executive directors at
each Board meeting.
The management accounts submitted by members of the Group
for June and December are used to prepare the half-yearly and
annual financial statements. The Group Finance team reviews
the disclosures in the financial statements to ensure that they
comply with the latest reporting standards adopted for use in the
EU and seeks to ensure they are clear and understandable to
the readers. The half-yearly and annual financial statements are
reviewed by the Executive Board, the Audit Committee and the
Board before publication.
The financial reporting process is reviewed periodically by
internal audit in accordance with the programme approved by
the Audit Committee each year.
A summary of the key financial risks inherent in the Group’s
business is given on page 29 and a description of how the
Group manages those risks is set out on page 23.
operational controls
The principal features of the Group’s system of operational
control are:
• An established management structure comprising the Board
with its various committees and an Executive Board.
• Executive Board and Board review of the monthly finance and
divisional trading reports. The Board determines appropriate
action based on these reviews.
• Documented delegated authority limits from the Board to the
Executive Board which are kept under regular review. Larger
value proposals and business acquisitions and disposals are
controlled by the Board.
• Manuals setting out Group policy and procedures, with which
all Group companies must comply. These manuals set out
the necessary levels of authorisation applicable for different
transactions.
• The Group has certain key areas which are subject to
central management or control, which include Company and
subsidiary health, safety and environmental, legal, insurance,
treasury, real estate, internal and external communication,
and company secretarial. These functions report to members
of the Executive Board and operate within defined limits and
levels of authority.
• One or more members of the Executive Board and, in many
cases, either the Chief Executive or the Group Finance
Director, attend divisional board meetings.
• During the course of each year members of the Executive
Board or other senior operational and financial management
visit or review all trading companies, including those located
overseas, to discuss and monitor the performance of those
businesses.
• The Group has in place a whistle-blowing policy together with
a Group response plan to set out a framework for dealing with
any allegations of fraud, financial misreporting and any whistle-
blowing notification. A copy of the policy is available on the
Company’s website at www.interserve.com.
our shAreholDers
The Company encourages two-way communication with
both institutional and private investors. The Chief Executive,
accompanied by the Group Finance Director, attended 53
meetings with analysts and institutional investors during the year
ended 31 December 2011. In addition, the Chief Executive, the
Group Finance Director and the Group Chairman, accompanied
by another member of staff or a representative from one of the
Company’s joint brokers, attended a further 38, 39 and one
meeting each, respectively.
The Chief Executive arranges for the Company’s brokers
to produce periodic notes of the feedback from institutional
investors which are reported to the Board. All directors and the
members of the Executive Board also have the opportunity to
attend analyst briefings.
The Group’s annual and half-yearly results, interim management
statements, trading updates and all announcements made
through the RIS are published on the Company’s website at
www.interserve.com. Copies of the presentations given to
analysts on the announcement of the half-yearly and final results
are also posted on the Company’s website.
Shareholders are also kept up to date with Company affairs
through the annual and half-year reports, trading updates and
the Company’s website.
All shareholders are given at least 20 working days’ notice of
the AGM. It is standard practice for all directors to attend the
AGM to which all shareholders are invited and at which they may
put questions to the chairmen of the various committees or the
Board generally. The proxy votes for and against each resolution,
as well as abstentions (which may be recorded on the proxy
form accompanying the notice of AGM) are counted before the
AGM commences and are made available to shareholders at the
close of the formal business of the meeting. The proxy votes are
also announced through the RIS and posted on the Company’s
website shortly after the close of the meeting.
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Interserve AnnuAl report 2011 GovernAnce DIrectors’ remunerAtIon report
Directors’ remuneration report
Dear Shareholder
DAvID tHorpe
CHAIRMAN OF THE
REMUNERATION COMMITTEE
I am pleased to present the Remuneration Committee’s annual report on directors’ remuneration.
The Group’s management has delivered good results in 2011 against the background of challenging global economic conditions. In
particular, headline earnings per share has increased by 15.2 per cent and good progress was made on a number of strategic fronts.
Our share price increased by 39 per cent over the year, outperforming our sector by 47.7 per cent.
During the year the Remuneration Committee (the “Committee”) was again mindful of the general restraint on pay across the Group.
The salaries of the executive directors were increased by 2.5 per cent from 1 July 2011 which was broadly in line with the average
increase in salaries across the entire business.
Our remuneration policy has been adjusted in a couple of respects. Following the implementation of the final changes to the taxation
of pension schemes, the Committee conducted a review of the pension arrangements for the most senior executives within the UK.
From July 2011 the employer contribution for the most senior executives was increased from 10 per cent to 15 per cent of basic
salary (subject to an employee contribution of 8 per cent) and provisions were introduced to permit the employer contribution to be
taken as a salary supplement by those whose pension savings reach the lifetime allowance.
The performance conditions for the annual variable pay arrangements have been set such that only a performance materially ahead
of market expectations in terms of normalised earnings per share (“EPS”) would attract a significant payout of variable pay.
During the year I also undertook an exercise which confirmed that the mix of EPS and total shareholder return (“TSR”) performance
conditions attached to the Company’s Performance Share Plan was aligned to the Board’s strategic ambitions, which are to grow
EPS in a sustainable manner and to deliver long-term superior returns to shareholders.
The Committee has also specifically examined the alignment of the policy on long-term incentives to the Board’s belief that the
Company has the capability to double earnings per share over five years. In consequence the policy under the Performance
Share Plan has been amended so that the award level will be increased but at the same time subject to tougher EPS targets.
The Committee, however, remains mindful to strike an appropriate balance between incentivising senior management, providing
stretching targets which support the Board’s strategic ambitions whilst, at the same time, not encouraging excessive risk taking.
Accordingly, to help mitigate risk, tougher shareholding guidelines for executives have been introduced.
The modest increase to pension contributions and the increased Performance Share Plan award level brings total remuneration
closer to (but not in excess of) mid-market levels for similar sized FTSE 250 businesses.
Executive pay remains a highly topical issue and the Committee continues to monitor best practice and regulatory guidance to
ensure that our policy retains a good link between reward to executives and the performance of the business.
A resolution to approve this report will be put to shareholders at the forthcoming Annual General Meeting and I very much hope that
you will vote in favour.
David thorpe
chairman of the remuneration committee
Interserve AnnuAl report 2011 GovernAnce DIrectors’ remunerAtIon report
53
IntroDuctIon
This report has been prepared by the Committee on behalf of,
and has been approved by, the Board of Interserve Plc. The
report complies with the Companies Act 2006 (the “2006 Act”)
and Schedule 8 of the Large and Medium-Sized Companies
and Groups (Accounts and Reports) Regulations 2008. It also
meets the relevant requirements of the Listing Rules of the
Financial Services Authority and explains how the Company has
complied with the principles and provisions of the UK Corporate
Governance Code. A resolution to approve this report will
be proposed at the Annual General Meeting (“AGM”) of the
Company.
The Company’s auditors are required to report to the
Company’s members on the auditable section of this report and
to state whether in their opinion that part of the report has been
properly prepared in accordance with the 2006 Act. The report
has therefore been divided into separate sections containing
unaudited and audited information. Pages 53 to 57 of this report
contain unaudited information and pages 58 to 62 (beginning
with Directors’ Emoluments and Compensation and ending with
Directors’ Share Interests) contain audited information.
remunerAtIon commIttee
The Committee is responsible for determining the remuneration
of all executive directors, the Group Chairman and the Company
Secretary. The terms of reference of the Committee are available
on the Company’s website at www.interserve.com and on
request.
The Committee’s role is, after consultation with the Group
Chairman and/or the Chief Executive (except where conflicted),
to set the remuneration policy and determine the individual
remuneration and benefit packages of the Group Chairman, the
Chief Executive and the senior management team, comprising
the executive directors, the Company Secretary and the other
senior executives below the Board who report to the Chief
Executive. This includes formulating for Board approval long-
term incentive plans which require shareholder consent and
overseeing their operation. The Committee also monitors the
terms of service for, and level and remuneration structure of,
other senior management.
No member of the Committee has any personal financial interest
in the Company (other than as a shareholder), any conflict of
interest arising from cross-directorships, or any day-to-day
involvement in running the business.
In determining the executive directors’ remuneration, the
Committee consulted with and received recommendations
from Adrian Ringrose, the Chief Executive. The Committee also
received advice from Hewitt New Bridge Street, a subsidiary of
Aon Corporation, and Trevor Bradbury, the Company Secretary,
which materially assisted the Committee in relation to the 2011
financial year. Hewitt New Bridge Street also carried out work for
the Company by conducting an assessment of its performance
in relation to the TSR element of awards made under the
Interserve Performance Share Plan 2006. Aon Corporation also
provides insurance broking services to the Company.
remunerAtIon polIcy
Executive directors’ remuneration packages are designed to
attract, retain and motivate directors of the quality required to
improve the Company’s performance, to align the interests of
the executive directors with those of the shareholders and to
reward them for enhancing shareholder value but without paying
more than is necessary.
The determination of the executive directors’ annual
remuneration packages is undertaken by the Committee in
accordance with this policy, taking into account the level of pay
awards made to all other employees of the Company and the
salaried employees of its subsidiaries, and will be the subject of
regular review on this basis during this and future financial years.
The main elements of the remuneration package for executive
directors for 2012 and beyond will be:
• basic annual salary and benefits;
• annual variable pay with a requirement to invest a proportion
in Company shares;
• participation in a long-term incentive plan – the Interserve
Performance Share Plan 2006 (details of the performance
conditions of which are set out on pages 54 to 56); and
• pension arrangements.
The non-executive directors who have served on the Committee
during the year are:
The chart below shows the proportionate breakdown of the
package at below target, target and maximum performance.
Patrick Balfour
Lord Blackwell
Les Cullen
Keith Ludeman
David Thorpe
David Trapnell
all of whom the Board regards as independent. Following the
AGM on 18 May 2011, Patrick Balfour retired from the Board and
the Committee, and David Thorpe succeeded David Trapnell as
Chairman of the Committee upon the latter’s appointment as the
Senior Independent Director.
The Committee meets as often as is necessary to discharge
its duties and met seven times during the year ended
31 December 2011. The Chief Executive and Group Finance
Director are invited to attend meetings as appropriate. They
are not present when matters affecting their own remuneration
arrangements are decided.
Salary
Pension
Annual variable pay
Performance shares
Below target
On target
Maximum
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
The chart shows that a significant proportion of the remuneration
package comprises performance-linked elements and the extent
to which the remuneration level is conditional upon the level of
performance delivered. In particular, the value of awards under
the Performance Share Plan is targeted to form a significant
proportion of the overall package at outstanding levels of
performance, following the changes to the policy for 2012, as
described in this report.
business review overviewgovernancefinancial statements 54
Interserve AnnuAl report 2011 GovernAnce DIrectors’ remunerAtIon report
The Committee has reviewed the policy to establish whether
there is any element of the remuneration policy which could
potentially encourage executives to take inappropriate levels of
risk. It is satisfied that the packages are appropriately balanced
so that the executives can be rewarded under performance-
linked elements of the package, but that the targets which are
set represent a complementary blend of metrics with target
ranges which are stretching and designed to promote the long-
term success of the Company, but not so demanding as to lead
to them taking excessive risk.
The Committee has reviewed and is satisfied that the
remuneration policy supports the Company’s strategic ambitions
and is linked appropriately to the long-term success of the
business. The Committee has chosen to base the incentive
targets on the visible outputs of the strategy, namely requiring a
sustained and significant improvement in financial performance
(as evidenced by EPS growth) and the delivery of superior stock
market returns (as evidenced by relative TSR performance).
BAsIc AnnuAl sAlAry AnD BenefIts
The executive directors’ salaries are reviewed by the Committee
annually for implementation from 1 July in each year. Ad hoc
reviews can also be made. In deciding upon appropriate salary
levels, the Committee takes into account current remuneration
trends, relative up-to-date information from the comparator
group, the provisions of the UK Corporate Governance Code
and information on proposed increases in the remuneration of
salaried employees and subsidiary company directors across
the Group. The Committee determined that, for the second
consecutive year, executive directors’ salary levels should
be increased by 2.5 per cent with effect from 1 July 2011,
which was broadly in line with the overall increase for salaried
employees and subsidiary company directors across the Group.
In addition to basic salary, the executive directors receive certain
benefits-in-kind, principally a fully-expensed car or car allowance
and medical and permanent health insurance.
The fees of the Group Chairman and the non-executive directors
are determined by the Board and reviewed on an annual interim
and biennial full basis within the limits set out in the Articles of
Association. At the December 2010 full review the annual basic
fees of the Group Chairman and the non-executive directors
were increased by £10,000 and £3,000 respectively, from
January 2011, the first increase since January 2008. No further
increases were agreed at the December 2011 interim review.
The remuneration of the non-executive directors is designed to
attract and retain non-executive directors of sufficient calibre to
undertake the responsibilities entrusted to them. They neither
receive variable remuneration nor do they participate in any
incentive arrangements.
AnnuAl vArIABle pAy
The Committee establishes performance conditions annually
which govern the variable pay of the executive directors under
the annual variable pay arrangements for each financial year,
subject to a maximum variable payment of 100 per cent of basic
salary. Variable pay is not pensionable.
The Committee has absolute discretion to determine whether an
executive director receives any variable pay and the size (if any)
of such a payment.
Performance conditions for variable pay in 2012 are based
on the achievement of normalised EPS1. The performance
conditions have been set such that variable pay of between
20 per cent and 100 per cent of basic salary will become
payable upon achievement of between 96.5 per cent and
111 per cent of budgeted normalised EPS1. A performance
below 96.5 per cent of budgeted normalised EPS1 will result in
no variable pay.
The variable pay arrangements for 2011 and 2012 specify that
if an executive director’s shareholding in the Company is less
than 100 per cent of his basic salary, a percentage of the net
variable pay receivable in excess of 25 per cent of basic salary
is required to be invested in Company shares according to the
following arrangement:
a) for the balance of any variable pay received between 25 per
cent and 50 per cent of basic salary, 30 per cent of the net
variable pay must be invested in Company shares and
70 per cent may be retained; and
b) for the balance of any variable pay received between 50 per
cent and 100 per cent of basic salary, 50 per cent of the net
variable pay must be invested in Company shares and
50 per cent may be retained.
Company shares so acquired must be held for three years.
Since 2011, variable pay has been subject to clawback
provisions. The Company has the right to reclaim some or all
of the variable pay from the Executive Board in circumstances
where the Company discovers that it materially misstated
its financial results or made an error in the calculation of any
performance condition, which resulted in an overpayment to
and/or where there has been misconduct on the part of any
member of the Executive Board.
lonG-term rewArDs
Details of outstanding options granted under the 1997 and the
2002 Executive Share Option Schemes are set out on page 60.
Options may no longer be granted under the 1997 Scheme and
there are currently no plans to grant any further options under
the 2002 Scheme.
performance share plan
The Performance Share Plan 2006 (the “Plan”) was approved by
shareholders at the AGM held on 17 May 2006 and is the sole
long-term reward plan operated for senior executives. Details of
awards made to the executive directors from 2008 to 2011 are
set out on page 61.
For the awards made in 2009, the TSR element (representing
50 per cent of the awards) will vest in full on 23 March 2012 as
the Company achieved upper quartile (top 25 per cent) TSR
performance against the peer group. However, none of the EPS
element of those awards (representing the other 50 per cent)
will vest as the stretching EPS performance conditions were not
achieved.
As mentioned in the introductory letter, the Committee has reviewed
the policy under the Plan for the awards to be made in 2012.
Award levels will be increased for 2012 from 100 per cent of
basic salary to an award over shares worth 150 per cent of basic
salary (at the date of grant) for the Executive Board. Lower
award levels will be granted to less senior executives. This is
1 Normalised EPS is basic earnings per share adjusted to remove the effect of IAS 36 Impairment of assets and IAS 39 Financial Instruments and, when above target performance has been
achieved, any return generated from the sale of any of the Group’s PFI investments is in excess of the internal rate of return set by the Board at the approval stage for that investment and any other
items defined by the Committee.
Interserve AnnuAl report 2011 GovernAnce DIrectors’ remunerAtIon report
55
an increase from the 100 per cent of basic salary award levels
made in prior years, with the additional award level being subject
to much tougher EPS performance targets, described below.
This increase is considered to bring the overall remuneration
levels closer to, but not exceeding, remuneration levels in
equivalent FTSE 250 businesses and will increase the emphasis
on rewarding long-term performance.
The awards will vest no earlier than the third anniversary of the
date of grant, provided that the performance conditions have
been satisfied over a three-year period and the participant is still
employed.
Dividends notionally accrue on awards from the date of award
and an equivalent cash sum will become payable on vesting to
the extent that the shares ultimately vest.
total shareholder return
Vesting of the other third of an award will be dependent upon the
Company’s performance in terms of TSR, as measured against
the TSR of each company in the comparator group listed below
(the “Comparator Group”) over a three-year performance period,
commencing on the first day of the 2012 financial year. TSR is
calculated as the percentage change in the net return index from
the start to the end of the performance period3. This essentially
measures the return to an investor on a holding of Interserve
shares. The Comparator Group is drawn from the Construction
& Materials and Support Services FTSE sectors. Many of the
Comparator Group companies are recognised by the Executive
Board as competitors of the Company, which ensures that this is
an effective incentive from their perspective.
The performance conditions for the Executive Board will be
structured as follows:
Atkins (WS)
Babcock International
earnings per share growth
Recognising the increased award level under the Plan and the
strategic focus on increasing earnings per share significantly and
sustainably, vesting of two-thirds of an award will be dependent
upon growth in normalised EPS2 (over a three-year performance
period, commencing on the first day of the 2012 financial year).
These targets have been made significantly more stretching,
particularly at the upper end of the range, recognising the
increased award level. The performance conditions are set out in
the table below:
Normalised EPS2
growth of the Company over
the performance period
Vesting percentage of two-
thirds of the shares subject
to an award
Less than 20%
20% to 40%
40% to 60%
Greater than 60%
0%
20% to 50% (pro-rated)
50% to 100% (pro-rated)
100%
2Normalised EPS is basic earnings per share adjusted to remove the effects of IAS 36
Impairment of assets and IAS 39 Financial instruments and any return generated from the sale
of any of the Group’s PFI investments in excess of the internal rate of return set by the Board at
the approval stage for that investment and any other items defined by the Committee.
This sliding scale of EPS performance and vesting is shown
graphically below:
s
d
r
i
h
t
-
o
w
t
r
o
f
g
n
i
t
s
e
v
e
g
a
t
n
e
c
r
e
P
d
r
a
w
a
f
o
100%
75%
50%
25%
0%
0%
10%
20%
30%
40%
50%
60%
70%
Normalised EPS growth over performance period
Growth in normalised EPS will be determined by the Committee
after verifying calculations made internally.
Balfour Beatty
Capita Group
Carillion
Costain Group
Kier Group
MITIE Group
Morgan Sindall
Mouchel Group
Rentokil Initial
RPS Group
Serco
WSP Group
May Gurney Integrated Services
3The return index at the start of the performance period is the average of the net return index
over the three months preceding the start of the performance period. The return index at
the end of the performance period is the average of the return index over the last three
months of the performance period.
The TSR performance conditions are set out in the table below:
TSR ranking of the Company
compared to the Comparator
Group over the performance
period
Vesting percentage of one-
third of the shares subject to
an award
Below median ranking
Median ranking (top 50%)
Median to upper quartile
ranking
Upper quartile ranking or
above (top 25%)
0%
30%
30% to 100% (pro-rated)
100%
This sliding scale of TSR performance and vesting is shown
graphically below:
d
r
i
h
t
-
e
n
o
r
o
f
g
n
i
t
s
e
v
e
g
a
t
n
e
c
r
e
P
d
r
a
w
a
f
o
100%
75%
50%
25%
0%
Median
Upper Quartile
TSR ranking of the Company
business review overviewgovernancefinancial statements
56
Interserve AnnuAl report 2011 GovernAnce DIrectors’ remunerAtIon report
TSR will be independently calculated and verified by the
Committee.
The directors’ share interests table on page 59 includes shares
purchased under the SIP by the executive directors.
There is no provision within the rules of the Plan for the re-testing
of any of the above performance conditions.
The Committee considers that a combination of normalised EPS
and TSR for the Executive Board remains the most appropriate
measure of performance for awards made under the Plan. The
EPS target rewards significant and sustained increases in value
and delivers strong “line of sight” for the Executive Board whilst
the TSR performance condition provides balance by rewarding
good relative stock market performance and introduces an
element of share price-based discipline to the package. The
blend of these two complementary measures is considered to
reduce the risk level of the Plan compared to the position if a
single metric applied to the entire award.
Since 2011, PSP awards to the Executive Board have also been
subject to the same clawback provisions set out on page 54.
For participants below Executive Board level the performance
condition will be based solely on the targets for growth in
normalised EPS set out above over the three-year performance
period. This single EPS target has been chosen in order to
provide a clearer “line of sight” for those participants.
All-employee share schemes
In order to support the Company’s Employer of Choice goal
and to encourage share ownership, the Company currently
provides two all-employee HMRC-approved share schemes for
its employees. At the AGM held on 12 May 2009, the Interserve
Sharesave Scheme 2009 (the “Sharesave Scheme”) and the
Interserve Share Incentive Plan 2009 (the “SIP”) were adopted
and approved. The executive directors are entitled to participate
in both the Sharesave Scheme and the SIP.
Grants under the Sharesave Scheme were made in
August 2009, May 2010 and April 2011. Each grant enables
eligible employees to invest up to £25 per month for a period of
three years. Participants are granted an option to acquire shares
in the Company using the proceeds from their savings contract
at an exercise price fixed shortly before they start saving. For past
grants, the exercise price has been set at 10 per cent below the
average of the middle-market share price over the five dealing
days immediately preceding the invitation date. The exercise of
options on maturity is not dependent upon performance criteria.
Details of options granted to the executive directors are set out
on page 60.
It is proposed to make a further grant under the Sharesave
Scheme to eligible employees in April 2012. In order to
encourage a greater take-up rate, the exercise price for these
awards will be set at 20 per cent below the average of the
middle-market share price over the five dealing days immediately
preceding the invitation date.
Under the SIP, eligible employees are offered the opportunity
to invest up to £1,500 per tax year of pre-tax earnings to buy
shares in the Company under a regular monthly share purchase
plan or by up to two lump sum payments per tax year or by
a combination of the two. Shares so purchased are placed in
trust. The shares can be released from the trust to participants
at any time, but income tax and national insurance contributions
are payable on their value should they be released within five
years of their purchase date.
shareholding Guidelines
In June 2006 the Committee introduced Shareholding
Guidelines for executive directors with the effect that executive
directors are expected to retain no fewer than 50 per cent
(increased to 100 per cent in February 2012) of shares net of
taxes following an option exercise or award vesting, until such
time as a shareholding equivalent to 100 per cent of base
salary has been achieved. Shares purchased under the annual
variable pay arrangements, Sharesave Scheme and SIP count
toward this limit. The executive directors’ shareholdings as
a percentage of base salary, as at the date of this report, are
shown below:
Name
S L Dance
T P Haywood
B A Melizan
D J Paterson
A M Ringrose
D I Sutherland
Dilution limits
Shareholding as a %
of base salary
76.62
0.44
77.84
21.12
143.98
16.48
Under present dilution limits the Company is permitted to
allocate a rolling ten-year aggregate of up to 10 per cent of its
ordinary share capital (12,580,434 shares) under all its share
schemes. At 31 December 2011 there remained headroom
equivalent to 5,341,844 shares over which options may be
granted under the Company’s share schemes.
It is currently anticipated that all exercises of options and awards
made under both the 1997 and 2002 Schemes and the Plan will
be satisfied by newly-issued shares.
pensIon ArrAnGements
Adrian Ringrose and David Paterson are members of the
Defined Benefit section of the Interserve Pension Scheme (the
“Scheme”) which was closed to further accrual on 31 December 2009.
All the executive directors are members of the Defined
Contribution section of the Scheme under which employee
contributions of up to 8 per cent of basic annual salary are
matched by the employer. For those employees who have
completed ten years’ pensionable service in the Scheme an
additional contribution of 2 per cent of basic annual salary
became payable by the employer from 1 January 2010. From
1 July 2011 the employer contribution for the most senior
executives in the Group was increased to 15 per cent of basic
salary, conditional upon that executive maintaining his previous
level of contribution to the Scheme.
Where the aggregate of the employer’s and employee’s pension
contributions exceeds the annual allowance (currently £50,000),
the employee’s contribution may be reduced to maintain the
aggregate contributions below the annual allowance. Where the
employer’s contribution exceeds the annual allowance it may be
taken as a salary supplement.
Interserve AnnuAl report 2011 GovernAnce DIrectors’ remunerAtIon report
57
From 1 July 2011, where an employee’s pension savings have
reached the lifetime allowance and he elects to make no further
pension contributions the Company has a discretion, subject
to the employee demonstrating to the Company’s satisfaction
that he has reached the lifetime allowance, to receive the
employer’s pension contribution as a salary supplement. In such
circumstances, death-in-service cover would continue to be
maintained by the Scheme.
ensures clarity all round. There are no provisions entitling the
executive to terminate his employment or receive damages
in the event of a change in control of the Company, or for
compensation payable by the Company to increase beyond
one times annual basic salary. Copies of the service contracts
are available for inspection by shareholders at the AGM. The
Committee will continue to keep under review the terms of
executive directors’ service contracts.
All the executive directors participated during the year in the
Company’s “SMART Pensions” arrangement. SMART Pensions
is a salary sacrifice arrangement set up by the Company
providing an option for employee pension contributions to be
met by their employer following a corresponding sacrifice in their
contractual pay. This scheme affords the Company a saving in
employer’s National Insurance contributions.
In the event of death in service, members of the Scheme are
covered for a lump sum benefit of four times basic annual salary
plus a return of their Retirement Account. This benefit is payable,
at the discretion of the Trustee of the Scheme, to one or more
of their dependants. In addition, for members of the Defined
Benefit section of the Scheme, a spouse’s pension would be
payable based upon their pensionable service up to
31 December 2009.
Executive directors may elect to retire after reaching the age
of 60 and may, upon reaching 65 years of age, request the
Company to agree to their deferring their retirement beyond the
age of 65.
There are no unfunded or unapproved pension promises or
similar arrangements for directors.
executIve DIrectors’ servIce contrActs
The Company’s policy on the duration of directors’ service
contracts is that all newly appointed executive directors should
have contracts terminable at any time on one year’s notice save
where it is necessary to offer longer notice periods to any new
directors recruited from outside the Group, in which case such
periods would be reduced to one year after an initial period.
Details of the service contracts of all the executive directors are
summarised below. Each contract has an indefinite unexpired
term and a notice period of one year.
Name
S L Dance
T P Haywood
B A Melizan
D J Paterson
A M Ringrose
D I Sutherland
Date of contract
10 January 2008
30 November 2010
10 January 2008
1 January 2011
13 December 2001
1 January 2011
In the event of the termination of any service contract the policy
of the Company would be not to make payments beyond its
contractual obligations.
The service contracts provide that if the contract is terminated
summarily (for reasons other than gross misconduct), the
Company may elect to make a payment in lieu of notice equal
only to the executive’s annual basic salary. The Committee feels
that any payment at this level is not excessive (as there is no
entitlement to other elements of the package) and considers that
the certainty for the executive that this provision provides
None of the executive directors (save for Bruce Melizan who is
an unremunerated director of the Safer London Foundation) hold
directorships of other companies in which the Company does
not have a direct or indirect interest.
Group cHAIrmAn AnD non-executIve DIrectors
Non-executive directors are appointed initially until the first AGM
of the Company following appointment, when they are required
to stand for election by shareholders. These appointments
are terminable upon one month’s notice by either party,
without compensation, save for the Group Chairman whose
appointment is terminable upon six months’ notice by either
party, without compensation. The fees of the non-executive
directors are determined by the Board as a whole, taking into
account amounts paid by other similar-sized listed companies.
Details of non-executive appointments held during the financial
year ended 31 December 2011 are as follows:
Name
Date first appointed
Date last re-elected
G P Balfour
1 January 2003
Retired 18 May 2011
Lord Blackwell
1 September 2005
18 May 2011
L G Cullen
1 October 2005
10 May 2010
K L Ludeman
1 January 2011
18 May 2011
D A Thorpe
1 January 2009
12 May 2009
D A Trapnell
11 July 2003
12 May 2009
Copies of the individual contracts of appointment are available
for inspection by shareholders at the AGM.
performAnce GrApH
The graph below shows a comparison of the TSR for the
Company’s shares for each of the last five financial years
against the TSR for the companies comprising the Support
Services sector of the FTSE All-Share Index. This was chosen
for comparison because it includes the most appropriate readily
available group against which the performance of the Company
may be judged.
Historical TSR Performance
£200 -
£100 -
£0 -
2006
2007
2008
2009
2010
2011
31 December
Interserve Plc
FTSE All-Share Support Services
Source: Thomson Reuters Datastream
The graph demonstrates the value on 31 December 2011 of
£100 invested in Interserve Plc on 31 December 2006 compared
with the value of £100 invested in the Support Services sector of
the FTSE All-Share Index.
£
–
s
g
n
d
o
h
l
i
l
a
c
i
t
e
h
t
o
p
y
h
f
o
e
u
a
V
l
business review overviewgovernancefinancial statements
58
Interserve AnnuAl report 2011 GovernAnce DIrectors’ remunerAtIon report
The following information has been audited:
DIrectors’ emoluments AnD compensAtIon
Aggregate directors’ remuneration
The total amounts for directors’ remuneration were as follows:
Emoluments
Compensation for loss of office
Gains made on the exercise of share options
Amounts received under long-term incentive schemes
2011
£
2010
£
3,991,308
1,874,991
nil
nil
nil
Nil
Nil
211,324
201,751
Money purchase pension contributions (excluding SMART Bonus contributions)
313,681
The following table sets out details of the emoluments and compensation paid or receivable by each director in respect of qualifying
services during the financial year ended 31 December 2011:
2011
2010
total
in respect
of qualifying
services
£
21,4111
Name
G P Balfour
Lord Blackwell
130,000
L G Cullen
S L Dance
T P Haywood
K L Ludeman3
46,000
543,366
645,936
40,000
D J Paterson3
A M Ringrose
541,822
899,998
D I Sutherland3
484,347
D A Thorpe
D A Trapnell
Former directors
42,692
46,244
–
–
–
–
–
–
19,192
13,896
–
–
other
cash
emoluments
£
Benefits
in kind
£
variable pay
£
–
–
–
Basic
salary/fee
received
during 2011
£
Annual
salary/fee
at
31.12.11
£
Annual
salary/fee
at
31.12.10
£
Total
in respect
of qualifying
services
£
21,4111
47,0002
44,0001
44,0001
130,000
130,000
120,000
120,000
46,000
46,000
43,000
43,000
–
–
–
21,257
262,6564
259,4535
262,656
256,250
353,435
14,311
317,7504
313,8755
317,750
310,000
36,093
–
–
40,000
40,000
–
–
–
19,713
262,6564
259,4535
262,656
–
–
3,663
441,2624
435,8815
441,262
430,500
576,944
1,826
235,7504
232,8755
235,750
–
–
–
–
42,692
45,000
46,244
47,000
–
37,000
42,000
B A Melizan
549,492
25,557
1,826
262,6564
259,4535
262,656
256,250
356,859
total 2011
3,991,308
58,645
62,596 1,782,730 2,087,337
Total 2010
1,874,991
57,104
32,253
290,650
1,494,984
1In addition to his remuneration in respect of his directorship of Interserve Plc, Mr Balfour received £12,322 during the year (2010: £7,500) in respect of his directorship of Interserve Trustees Ltd,
the corporate trustee of the Interserve Pension Scheme.
2As at 18 May 2011, when Mr Balfour retired from the Board.
3Appointed to the Board on 1 January 2011.
4Variable pay for 2011 was based on the achievement of normalised EPS (i.e. basic earnings per share adjusted to remove the effects of IAS 36 Impairment of assets and IAS 39 Financial
instruments, any return generated from the sale of any of the Group’s PFI investments in excess of the internal rate of return set by the Board at the approval stage for that investment, and any
other items determined by the Committee). The performance conditions were set such that variable pay of between 10 per cent and 100 per cent of basic salary would become payable upon
achievement of between 90 per cent and 115 per cent of budgeted normalised EPS. A performance below 90 per cent of budgeted normalised EPS would result in no variable pay becoming
payable. The operation of the variable pay scheme for the 2011 financial year resulted in a payment of 100 per cent of basic salary for each executive director, the details of which are shown in
the table above.
5Reduced by SMART Pensions arrangement (see table on page 59)
–
37,000
42,000
265,660
1,874,991
Interserve AnnuAl report 2011 GovernAnce DIrectors’ remunerAtIon report
59
DIrectors’ pensIon entItlements
DIrectors’ sHAre Interests
Defined contribution scheme
All the executive directors who held office during the financial year
are members of the Defined Contribution section of the Scheme
and participated in the Company’s SMART Pensions arrangement
(as detailed on page 57). Their base salaries shown in the table
on page 58 were, as a result, reduced by the following amounts
which were paid by the Company into their pension schemes:
Name
S L Dance
T P Haywood
B A Melizan
D J Paterson1
A M Ringrose
D I Sutherland1
2011
£
2010
£
19,474
20,250
13,635
2,067
17,051
20,250
19,996
–
17,220
34,020
18,630
–
1 Appointed to the Board on 1 January 2011.
Details of the total contributions paid by the Company (including
SMART contributions) during the year ended 31 December 2011
are as follows:
Name
S L Dance
T P Haywood
B A Melizan
D J Paterson1
A M Ringrose
D I Sutherland1
2011
£
2010
£
49,422
62,500
49,867
4,133
47,000
40,500
52,508
–
69,373
76,545
45,511
–
1 Appointed to the Board on 1 January 2011.
Non-executive directors’ fees are not pensionable and they have
therefore not been included in the above table.
Members of the Scheme have the option to pay additional
voluntary contributions (“AVCs”). Neither the contributions nor
the resulting benefits of AVCs are included in the above tables.
Defined Benefit scheme
Following the benefit changes to the Interserve Pension Scheme
(the “Scheme”), Adrian Ringrose and David Paterson ceased
to accrue any further benefits in the Defined Benefit section of
the Scheme from 31 December 2009. Their accrued pensions
at that date were £72,337 per annum and £31,056 per annum
respectively and these pensions will increase up to the point they
draw their benefits broadly in line with price inflation.
The beneficial interests of each person who served as a director
of the Company during the financial year in the ordinary share
capital of the Company, together with interests held by his
connected persons, are shown below:
Name
G P Balfour
Lord Blackwell
L G Cullen
S L Dance
T P Haywood
K L Ludeman
B A Melizan
D J Paterson
A M Ringrose
D I Sutherland
D A Thorpe
D A Trapnell
Ordinary shares of
10p each
31.12.11
2,0001
31.12.10
2,000
10,000
10,000
6,000
6,000
64,839
63,569
451
3,000
–
–2
65,950
64,769
17,811
17,2562
204,856
204,266
12,449
11,8592
12,793
12,793
4,500
4,500
1 As at 18 May 2011, when Mr Balfour retired from the Board.
2 As at 1 January 2011, when appointed to the Board.
The above figures include shares held in trust pursuant to the
Interserve Share Incentive Plan 2009.
Between the year end and the date of this report, Steven Dance,
David Paterson, Adrian Ringrose and Dougie Sutherland
have purchased an additional 82 shares each pursuant to
the Interserve Share Incentive Plan 2009. The shares were
purchased on 10 January 2012 (40 shares each at 313.62p per
share) and 8 February 2012 (42 shares each at 299.00p per
share). Their beneficial interests as at the date of this report are
shown below:
Name
S L Dance
D J Paterson
A M Ringrose
D I Sutherland
Ordinary shares of
10p each
29.02.12
31.12.11
64,921
64,839
17,893
17,811
204,938 204,856
12,531
12,449
business review overviewgovernancefinancial statements 60
Interserve AnnuAl report 2011 GovernAnce DIrectors’ remunerAtIon report
share options
The number of options over shares in the Company (pursuant to the 1997 and 2002 Executive Share Option Schemes) held by each
person who served as an executive director of the Company during the financial year, is shown below. All options are fully vested,
having achieved the respective performance conditions.
Name
S L Dance
T P Haywood
B A Melizan
D J Paterson
31.12.11
50,000
83,489
–
75,140
5,295
32,561
lapsed
during
year
–
–
–
–
–
–
A M Ringrose
–
5,529
D I Sutherland
1 As at 1 January 2011, when appointed to the Board.
133,333
150,280
–
–
–
–
Options over ordinary shares of 10p each
31.12.10
50,000
83,489
–
75,140
5,2951
32,5611
5,529
133,333
150,280
–1
Exercise
price
pence
324.00
359.33
n/a
359.33
566.50
359.33
542.50
205.83
359.33
n/a
Exercise period
09.12.07 – 08.12.14
14.03.08 – 13.03.15
n/a
14.03.08 – 13.03.15
19.03.05 – 18.03.12
14.03.08 – 13.03.15
26.03.04 – 25.03.11
23.04.06 – 22.04.13
14.03.08 – 13.03.15
n/a
No share options were granted to, or exercised by, any of the directors during the year ended 31 December 2011. The aggregate
gain made on the exercise of options was £nil (2010: £nil). The market price of the shares as at 31 December 2011 was 320.70p. The
highest and lowest market prices of the shares during the financial year were 341.25p and 231.75p respectively.
sharesave scheme
The number of options over shares in the Company (pursuant to the Interserve Sharesave Scheme 2009) held by each person who
served as an executive director of the Company during the financial year, is shown below.
Name
S L Dance
T P Haywood
B A Melizan
D J Paterson
A M Ringrose
D I Sutherland
31.12.11
595
423
390
390
390
–
595
423
595
423
Granted
during
year
–
–
390
390
390
–
–
–
–
–
Options over ordinary shares of 10p each
31.12.10
595
423
–
–
–
–1
595
423
5951
4231
Exercise
price
pence
152.50
214.50
231.00
231.00
231.00
n/a
152.50
214.50
152.50
214.50
Exercise period
01.10.12 – 31.03.13
01.07.13 – 31.12.13
01.07.14 – 31.12.14
01.07.14 – 31.12.14
01.07.14 – 31.12.14
n/a
01.10.12 – 31.03.13
01.07.13 – 31.12.13
01.10.12 – 31.03.13
01.07.13 – 31.12.13
1 As at 1 January 2011, when appointed to the Board.
No options were exercised or lapsed during the year. There are no performance conditions attached to these options, as they were
issued under the Interserve Sharesave Scheme 2009, an all-employee scheme.
Interserve AnnuAl report 2011 GovernAnce DIrectors’ remunerAtIon report
61
performance share plan
The number of awards over shares in the Company (pursuant to the Performance Share Plan) held by each person who served as an
executive director of the Company during the financial year, is shown below:
Name
S L Dance
T P Haywood
B A Melizan
D J Paterson
Date of award
15.04.08
23.03.09
19.04.10
20.04.11
20.04.11
15.04.08
23.03.09
19.04.10
20.04.11
15.04.08
23.03.09
19.04.10
20.04.11
A M Ringrose
15.04.08
23.03.09
19.04.10
20.04.11
D I Sutherland
15.04.08
23.03.09
19.04.10
20.04.11
Mid-market price
on award date
pence
Awards over
ordinary shares
of 10p each*
31.12.11
Awarded
during
year
vested
during
year
lapsed
during
year
Awards over
ordinary shares
of 10p each*
31.12.10
Performance period
505.00
–
197.00
123,152
236.50
104,909
–
–
–
99,746
99,746
120,669
120,669
–
–
–
–
–
42,084
42,084
01.01.08 – 31.12.101
–
–
–
–
123,152
01.01.09 – 31.12.112
104,909
01.01.10 – 31.12.123
–
–
01.01.11 – 31.12.134
01.01.11 – 31.12.134
–
–
–
42,084
42,084
01.01.08 – 31.12.101
197.00
123,152
–
236.50
104,909
–
–
–
–
123,152
01.01.09 – 31.12.112
–
104,909
01.01.10 – 31.12.123
99,746
99,746
–
–
–
01.01.11 – 31.12.134
197.00
103,448
–
88,124
–
–
–
–
24,048
24,048†
01.01.08 – 31.12.101
–
–
103,448†
01.01.09 – 31.12.112
–
–
88,124†
01.01.10 – 31.12.123
99,746
99,746
–
–
–†
01.01.11 – 31.12.134
–
–
–
73,296
73,296
01.01.08 – 31.12.101
197.00
206,896
– –
–
206,896
01.01.09 – 31.12.112
236.50
176,248
–
–
–
176,248
01.01.10 – 31.12.123
167,574
167,574 –
–
–
01.01.11 – 31.12.134
–
90,600
77,180
–
–
–
–
33,507
33,507†
01.01.08 – 31.12.101
– –
90,600†
01.01.09 – 31.12.112
89,528
89,528 –
–
–
–
77,180†
01.01.10 – 31.12.123
–†
01.01.11 – 31.12.134
261.00
261.00
505.00
261.00
505.00
236.50
261.00
505.00
261.00
505.00
197.00
236.50
261.00
† As at 1 January 2011, when appointed to the Board.
* The maximum number of shares that could be receivable by the executive if performance conditions set out below are fully met:
1the eps performance condition for the 2008 Awards
4the eps performance condition for the 2011 Awards
eps growth of the company
over the performance period
vesting percentage of 50% of
shares subject to the award
Less than RPI + 20%
RPI + 20%
RPI + 20% to RPI + 40%
RPI + 40%
0%
33%
33% to 100% (pro-rated)
100%
2the eps performance condition for the 2009 Awards
eps growth of the company
over the performance period
vesting percentage of 50% of
shares subject to the award
Less than RPI + 20%
RPI + 20%
RPI + 20% to RPI + 33%
RPI + 33%
0%
33%
33% to 100% (pro-rated)
100%
3the eps performance condition for the 2010 Awards
Adjusted Headline eps growth
of the company over the
performance period
Less than 5%
5% to 20%
20% to 30%
vesting percentage of 50% of
shares subject to the award
0%
25% to 50% (pro-rated)
50% to 100% (pro-rated)
Greater than 30%
100%
Adjusted Headline eps growth
of the company over the
performance period
vesting percentage of 50% of
shares subject to the award
Less than 15%
15% to 30%
30% to 50%
Greater than 50%
0%
25% to 50% (pro-rated)
50% to 100% (pro-rated)
100%
These awards were granted in the form of nil-cost options, exercisable between
20 April 2014 and 19 April 2016.
1234the tsr performance condition
This condition is determined by comparing the Company’s TSR performance
to the TSR of each of a defined list of comparator companies drawn from the
Construction and Materials, and Support Services sectors comprising Atkins
(WS), Babcock International, Balfour Beatty, Capita Group, Carillion, Costain
Group, Kier Group, May Gurney Integrated Services, MITIE Group, Morgan
Sindall, Mouchel Group, Rentokil Initial, Rok (not 2011), RPS Group, Serco Group,
Spice (not 2011) and WSP Group.
tsr ranking of the company
compared to the comparator
group over the performance
period
Below median ranking
Median ranking (top 50%)
Median to upper quartile ranking
Upper quartile ranking (top 25%)
vesting percentage of 50% of
shares subject to the award
0%
30%
30% to 100% (pro-rated)
100%
business review overviewgovernancefinancial statements 62
Interserve AnnuAl report 2011 GovernAnce DIrectors’ remunerAtIon report
The EPS and TSR performance conditions for the 2012 awards
are set out on pages 54 to 56 of this report.
The awards made in 2008 did not vest as neither the EPS or
TSR performance conditions were satisfied.
The directors’ interests set out in the foregoing tables were as
at 31 December 2011. There have been no changes between
the year end and the date of this report, other than as indicated
on page 59. There have been no variations to the terms and
conditions or performance criteria for options or awards during
the financial year.
Approval
This report was approved by the Board of Directors on
29 February 2012 and signed on its behalf by:
David thorpe
chairman of the remuneration committee
29 February 2012
Interserve AnnuAl report 2011 GovernAnce DIrectors’ responsIBIlIty stAtement
The directors confirm that, to the best of their knowledge:
a) the Company and Group financial statements in this Annual
Report, which have been prepared in accordance with UK
GAAP and IFRS, respectively, give a true and fair view of the
assets, liabilities, financial position and profit of the Company
and of the Group taken as a whole; and
b) the Directors’ Report contained in this Annual Report
includes a fair review of the development and performance
of the business and the position of the Company and the
Group taken as a whole, together with a description of the
principal risks and uncertainties that they face.
By order of the Board
A M Ringrose
Chief Executive
29 February 2012
T P Haywood
group Finance Director
Directors’ responsibility
statement
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the European Union and Article 4 of the
IAS Regulation and have elected to prepare the parent Company
financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (“UK GAAP”) (UK
Accounting Standards and applicable law). Under company law
the directors must not approve the accounts unless they are
satisfied that they give a true and fair view of the state of affairs
of the Company and of the profit or loss of the Company for that
period.
In preparing the parent Company financial statements, the
directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and
prudent;
• state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
In preparing the Group financial statements, International
Accounting Standard 1 requires that directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and
financial performance; and
• make an assessment of the Company’s ability to continue as a
going concern.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and enable them to ensure
that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
63
O
V
E
R
V
E
w
I
I
B
u
S
N
E
S
S
R
E
V
E
w
I
g
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
l
S
T
A
T
E
M
E
N
T
S
64
Interserve AnnuAl report 2011 FInAnCIAl stAteMents ConsolIDAteD InDepenDent AuDItors’ report
Independent Auditors’ report
to the Members of Interserve plc
IntroDuCtIon
We have audited the Group financial statements of Interserve
Plc for the year ended 31 December 2011 which comprise the
Consolidated Income Statement, the Consolidated Statement of
Comprehensive Income, the Consolidated Balance Sheet, the
Consolidated Cash Flow Statement, the Consolidated Statement
of Changes in Equity, and the related notes 1 to 32. The financial
reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required
to state to them in an auditors’ 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 and the
Company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
respeCtIve responsIbIlItIes oF DIreCtors AnD
AuDItors
As explained more fully in the Directors’ Responsibility Statement,
the directors are responsible for the preparation of the Group
financial statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit and express an opinion
on the Group financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
sCope oF the AuDIt oF the FInAnCIAl
stAteMents
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting
policies are appropriate to the Group’s circumstances and
have been consistently applied and adequately disclosed;
the reasonableness of significant accounting estimates made
by the directors; and the overall presentation of the financial
statements. In addition, we read all the financial and non-
financial information in the annual report to identify material
inconsistencies with the audited financial statements. If we
become aware of any apparent material misstatements or
inconsistences we consider the implications for our report.
opInIon on FInAnCIAl stAteMents
In our opinion the Group financial statements:
• give a true and fair view of the state of the Group’s affairs as at
31 December 2011 and of its profit for the year then ended;
• have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
• have been prepared in accordance with the requirements of
the Companies Act 2006 and Article 4 of the IAS Regulation.
opInIon on other MAtters presCrIbeD by the
CoMpAnIes ACt 2006
In our opinion:
•
•
the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the Companies
Act 2006; and
the information given in the Directors’ Report for the financial
year for which the financial statements are prepared is
consistent with the Group financial statements.
MAtters on whICh we Are requIreD to report
by exCeptIon
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
•
the part of the Directors’ Remuneration Report to be audited is
not in agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law
are not made; or
• we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
•
•
the directors’ statement contained within the financial review
section of the Directors’ Report in relation to going concern;
the part of the Corporate Governance statement relating to
the Company’s compliance with the nine provisions of the UK
Corporate Governance Code specified for our review; and
• certain elements of the report to shareholders by the Board on
directors’ remuneration.
other MAtters
We have reported separately on the parent company financial
statements of Interserve Plc for the year ended 31 December 2011.
Stephen Griggs (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditors
London, United Kingdom
29 February 2012
Interserve AnnuAl report 2011 FInAnCIAl stAteMents ConsolIDAteD prIMAry stAteMents
65
Consolidated Income statement
for the year ended 31 December 2011
Year ended 31 December 2011
Year ended 31 December 2010
Before
exceptional
items and
amortisation
of acquired
intangible
assets
£million
Exceptional
items and
amortisation
of acquired
intangible
assets
£million
Notes
Before
exceptional
items and
amortisation
of acquired
intangible
assets
£million
Exceptional
items and
amortisation
of acquired
intangible
asset
£million
Continuing operations
Revenue including share of associates and joint ventures
Less: Share of associates and joint ventures
Consolidated revenue
Cost of sales*
Gross profit
Administration expenses*
Amortisation of acquired intangible assets
Total administration expenses
Operating profit
Share of result
Amortisation of acquired intangible assets
Share of result of associates and joint ventures
Total operating profit
Investment revenue
Finance costs
Profit before tax
Tax (charge)/credit
Profit for the year
Attributable to:
Equity holders of the parent
Minority interest
Earnings per share
Basic
Diluted
2,319.6
(472.1)
1,847.5
(1,643.7)
203.8
(157.9)
–
(157.9)
45.9
27.9
–
27.9
73.8
39.7
(40.7)
72.8
(7.9)
64.9
62.0
2.9
64.9
14
2
4
14
4
6
7
8
10
(1,643.7)
(1,688.7)
Total
£million
2,319.6
(472.1)
1,847.5
–
–
–
–
–
203.8
–
(157.9)
(5.2)
(5.2)
(5.2)
–
(0.5)
(0.5)
(5.7)
–
–
(5.7)
1.4
(4.3)
(4.3)
–
(4.3)
(5.2)
(163.1)
40.7
27.9
(0.5)
27.4
68.1
39.7
(40.7)
67.1
(6.5)
60.6
57.7
2.9
60.6
45.9p
44.7p
2,315.4
(443.4)
1,872.0
183.3
(139.9)
–
(139.9)
43.4
31.0
–
31.0
74.4
36.1
(40.9)
69.6
(12.0)
57.6
53.8
3.8
57.6
–
–
–
–
–
–
(5.0)
(5.0)
(5.0)
–
(0.5)
(0.5)
(5.5)
–
–
(5.5)
1.4
(4.1)
(4.1)
–
(4.1)
Total
£million
2,315.4
(443.4)
1,872.0
(1,688.7)
183.3
(139.9)
(5.0)
(144.9)
38.4
31.0
(0.5)
30.5
68.9
36.1
(40.9)
64.1
(10.6)
53.5
49.7
3.8
53.5
39.5p
38.5p
* £4.7 million of business unit overheads have been reallocated in the prior period comparatives between cost of sales and administration expenses in line with the movement of business units between
divisions (see note 3(a)). This reclassification does not impact operating profit.
business review overviewgovernancefinancial statements 66
Interserve AnnuAl report 2011 FInAnCIAl stAteMents ConsolIDAteD prIMAry stAteMents
Consolidated statement of Comprehensive Income
for the year ended 31 December 2011
Profit for the period
Other comprehensive income
Exchange differences on translation of foreign operations
Gains/(loss) on cash flow hedges financial assets
(excluding joint ventures)
Actuarial gains/(losses) on defined benefit pension schemes
Deferred tax on items taken directly to equity
Net impact of items relating to joint-venture entities*
Other comprehensive income net of tax
Total comprehensive income
Notes
28
8
Attributable to:
Equity holders of the parent
Minority interest
Year ended
31 December
2011
£million
60.6
8.0
1.1
(32.9)
7.5
23.1
6.8
67.4
64.5
2.9
67.4
Year ended
31 December
2010
£million
53.5
7.7
(0.6)
19.3
(6.0)
(12.4)
8.0
61.5
57.7
3.8
61.5
* Movements in other comprehensive income within joint-venture entities, previously disclosed separately, have been shown within a single line, net of deferred tax. Prior period comparatives have been
reclassified accordingly. This reclassification does not impact total comprehensive income.
Interserve AnnuAl report 2011 FInAnCIAl stAteMents ConsolIDAteD prIMAry stAteMents
67
Consolidated balance sheet
at 31 December 2011
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
Cash and deposits
Total assets
Current liabilities
Bank overdrafts
Trade and other payables
Current tax liabilities
Short-term provisions
Net current liabilities
Non-current liabilities
Bank loans
Trade and other payables
Non-current tax liabilities
Long-term provisions
Retirement benefit obligation
Total liabilities
Net assets
Equity
Share capital
Share premium account
Capital redemption reserve
Merger reserve
Hedging and translation reserves
Investment in own shares
Retained earnings
Equity attributable to equity holders of the parent
Minority interest
Total equity
Notes
31 December
2011
£million
31 December
2010
£million
31 December
2009
£million
11
12
13
14
14
15
16
18
19
19
21
24
19
22
24
28
25
199.0
22.2
139.7
103.3
77.2
23.4
564.8
22.2
380.1
46.1
448.4
1,013.2
(19.3)
(492.7)
(5.9)
(28.7)
(546.6)
(98.2)
(70.0)
(4.1)
(9.2)
(26.3)
(56.2)
(165.8)
(712.4)
300.8
12.6
112.7
0.1
49.0
96.3
(2.8)
28.7
296.6
4.2
300.8
199.6
28.7
149.0
60.1
61.7
16.5
515.6
19.6
386.1
67.6
473.3
988.9
(35.2)
(492.8)
(3.9)
(20.2)
(522.1)
(78.8)
(85.0)
(6.7)
(9.1)
(26.9)
(51.5)
(179.2)
(731.3)
257.6
12.6
112.7
0.1
49.0
64.2
(2.8)
18.0
253.8
3.8
257.6
198.9
31.9
148.8
67.4
57.0
31.4
535.4
20.1
355.3
60.9
436.3
971.7
(11.6)
(482.7)
(8.5)
(23.1)
(525.9)
(89.6)
(85.0)
(9.0)
(9.1)
(25.7)
(95.3)
(224.1)
(750.0)
221.7
12.5
112.7
0.1
49.0
69.3
(0.5)
(24.1)
219.0
2.7
221.7
These financial statements were approved by the Board of Directors on 29 February 2012.
Signed on behalf of the Board of Directors
A M Ringrose
T P Haywood
business review overviewgovernancefinancial statements
68
Interserve AnnuAl report 2011 FInAnCIAl stAteMents ConsolIDAteD prIMAry stAteMents
Consolidated Cash Flow statement
for the year ended 31 December 2011
Notes
12
12
13
27
13
14a
12/13
14b
14c
14b
9
Operating activities
Total operating profit
Adjustments for:
Amortisation of acquired intangible assets
Amortisation of capitalised software development
Depreciation of property, plant and equipment
Pension contributions in excess of the income statement charge
Share of results of associates and joint ventures
Charge relating to share-based payments
Gain on disposal of plant and equipment – hire fleet
Gain on disposal of plant and equipment – other
Operating cash flows before movements in working capital
(Increase)/decrease in inventories
Decrease/(increase) in receivables
Increase in payables
Cash generated by operations before changes in hire fleet
Capital expenditure – hire fleet
Proceeds on disposal of plant and equipment - hire fleet
Cash generated by operations
Taxes paid
Net cash from operating activities
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
Purchase of business
Investment in joint-venture entities
Investment in associated undertakings
Receipt of loan repayment – Investments
Net cash used in investing activities
Financing activities
Interest paid
Dividends paid to equity shareholders
Dividends paid to minority shareholders
Issue of shares
Purchase of own shares
Repayment of bank loans
Movement in obligations under finance leases
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of foreign exchange rate changes
Cash and cash equivalents at end of period
Year ended
31 December
2011
£million
Year ended
31 December
2010
£million
68.1
5.2
1.6
28.3
(27.0)
(27.4)
2.3
(15.4)
(0.1)
35.6
(2.7)
5.6
6.6
45.1
(21.6)
24.6
48.1
(3.2)
44.9
4.4
20.6
0.5
(9.0)
–
(19.5)
–
0.2
(2.8)
(6.7)
(23.0)
(2.5)
–
–
(15.0)
(0.2)
(47.4)
(5.3)
32.4
(0.3)
26.8
68.9
5.0
1.1
25.2
(26.7)
(30.5)
1.6
(12.7)
(0.3)
31.6
2.6
(29.1)
5.0
10.1
(12.8)
27.9
25.2
(6.3)
18.9
3.8
32.1
1.9
(7.5)
(21.6)
(6.1)
(5.0)
0.1
(2.3)
(6.4)
(22.1)
(2.7)
0.1
(2.3)
–
(0.4)
(33.8)
(17.2)
49.3
0.3
32.4
Interserve AnnuAl report 2011 FInAnCIAl stAteMents ConsolIDAteD prIMAry stAteMents
69
Cash and cash equivalents comprise
Cash and deposits
Bank overdrafts
Reconciliation of net cash flow to movement in net debt
Net decrease in cash and cash equivalents
Repayment of bank loans
Movement in obligations under finance leases
Change in net debt resulting from cash flows
Effect of foreign exchange rate changes
Movement in net debt during the period
Net debt – opening
Net debt – closing
Year ended
31 December
2011
£million
Year ended
31 December
2010
£million
46.1
(19.3)
26.8
(5.3)
15.0
0.2
9.9
(0.3)
9.6
(53.8)
(44.2)
67.6
(35.2)
32.4
(17.2)
–
0.4
(16.8)
0.3
(16.5)
(37.3)
(53.8)
business review overviewgovernancefinancial statements 70
Interserve AnnuAl report 2011 FInAnCIAl stAteMents ConsolIDAteD prIMAry stAteMents
Consolidated statement of Changes in equity
for the year ended 31 December 2011
Share capital
£million
Share
premium
£million
Capital
redemption
reserve
£million
Balance at 1 January 2010
12.5
112.7
0.1
Total comprehensive income
Dividends paid
Shares issued
Purchase of Company shares
Company shares used to settle
share-based payment obligations
Share-based payments
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Merger
reserve
£million
49.0
–
–
–
–
–
–
Balance at 31 December 2010
12.6
112.7
0.1
49.0
Total comprehensive income
Dividends paid
Company shares used to settle
share-based payment obligations
Share-based payments
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Hedging and
translation
reserves
£million
69.3
(5.1)
–
–
–
–
–
64.2
32.1
–
–
–
Investment in
own shares
£million
Retained
earnings
£million
Attributable
to equity
holders of
the parent
£million
219.0
57.7
(22.1)
0.1
(2.3)
–
1.4
253.8
64.5
Minority
interest
£million
2.7
3.8
(2.7)
–
–
–
–
3.8
2.9
Total
£million
221.7
61.5
(24.8)
0.1
(2.3)
–
1.4
257.6
67.4
(24.1)
62.8
(22.1)
–
–
–
1.4
18.0
32.4
(23.0)
(23.0)
(2.5)
(25.5)
–
1.3
–
1.3
–
–
–
1.3
(0.5)
–
–
–
(2.3)
–
–
(2.8)
–
–
–
–
Balance at 31 December 2011
12.6
112.7
0.1
49.0
96.3
(2.8)
28.7
296.6
4.2
300.8
The £49.0 million merger reserve represents £16.4 million premium on the shares issued on the acquisition of Robert M. Douglas Holdings Plc in
1991 and £32.6 million premium on the shares issued on the acquisition of MacLellan Group Plc in 2006.
The investment in own shares reserve represents the cost of shares in Interserve Plc held by the trustees of the How Group, Bandt and Interserve
Employee Benefit Trusts. The market value of these shares at 31 December 2011 was £4.2 million (2010: £3.1 million).
The accumulated balance of translation differences, incorporated within the hedging and translation reserve above, amounts to £43.6 million (2010:
£35.6 million).
Interserve AnnuAl report 2011 fInAncIAl stAtements consolIDAteD notes
71
notes to the consolidated financial statements
for the year ended 31 December 2011
BAsIs of prepArAtIon note
The Interserve Plc consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”)
and comply with the IFRS and related Interpretations (SIC and IFRIC interpretations) as adopted by the European Union.
Adoption of new and revised standards
In the current year the following standards were introduced, none of which materially impacted the Group.
IFRS 1 (amended) First-time adoption of IFRS – limited exemptions from comparative IFRS 7 disclosures
IFRIC 14 Prepayments of a minimum funding requirement
IFRIC 19 Extinguishing financial liabilities with equity instruments
IAS 24 Related party disclosures (amended Nov 2009)
IFRS 7 (amended) Financial instruments: disclosures
At the date of authorisation of these Group financial statements, the following Standards and Interpretations, which have not been applied in these
Group financial statements, were in issue but not yet effective:
IFRS 9 Financial instruments
IFRS 10 Consolidated financial statements
IFRS 11 Joint arrangements
IFRS 12 Disclosures of interests in other entities
IFRS 13 Fair value measurement
IAS 19 (revised) Employee benefits
IAS 27 Separate financial statements
IAS 28 Investments in associates and joint ventures
IAS 12 (amended) Deferred tax: recovery of underlying assets
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”.
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. This will have the impact of increasing the interest charge related
to pensions.
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.
critical accounting judgements and key sources of estimation and uncertainty
In the preparation of the consolidated financial statements management makes certain judgements and estimates that impact the financial
statements. While these judgements are continually reviewed the facts and circumstances underlying these judgements may change resulting in a
change to the estimates that could impact the results of the Group. In particular:
Revenue and margin recognition
The policy for revenue recognition on long-term and service contracts is set out in notes 1(d) and (e). Judgements are made on an ongoing basis
with regard to the recoverability of amounts due and liabilities arising. Regular forecasts are compiled on the outcomes of these types of contracts,
which require assessments and judgements relating to the recovery of pre-contract costs, changes in work scopes, contract programmes and
maintenance liabilities.
PFI financial assets and derivative financial instruments
The Group’s interests in PFI/PPP investments are classified as “available-for-sale” financial assets by the joint-venture entities. The fair value of these
financial assets is measured at each balance sheet date by discounting the future cash flows allocated to the financial asset. The discount rate used
is based on long-term LIBOR plus a margin to reflect the risk associated with each project.
The Group’s PFI/PPP joint-venture and associate companies use derivative financial instruments to manage the interest rate and inflation rate risks to
which the concessions are exposed within their long-term contractual agreements. These derivatives are initially recognised as assets and liabilities
at their fair value and subsequently remeasured at each balance sheet date at their fair value. The fair value of derivatives, assessed by discounting
future cash flows, constantly changes in response to prevailing market conditions.
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Interserve AnnuAl report 2011 fInAncIAl stAtements consolIDAteD notes
Interserve AnnuAl report 2011 fInAncIAl stAtements
Interserve AnnuAl report 2011 fInAncIAl stAtements
BAsIs of prepArAtIon note (COnTInUED)
Measurement of impairment of goodwill
As set out in note 1(b) the carrying value of goodwill is reviewed for impairment at least annually. In determining whether goodwill is impaired an
estimation of the value in use of the cash generating unit (CGU) to which the goodwill has been allocated is required. This calculation of value in use
requires estimates to be made relating to the timing and amount of future cash flows expected from the CGU, and suitable discount rates based on
the Group’s weighted average cost of capital adjusted to reflect the specific economic environment of the relevant CGU.
Retirement benefit obligations
In accordance with IAS 19 Employee benefits, the Group has disclosed in note 28 the assumptions used in calculating the defined benefit
obligations. In the calculation a number of assumptions around future salary increases, increase in pension benefits, mortality rates, inflation,
discount rates and the likely future return on scheme assets have been made.
Property, plant and equipment
The rental fleet in Equipment Services has a carrying value of £102.7 million (2010: £110.0 million). The great majority of equipment in the rental fleet
is depreciated on a straight-line basis to a residual value of zero over 10 years. Asset lives are reviewed regularly in light of technological change,
prospective utilisation and the physical condition of the assets. Due to the transportable nature of the rental fleet, the review for potential impairment
is performed on a global basis.
Carrying value of trade and other receivables
Allowance for doubtful debt and provisions against other receivables, including amounts due on construction contracts and carrying value of
accrued income, are made on a specific basis, based on estimates of irrecoverability determined by market knowledge and past experience.
1. AccountIng polIcIes
Interserve Plc (the Company) is a company incorporated in the United Kingdom and bound by the Companies Act 2006. The consolidated
financial statements comprise the Company and its subsidiaries (together referred to as the Group) and the Group’s interest in joint ventures and
associates. These financial statements are presented in pounds sterling which is the currency of the primary economic environment in which the
Group operates. Foreign operations are included in accordance with the policies set out below.
These financial statements have been prepared on a historical cost basis, except for the revaluation of certain financial instruments.
The financial statements are prepared on a going concern basis. As disclosed on page 29 the directors believe that the Group has adequate
resources to continue in operational existence for the foreseeable future.
The significant accounting policies adopted by the directors are set out below and have been applied consistently in dealing with items which are
considered material to the Group’s financial statements.
(a) Basis of consolidation
The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries).
The results, assets and liabilities of associates and joint-venture entities are accounted for under the equity method of accounting. The results
of subsidiaries acquired or disposed of during the year are included from the effective date of acquisition or until the effective date of disposal
respectively.
Minority interests in the net assets of the consolidated subsidiaries are identified separately from the Group’s equity interest therein. Minority
interests consist of those interests at the date of the original business combination and the minority’s share of the changes in equity since the
date of the combination. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Where necessary, adjustments are made to the financial statements of the associates, joint ventures and any newly acquired subsidiaries to
bring their accounting policies into line with those used by the Group. When an entity has an accounting reference date other than 31 December,
due to the influence of a co-shareholder or customer requirements, the consolidation includes management accounts, prepared using these
Group accounting policies, drawn up for the year ended 31 December.
Where a Group company is party to a jointly-controlled operation, that company proportionately accounts for its share of the income and
expenditure, assets, liabilities and cash flows on a line-by-line basis. Such arrangements are reported in the consolidated financial statements on
the same basis.
(b) Business combinations
Business combinations are accounted for using the acquisition accounting method. The cost of the acquisition is measured at the aggregate
of the fair values, at the date of acquisition, of assets given, liabilities incurred or assumed and equity instruments issued by the Group in
exchange for control of the acquired company. The acquired company’s identifiable assets, liabilities and contingent liabilities are recognised at
their fair value as at the acquisition date. Before the adoption of IFRS 3 (revised), the cost of acquisition included any costs directly attributable
to the business combination. Costs incurred on acquisitions completed since 1 January 2010, the date of adoption of the revision to IFRS 3,
are expensed.
Notes to the Consolidated Financial StatementscontinuedNotes to the Consolidated Financial Statementscontinued Interserve AnnuAl report 2011 fInAncIAl stAtements consolIDAteD notes
73
1. AccountIng polIcIes (COnTInUED)
(b) Business combinations (continued)
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable
assets and liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as an asset and reviewed for impairment at least annually.
Any impairment is recognised immediately in the income statement and is not subsequently reversed.
On disposal of a subsidiary, associate or jointly-controlled entity, the attributable amount of goodwill is included in the determination of the profit
or loss on disposal.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP value at that date, subject to
being subsequently tested for impairment. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not
included in determining any subsequent profit or loss on disposal. Goodwill arising on the acquisition of shares in associated undertakings is
included within investments in associated undertakings.
The interest of minority shareholders in the acquired company is initially measured at the minorities’ proportion of the net fair value of the assets,
liabilities and contingent liabilities recognised.
(c) foreign currency
Transactions denominated in foreign currency are translated at the rates ruling at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the rates ruling at that date. These
translation differences are dealt with in the profit for the year.
The financial results and cash flows of foreign subsidiaries, associated undertakings and joint ventures are translated into sterling at the average
rate of exchange for the year. The balance sheets are translated into sterling at the closing rate of exchange, and the difference arising from the
translation of the opening net assets and financial results for the year at the closing rate is taken directly to reserves.
(d) revenue
Revenue comprises the fair value of goods and services supplied to external customers, the value of work executed in respect of provision of
services and construction contracts and the rental and sale of equipment, excluding VAT. Revenue from construction contracts is recognised in
accordance with the Group’s accounting policy on construction contracts (see below).
non-construction revenue and investment revenue is recognised on an accruals basis.
(e) construction contracts
Where the outcome of a contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the
contract activity at the balance sheet date. Where the outcome of a contract cannot be estimated reliably, revenue is only recognised to the
extent that it is probable that it will be recoverable. Profit is only recognised on a construction contract when the final outcome can be assessed
with reasonable certainty. Expected losses are recognised immediately. Stage of completion is determined by surveys of work performed by
quantity surveyors in conjunction with clients.
(f) other intangible assets
Intangible assets acquired as part of an acquisition of a business are stated at fair value less accumulated amortisation and any impairment
losses, provided that the fair value can be measured reliably on initial recognition.
Operating software acquired as part of a related item of hardware is capitalised within property, plant and equipment along with the hardware
acquired. Other software licences acquired are capitalised, along with the cost to bring the software into use, within intangible assets.
Other intangible assets are amortised over their useful economic lives on a straight-line basis, typically between three and ten years.
(g) property, plant and equipment
(i) Owned property, plant and equipment – tangible fixed assets are carried at historical cost less any accumulated depreciation and any
impairment losses. Properties in the course of construction are carried at cost less any recognised impairment loss. Depreciation is charged so
as to write off the cost of assets over their expected useful lives.
Depreciation is provided on a straight-line or reducing-balance basis at rates ranging between:
Straight line
Reducing balance
Freehold land
Freehold buildings
Leasehold property
Plant and equipment
nil
2% to 5%
over the period of the lease
10% to 50%
–
–
–
11.5% to 38%
(ii) Property, plant and equipment held under finance leases are capitalised and depreciated over their expected useful lives. The finance
charges are allocated over the primary period of the lease in proportion to the capital element outstanding.
1. AccountIng polIcIes (COnTInUED)
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Interserve AnnuAl report 2011 fInAncIAl stAtements
Interserve AnnuAl report 2011 fInAncIAl stAtements
1. AccountIng polIcIes (COnTInUED)
(h) Impairment of tangible and other intangible assets
The Group reviews, at least annually, the carrying amounts of its tangible and intangible assets compared to their recoverable amounts to
determine whether those assets have suffered an impairment loss (see note 11). Where an impairment loss subsequently reverses, the carrying
amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years.
(i) Investments
Investments are held at fair value at the balance sheet date. Investments are financial assets and are classified as fair value through the profit or
loss. Gains or losses arising from the changes in fair value are included in the income statement in the period in which they arise.
(j) Inventories
Inventories are stated at the lower of cost and net realisable value. The cost of inventories is calculated using the weighted average method. net
realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling
and distribution.
(k) Borrowing costs
Project-specific finance costs are capitalised until the asset becomes operational. All other borrowing costs are recognised in the income
statement using the effective interest method.
(l) pfI bid costs and other pre-contract costs
In the case of PFI bid costs, on financial close of the project the Group recovers bid costs by charging a fee to the relevant project company. If
the fee exceeds the amount held by the Group as an asset, the excess is credited to the balance sheet as deferred income and is released to the
income statement over the construction period. If the agreed fee is less than the amount held by the Group as an asset, the loss is recognised as
soon as it is anticipated.
Other pre-contract costs are recognised as expenses as incurred, except that directly attributable costs are recognised as an asset when it is
virtually certain that a contract will be obtained and the contract is expected to result in future net cash inflows. Virtual certainty of a contract
award is a subjective assessment, but normally arises on appointment as preferred bidder or notification from the prospective customer of their
intent to appoint Interserve.
(m) leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
Finance leases are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum
lease payments. Lease payments are apportioned between the finance charges and the reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the liability. Finance charges are reflected in the income statement.
Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.
(n) provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount
of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset
but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any
reimbursement. If the effect of the time value of money is material, provisions are discounted using an appropriate rate that takes into account the
risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
Notes to the Consolidated Financial StatementscontinuedNotes to the Consolidated Financial Statementscontinued Interserve AnnuAl report 2011 fInAncIAl stAtements consolIDAteD notes
75
1. AccountIng polIcIes (COnTInUED)
(o) financial instruments
Trade receivables
Trade receivables are initially measured at fair value. Appropriate allowances for estimated irrecoverable amounts are recognised in the
income statement where there is objective evidence that the asset is impaired. Trade receivables are financial assets and classified as loans
and receivables.
Cash and deposits
Cash and deposits comprise cash on hand and demand deposits and other short-term, highly liquid investments that are readily convertible to
a known amount of cash and are subject to an insignificant risk of changes in value. Cash and deposits are financial assets and are classified as
loans and receivables.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums
payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the income statement and are added to the
carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Bank borrowings are other financial liabilities.
Trade payables
Trade payables are other financial liabilities initially measured at fair value and subsequently measured at amortised cost using the effective
interest rate method.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Derivative financial instruments and hedge accounting
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.
Derivatives are initially recognised at fair value at the date a derivative contract is taken out and subsequently remeasured at fair value at each
balance sheet date. Changes in fair value of derivative instruments that are designated as, and effective as, hedges of future cash flows and
net investments are recognised directly in the other comprehensive income statement. Any ineffective portion is recognised immediately in the
income statement.
Amounts deferred in equity are recycled through the income statement in the same period in which the underlying hedged item is recognised
in the income statement. However, when the transaction that is being hedged results in a non-financial asset or non-financial liability, the gains
and losses previously accumulated in equity are transferred from equity and included in the initial measurement of the cost of that asset or
liability. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for
hedge accounting. Any cumulative gain or loss on the hedging instrument recognised in equity at that time is retained in equity until the forecast
transaction occurs. If a hedged transaction is no longer expected to occur, any cumulative gain or loss recognised in equity is transferred to the
income statement for the period.
Changes in fair value of derivative instruments that do not qualify for hedge accounting, or have not been designated as hedges, are recognised
in the income statement as they arise. These derivative instruments are designated as fair value through the profit or loss (FVTPL).
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their economic risks and
characteristics are not closely related to those of the host contracts and the host contracts are not carried at fair value.
(p) share-based payments
The Group has applied the requirements of IFRS 2 Share-based payment. In accordance with the transitional provisions, IFRS 2 has been
applied to all grants of equity instruments after 7 november 2002 that were unvested as at 1 January 2004.
The Group issues share-based payments to certain employees. The fair value determined at the grant date is expensed on a straight-line
basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. Fair value is measured by use of an appropriate
valuation model. The Black-Scholes option pricing model has been used to value the share option plans and the Sharesave Scheme. A
stochastic model has been used to value the Performance Share Plan.
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Interserve AnnuAl report 2011 fInAncIAl stAtements consolIDAteD notes
Interserve AnnuAl report 2011 fInAncIAl stAtements
Interserve AnnuAl report 2011 fInAncIAl stAtements
1. AccountIng polIcIes (COnTInUED)
(q) pfI projects
Treatment on consolidation
The Group’s investments in PFI jointly-controlled entities (“Joint ventures – PFI Investments”) are accounted for under the equity method.
Treatment in the underlying joint-venture entity
The joint-venture entities have determined the appropriate treatment of the principal assets of, and income streams from, PFI and similar
contracts. The balance of risks and rewards derived from the underlying assets is not borne by the entities, and therefore the asset provided is
accounted for as a financial asset and is classified as available-for-sale.
Income is recognised on PFI projects both as operating revenue and interest income: a proportion of total cash receivable is allocated to
operating revenue by means of a margin on service costs taking account of operational risks, and interest income on the financial asset
is recognised in the income statement using the effective interest method. The residual element is allocated to the amortisation of the
financial asset.
The fair value of the financial asset is measured at each balance sheet date by computing the discounted future value of the cash flow
allocated to the financial asset. Discount rates are determined using long-term interest rates, subject to a floor, plus risk factors specific to
individual projects.
Gains and losses arising from changes in the 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 income
statement for the period.
(r) pensions
The Group has both defined benefit and defined contribution pension schemes for the benefit of permanent members of staff. For the defined
benefit schemes the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at
each balance sheet date.
Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised directly in equity and presented in the
statement of recognised income and expense.
For defined contribution schemes, the amount recognised in the income statement is equal to the contributions payable to the schemes during
the year.
(s) taxation
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively
enacted by the balance sheet date. Deferred tax assets and liabilities are calculated at the rates at which they are likely to reverse in the tax
jurisdiction to which they relate.
Deferred tax is provided in full on temporary differences which arise between the carrying value of an asset or liability and its tax base. Deferred
tax assets are recognised to the extent that it is probable that there will be sufficient profits in the future to enable the assets to be utilised and
reviewed at least annually. Deferred tax liabilities are normally recognised for all taxable temporary differences. Deferred tax assets and liabilities
are not discounted.
Deferred tax is charged/credited to the income statement except to the extent that the underlying asset or liability is credited/charged to equity in
which case the deferred tax follows that treatment to equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and
when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a
net basis.
(t) exceptional items
Exceptional items are those that the Group consider to be non-recurring and significant in size or in nature.
Notes to the Consolidated Financial StatementscontinuedNotes to the Consolidated Financial Statementscontinued Interserve AnnuAl report 2011 fInAncIAl stAtements consolIDAteD notes
77
2. revenue
An analysis of the Group’s revenue for the year is as follows:
Continuing operations
Provision of services
Revenue from construction contracts
Equipment sales and leasing income
3. BusIness AnD geogrAphIcAl segments
(a) Business segments
Revenue including share of
associates and joint ventures
Consolidated revenue
2011
£million
2010
£million
2011
£million
2010
£million
1,124.1
1,026.5
169.0
2,319.6
1,163.1
1,012.6
139.7
2,315.4
971.7
706.8
169.0
1,847.5
1,009.4
722.9
139.7
1,872.0
The Group is organised into four operating 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. 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”.
Reflecting the growing significance of our international Support Services operations and some minor changes in operational reporting structures,
the business segmentation has been revised. The principal changes are:
– the Support Services activities carried out by our Middle East associates, principally the Madina sub-group, have been moved from
Construction to Support Services;
– the Engineering business unit has been moved from Support Services to Construction; and
– the Education facilities management business unit has been moved from Construction to Support Services.
note 3 (a) (i) is prepared on the basis of the new segmentation, with prior periods being restated. Additionally, the analysis under the old
classification is presented for information in note 3 (a) (ii).
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Interserve AnnuAl report 2011 fInAncIAl stAtements
Interserve AnnuAl report 2011 fInAncIAl stAtements
3. BusIness AnD geogrAphIcAl segments (COnTInUED)
(a) (i) new segmentation
The segment information below reflects how the business segments will be disclosed henceforth.
Revenue including share of
associates and joint ventures
Consolidated revenue
Result
Support Services – UK
Support Services – International
Support Services
Construction – UK
Construction – International
Construction
Equipment Services
Investments
Group Services
Inter-segment elimination
Amortisation of acquired intangible assets
Total operating profit
Investment revenue
Finance costs
Profit before tax
Tax
Profit for the year
Support Services – UK
Support Services – International
Support Services
Construction – UK
Construction – International
Construction
Equipment Services
Investments
Group Services, goodwill and acquired intangible assets
net debt
net assets (excluding minority interest)
2011
£million
1,069.6
25.9
1,095.5
731.1
223.7
954.8
154.3
160.2
–
(45.2)
2,319.6
2010
£million
restated
1,098.7
23.7
1,122.4
754.3
239.2
993.5
139.9
106.6
–
(47.0)
2,315.4
2011
£million
1,007.3
–
1,007.3
731.1
–
731.1
154.3
–
–
(45.2)
1,847.5
2010
£million
restated
1,024.8
–
1,024.8
754.3
–
754.3
139.9
–
–
(47.0)
1,872.0
2011
£million
36.4
3.6
40.0
18.0
16.6
34.6
13.6
6.0
(20.4)
–
73.8
(5.7)
68.1
39.7
(40.7)
67.1
(6.5)
60.6
2010
£million
restated
25.1
3.4
28.5
24.5
22.8
47.3
14.4
4.2
(20.0)
–
74.4
(5.5)
68.9
36.1
(40.9)
64.1
(10.6)
53.5
Segment assets
Segment liabilities
Net assets/ (liabilities)
2011
£million
217.1
21.5
238.6
162.0
45.6
207.6
184.9
103.3
734.4
232.7
967.1
2010
£million
restated
215.0
8.7
223.7
160.9
42.4
203.3
188.8
60.1
675.9
245.4
921.3
2011
£million
(228.5)
–
(228.5)
(291.7)
–
(291.7)
(32.5)
–
(552.7)
(73.6)
(626.3)
2010
£million
restated
(224.5)
–
(224.5)
(294.8)
–
(294.8)
(30.8)
–
(550.1)
(63.6)
(613.7)
2011
£million
(11.4)
21.5
10.1
(129.7)
45.6
(84.1)
152.4
103.3
181.7
159.1
340.8
(44.2)
296.6
2010
£million
restated
(9.5)
8.7
(0.8)
(133.9)
42.4
(91.5)
158.0
60.1
125.8
181.8
307.6
(53.8)
253.8
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3. BusIness AnD geogrAphIcAl segments (COnTInUED)
(a) (i) new segmentation (continued)
Support Services – UK
Support Services – International
Support Services
Construction – UK
Construction – International
Construction
Equipment Services
Investments
Group Services
Depreciation and
amortisation
Additions to property, plant
and equipment and
intangible assets
2011
£million
2010
£million
restated
2011
£million
2010
£million
restated
7.9
0.4
8.3
2.4
0.1
2.5
19.1
–
29.9
5.7
35.6
6.5
0.4
6.9
2.5
0.1
2.6
16.7
–
26.2
5.6
31.8
6.3
–
6.3
2.9
–
2.9
20.8
–
30.0
0.6
30.6
5.6
–
5.6
1.1
–
1.1
33.2
–
39.9
0.3
40.2
The additions in Equipment Services in 2010 include £18.3 million of property, plant and equipment and £1.6 million intangible assets arising from
the acquisition of assets from CMC Construction Services.
(a) (ii) old segmentation
The business segment information below is prepared on the same basis as presented in the 2010 annual report.
Revenue including share of
associates and joint ventures
Consolidated revenue
Result
Support Services
Construction
Equipment Services
Investments
Group Services
Inter-segment elimination
Amortisation of acquired intangible assets
Total operating profit
Investment revenue
Finance costs
Profit before tax
Tax
Profit for the year
2011
£million
1,123.8
983.4
154.3
160.2
–
(102.1)
2,319.6
2010
£million
1,167.5
1,002.9
139.9
106.6
–
(101.5)
2,315.4
2011
£million
1,061.5
733.8
154.3
–
–
(102.1)
1,847.5
2010
£million
1,093.6
740.0
139.9
–
–
(101.5)
1,872.0
2011
£million
2010
£million
37.5
37.1
13.6
6.0
(20.4)
–
73.8
(5.7)
68.1
39.7
(40.7)
67.1
(6.5)
60.6
27.2
48.6
14.4
4.2
(20.0)
–
74.4
(5.5)
68.9
36.1
(40.9)
64.1
(10.6)
53.5
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3. BusIness AnD geogrAphIcAl segments (COnTInUED)
(a) (ii) old segmentation (continued)
Support Services
Construction
Equipment Services
Investments
Group Services, goodwill and acquired intangible assets
net debt
net assets (excluding minority interest)
Segment assets
Segment liabilities
Net assets/ (liabilities)
2011
£million
224.7
221.5
184.9
103.3
734.4
232.7
967.1
2010
£million
225.1
201.9
188.8
60.1
675.9
245.4
921.3
2011
£million
(246.0)
(274.2)
(32.5)
–
(552.7)
(73.6)
(626.3)
2010
£million
(242.2)
(277.1)
(30.8)
–
(550.1)
(63.6)
(613.7)
2011
£million
(21.3)
(52.7)
152.4
103.3
181.7
159.1
340.8
(44.2)
296.6
2010
£million
(17.1)
(75.2)
158.0
60.1
125.8
181.8
307.6
(53.8)
253.8
Support Services
Construction
Equipment Services
Investments
Group Services
Depreciation and
amortisation
Additions to property, plant
and equipment and
intangible assets
2011
£million
2010
£million
2011
£million
2010
£million
7.9
2.9
19.1
–
29.9
5.7
35.6
6.6
3.0
16.7
–
26.3
5.5
31.8
6.3
2.9
20.8
–
30.0
0.6
30.6
5.6
1.1
33.2
–
39.9
0.3
40.2
Notes to the Consolidated Financial StatementscontinuedNotes to the Consolidated Financial Statementscontinued Interserve AnnuAl report 2011 fInAncIAl stAtements consolIDAteD notes
81
3. BusIness AnD geogrAphIcAl segments (COnTInUED)
(b) geographical segments
The Support Services and Construction divisions are located in the United Kingdom and the Middle East. Equipment Services has operations in
all of the geographic segments listed below. Investments is predominantly based in the United Kingdom.
The following table 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
Total operating profit
United Kingdom
Rest of Europe
Middle East & Africa
Australasia
Far East
Americas
Group Services
Inter-segment elimination
Amortisation of acquired intangible assets
United Kingdom
Rest of Europe
Middle East & Africa
Australasia
Far East
Americas
Group Services, goodwill and acquired intangible assets
Deferred tax asset
2011
£million
1,976.1
10.8
301.0
48.5
9.5
18.9
–
(45.2)
2,319.6
2010
£million
1,972.7
17.5
323.8
37.4
6.1
4.9
–
(47.0)
2,315.4
2011
£million
1,753.6
10.8
51.4
48.5
9.5
18.9
–
(45.2)
1,847.5
2010
£million
1,792.2
17.5
60.9
37.4
6.1
4.9
–
(47.0)
1,872.0
2011
£million
2010
£million
60.8
(4.0)
22.8
14.0
1.2
(0.6)
(20.4)
–
73.8
(5.7)
68.1
55.9
(2.8)
30.5
10.5
0.7
(0.4)
(20.0)
–
74.4
(5.5)
68.9
Non-current assets
2011
£million
140.5
9.5
118.9
19.7
10.6
21.8
220.4
541.4
23.4
564.8
2010
£million
101.4
14.7
105.4
19.3
6.3
26.1
225.9
499.1
16.5
515.6
Included in consolidated revenue above are revenues of approximately £97 million (2010: £102 million) which arose from sales to the Group’s
largest contract customer. 60% of revenue (2010: 63%) was derived from contracts with the public sector.
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4. profIt for the yeAr
Profit for the year has been arrived at after charging/(crediting):
Depreciation of property, plant and equipment:
On owned assets
On assets held under finance leases
Amortisation of capitalised software development
Gain on disposal of plant and equipment – hire fleet
Gain on disposal of plant and equipment – other
Amortisation of acquired intangible assets (subsidiary undertakings)
Amortisation of acquired intangible assets (associated undertakings)
Rentals under operating leases:
Hire of plant and machinery
Other lease rentals
Cost of inventories recognised in cost of sales
Staff costs
Auditors’ remuneration for audit services (see below)
A more detailed analysis of auditors’ remuneration on a worldwide basis is provided below:
Fees payable to the Company’s auditors for the audit of the Company’s annual accounts
The audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
Audit-related assurance services
Other taxation advisory services
Corporate finance services
Total non-audit fees
Total fees paid to the Company’s auditors
Notes
2011
£million
2010
£million
13
13
12
12
14
5
27.8
0.5
1.6
(15.4)
(0.1)
5.2
0.5
22.0
19.2
25.6
602.1
0.8
24.7
0.5
1.1
(12.7)
(0.3)
5.0
0.5
17.1
19.6
28.1
610.5
0.8
2011
£million
2010
£million
0.2
0.6
0.8
0.1
0.1
0.4
0.6
1.4
0.2
0.6
0.8
0.1
0.2
–
0.3
1.1
Corporate finance services include working capital and reporting accountant work in connection with the aborted acquisition of
Mouchel Group plc.
An explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors is set out in
the description of the work of the Audit Committee within the Corporate Governance report on page 48.
Notes to the Consolidated Financial StatementscontinuedNotes to the Consolidated Financial Statementscontinued
Interserve AnnuAl report 2011 fInAncIAl stAtements consolIDAteD notes
83
5. stAff costs
The average number of employees, being full-time equivalents, within each division during the year, including executive directors, was:
Support Services
Construction
Equipment Services
Group Services
2011
Number
16,372
2,632
1,176
128
20,308
2010
Number
restated
16,539
2,778
1,095
127
20,539
Prior period comparatives have been restated to reflect the new business segments and to reflect the full-time equivalent data in Support
Services’ contracts.
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Share-based payments
Other pension costs (see below)
Defined benefit scheme current service costs (note 28)
Other UK – defined contribution
Other overseas – defined contribution
Pension costs
2011
£million
2010
£million
537.2
43.4
2.6
18.9
602.1
5.6
12.3
1.0
18.9
544.1
45.2
1.8
19.4
610.5
6.3
12.2
0.9
19.4
Detailed disclosures of directors’ aggregate and individual remuneration and share-based payments are given in the audited section of the
Directors’ Remuneration Report on pages 58 to 62 and should be regarded as an integral part of this note.
6. Investment revenue
Bank interest
Interest income from joint-venture investments
Return on defined benefit pension assets (note 28)
Other interest
7. fInAnce costs
Bank loans and overdrafts and other loans repayable
Interest cost on pension obligations (note 28)
2011
£million
2010
£million
0.2
4.0
35.3
0.2
39.7
2011
£million
(6.7)
(34.0)
(40.7)
0.3
2.8
32.3
0.7
36.1
2010
£million
(6.4)
(34.5)
(40.9)
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8. tAx
Current tax – UK
Current tax – overseas
Deferred tax (note 15)
Tax charge for the year
Tax charge before prior period adjustments
Prior period adjustments – (credits)/charges
Profit before tax
Subsidiary undertakings’ profit before tax
Group share of profit after tax of associates and joint ventures
Effective tax, excluding one-offs, on subsidiary profits before tax
2011
£million
2010
£million
0.3
5.4
0.8
6.5
13.9
(7.4)
6.5
(1.6)
3.1
9.1
10.6
11.5
(0.9)
10.6
33.6
39.7
30.5
27.4
64.1
67.1
35.0% 34.2%
A
B
A/B
As explained in the Financial Review on page 25, prior period adjustments include £7.0 million relating to UK Corporation Tax reductions following
the restructuring of investment holdings in the Middle East.
UK corporation tax is calculated at 26.5% (2010: 28%) of the estimated taxable profit for the year. Taxation for other jurisdictions is calculated at
the rates prevailing in the relevant jurisdictions.
The total charge for the year can be reconciled to the profit per the income statement as follows:
Profit before tax
Tax at the UK income tax rate of 26.5% (2010: 28.0%)
Tax effect of expenses not deductible in determining taxable profit
Tax effect of share of results of associates
Effect of overseas losses unrelieved
Prior period adjustments
Tax charge and effective tax rate for the year
2011
2010
£million
%
£million
%
67.1
17.8
1.9
(7.8)
2.0
(7.4)
6.5
26.5%
2.8%
(11.6%)
3.0%
(11.0%)
9.7%
64.1
17.9
1.2
(8.7)
1.1
(0.9)
10.6
27.9%
1.9%
(13.6%)
1.7%
(1.4%)
16.5%
In addition to the income tax charged to the income statement, the following deferred tax charges/(credits) have been recorded directly to equity
in the year:
Tax on actuarial (losses)/gains on pension liability
Impact of change in corporation tax rate on pension liability
Tax on fair value adjustment on available-for-sale financial assets
Tax on the intrinsic value of share-based payments
Total
2011
£million
(8.2)
1.0
0.2
(0.5)
(7.5)
2010
£million
restated
5.2
1.0
(0.2)
–
6.0
The impact of deferred tax within project finance joint-venture entities, disclosed in prior periods, has been removed from the table above and is
now included within “net impact of items relating to joint-venture entities” within other comprehensive income.
Notes to the Consolidated Financial StatementscontinuedNotes to the Consolidated Financial Statementscontinued
Interserve AnnuAl report 2011 fInAncIAl stAtements consolIDAteD notes
85
9. DIvIDenDs
Final dividend for the year ended 31 December 2009
Interim dividend for the year ended 31 December 2010
Final dividend for the year ended 31 December 2010
Interim dividend for the year ended 31 December 2011
Amount recognised as distribution to equity holders in the period
Dividend
per share
pence
12.0
5.6
12.4
6.0
2011
£million
2010
£million
–
–
15.5
7.5
23.0
15.1
7.0
–
–
22.1
Proposed final dividend for the year ended 31 December 2011
13.0
16.4
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in
these financial statements.
10. eArnIngs per shAre
Calculation of earnings per share is based on the following data:
Earnings
net profit attributable to equity holders of the parent (for basic and diluted basic earnings per share)
Adjustments:
Amortisation of acquired intangible assets
Tax effect of above adjustments
Headline earnings (for headline and diluted headline earnings per share)
Number of shares
2011
£million
57.7
5.7
(1.4)
62.0
2011
Number
2010
£million
49.7
5.5
(1.4)
53.8
2010
Number
Weighted average number of ordinary shares for the purposes of basic and headline earnings per share
125,804,346
125,715,700
Effect of dilutive potential ordinary shares:
Share options and awards
3,399,166
3,283,818
Weighted average number of ordinary shares for the purposes of diluted basic and diluted headline
earnings per share
129,203,512
128,999,518
Earnings per share
Headline earnings per share
Diluted headline earnings per share
Basic earnings per share
Diluted basic earnings per share
2011
pence
49.3
48.0
45.9
44.7
2010
pence
42.8
41.7
39.5
38.5
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11. gooDwIll
Cost
At 1 January
Additions
Change in deferred contingent consideration for subsidiaries acquired in prior years
At 31 December
Accumulated impairment
At 1 January and 31 December
Carrying amount
At 31 December
2011
£million
2010
£million
259.6
–
(0.6)
259.0
258.9
0.7
–
259.6
60.0
60.0
199.0
199.6
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from
that business combination as follows:
At 1 January 2010
Additions
At 31 December 2010
Change in deferred contingent consideration for subsidiaries acquired in prior years
At 31 December 2011
Support
Services
£million
Equipment
Services
£million
198.7
–
198.7
(0.6)
198.1
0.2
0.7
0.9
–
0.9
Total
£million
198.9
0.7
199.6
(0.6)
199.0
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.
The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are
those regarding the discount rates, cash flows, growth rates and margins during the period. Management estimates discount rates using pre-tax
rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. The revenue growth rates are based
on current Board approved budgets and forecasts and are extrapolated based on expectations of changes in the market. The Group produces
three-year plans and then projects a further year based on growth rates of 2.5%, followed by a terminal value based on a perpetuity calculated at
a nominal 2.5% growth which does not exceed current market growth rates.
The rate used to discount the future cash flows is 13.0% (2010: 12.2%) and is based on the Group’s pre-tax weighted average cost of capital.
As part of this annual review a sensitivity analysis was performed on the impairment test of each CGU, including an increase in the discount rate
of up to 2.0% or the limiting of growth over the plan years to 2.5%. no impairment in the carrying value of the goodwill in either Support Servcies
or Equipment Services would occur as a result of adopting these sensitivities.
Notes to the Consolidated Financial StatementscontinuedNotes to the Consolidated Financial Statementscontinued
Interserve AnnuAl report 2011 fInAncIAl stAtements consolIDAteD notes
87
12. other IntAngIBle Assets
Cost
At 1 January 2010
Acquisition from CMC – note 3 (a) (i)
Additions
At 31 December 2010
Additions
At 31 December 2011
Accumulated amortisation
At 1 January 2010
Charge for the year
At 31 December 2010
Charge for the year
At 31 December 2011
Carrying amount
At 31 December 2011
At 31 December 2010
At 1 January 2010
Useful lives
Acquired
Computer
software
£million
Customer
relationships
£million
Other
£million
Total
£million
6.1
–
1.3
7.4
0.3
7.7
0.1
1.1
1.2
1.6
2.8
4.9
6.2
6.0
41.4
1.6
–
43.0
–
43.0
16.1
4.7
20.8
5.0
25.8
17.2
22.2
25.3
1.4
–
–
1.4
–
1.4
0.8
0.3
1.1
0.2
1.3
0.1
0.3
0.6
48.9
1.6
1.3
51.8
0.3
52.1
17.0
6.1
23.1
6.8
29.9
22.2
28.7
31.9
5 years
5-10
years
3-5
years
The useful life and amortisation period of each group of intangible assets varies according to the underlying length of benefit expected to
be received.
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13. property, plAnt AnD equIpment
(a) movements
Cost
At 1 January 2010
Additions
Acquisition from CMC – note 3 (a) (i)
Disposals
Exchange differences
At 31 December 2010
Additions
Disposals
Exchange differences
At 31 December 2011
Accumulated depreciation
At 1 January 2010
Charge for the year
Eliminated on disposals
Exchange differences
At 31 December 2010
Charge for the year
Eliminated on disposals
Exchange differences
At 31 December 2011
Carrying amount
At 31 December 2011
At 31 December 2010
At 1 January 2010
Land and
buildings
£million
19.2
0.6
–
(0.9)
0.4
19.3
0.5
(0.4)
(0.1)
19.3
6.7
1.4
–
–
8.1
1.6
(0.2)
–
9.5
9.8
11.2
12.5
Hire
fleet
£million
191.9
12.8
18.3
(17.1)
8.7
214.6
21.6
(17.9)
(2.4)
215.9
78.5
16.0
(1.2)
4.2
97.5
18.1
(8.8)
(0.8)
106.0
109.9
117.1
113.4
Other
plant and
equipment
£million
54.1
5.6
–
(2.3)
1.2
58.6
8.2
(0.7)
(0.1)
66.0
31.2
7.8
(1.5)
0.4
37.9
8.6
(0.4)
(0.1)
46.0
20.0
20.7
22.9
Total
£million
265.2
19.0
18.3
(20.3)
10.3
292.5
30.3
(19.0)
(2.6)
301.2
116.4
25.2
(2.7)
4.6
143.5
28.3
(9.4)
(0.9)
161.5
139.7
149.0
148.8
The carrying amount of the Group’s plant and equipment includes an amount of £1.2 million (2010: £1.6 million) in respect of assets held under
finance leases. Details of property, plant and equipment held under finance leases are shown in note 23.
(b) carrying amount of land and buildings
Freehold:
Land at cost
Buildings at cost less depreciation
Leaseholds over 50 years at cost less depreciation
Leaseholds under 50 years at cost less depreciation
(c) future capital expenditure not provided for in the financial statements
Committed
2011
£million
2010
£million
2.3
3.5
5.8
–
4.0
9.8
2.3
3.9
6.2
–
5.0
11.2
2011
£million
1.3
2010
£million
0.3
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14. Interests In AssocIAtes AnD joInt-venture entItIes
(a) share of results and net assets of joint-venture entities and associated undertakings
There are no significant restrictions on the ability of associates and joint-venture entities to pay dividends or repay loans if agreed by the
shareholders.
The share of results from joint-venture entities and associated undertakings were as follows:
Revenues
Operating profit
net interest receivable
Taxation
Group share of profit
Amortisation of acquired intangibles
Total operating profit
Dividends
Retained profits
Year ended 31 December 2011
Year ended 31 December 2010
Construction
£million
Support
Services
£million
Investments
£million
Total
£million
Construction
£million*
Support
Services
£million*
Investments
£million
223.7
18.8
0.5
(1.6)
17.7
(0.1)
17.6
(12.8)
4.8
88.2
4.7
0.1
(0.6)
4.2
(0.4)
3.8
(2.6)
1.2
160.2
1.9
7.5
(3.4)
6.0
–
6.0
(5.2)
0.8
472.1
25.4
8.1
(5.6)
27.9
(0.5)
27.4
(20.6)
6.8
239.2
24.6
1.0
(2.6)
23.0
(0.1)
22.9
(24.3)
(1.4)
97.6
4.3
0.1
(0.6)
3.8
(0.4)
3.4
(2.6)
0.8
106.6
3.8
2.8
(2.4)
4.2
–
4.2
(5.2)
(1.0)
Share of net assets of joint-venture entities and associated undertakings were as follows:
non-current assets
Current assets
Current liabilities
non-current liabilities
Goodwill
Acquired intangible assets
Carrying value of net assets and goodwill
Year ended 31 December 2011
Year ended 31 December 2010
Construction
£million
Support
Services
£million
Investments
£million
Total
£million
Construction
£million*
Support
Services
£million*
Investments
£million
30.0
168.9
(132.7)
(20.6)
45.6
4.3
0.8
50.7
14.1
22.1
(13.7)
(1.0)
21.5
3.5
1.5
26.5
847.2
61.6
(54.5)
(751.0)
103.3
–
–
103.3
891.3
252.6
(200.9)
(772.6)
170.4
7.8
2.3
180.5
24.4
173.6
(127.4)
(28.2)
42.4
4.3
0.9
47.6
2.4
18.9
(12.6)
–
8.7
3.5
1.9
14.1
703.6
58.3
(54.2)
(647.6)
60.1
–
–
60.1
Total
£million
443.4
32.7
3.9
(5.6)
31.0
(0.5)
30.5
(32.1)
(1.6)
Total
£million
730.4
250.8
(194.2)
(675.8)
111.2
7.8
2.8
121.8
*In line with the revised reporting of segmental results (see note 3), certain activities carried out by our Middle East associates have been moved from Construction to Support Services, and the prior
period’s results have been restated.
The liabilities of the joint-venture entities principally relate to the non-recourse debt within those businesses as part of funding the construction of
the underlying asset.
The most substantial joint-venture entity is Health Management (UCLH) Holdings Ltd. The Group’s share of gross assets is £112.7 million
(2010: £110.0 million), current liabilities £22.7 million (2010: £19.4 million) and liabilities falling due after more than one year £84.1 million
(2010: £85.1 million).
Further details of the Group’s investment in PPP/PFI schemes are included in note 30.
At 31 December 2011 the Group had a commitment for additional investment in joint-venture entities of £13.0 million (2010: £30.1 million).
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14. Interests In AssocIAtes AnD joInt-venture entItIes (COnTInUED)
(b) joint ventures – pfI investments
At 1 January 2010
Acquisitions and advances
Repayments to the Group
Fair value adjustment to financial instruments and derivatives
Share of retained profits
At 31 December 2010
Acquisitions and advances
Repayments to the Group
Fair value adjustment to financial instruments and derivatives
Share of retained profits
At 31 December 2011
(c) Associated undertakings
At 1 January 2010
Additions
Share of retained profits net of amortisation
Exchange differences
At 31 December 2010
Share of retained profits net of amortisation
Exchange differences
At 31 December 2011
Shares
£million
Loans
£million
1.7
–
–
–
–
1.7
–
–
–
–
1.7
18.1
6.1
(0.1)
–
–
24.1
19.5
(0.2)
–
–
43.4
Shares
£million
Loans
£million
5.7
5.0
–
–
10.7
–
–
10.7
8.8
–
–
–
8.8
–
–
8.8
Share of
reserves
£million
47.6
–
–
(12.3)
(1.0)
34.3
–
–
23.1
0.8
58.2
Share of
reserves
£million
42.5
–
(0.6)
0.3
42.2
6.0
9.5
57.7
Total
£million
67.4
6.1
(0.1)
(12.3)
(1.0)
60.1
19.5
(0.2)
23.1
0.8
103.3
Total
£million
57.0
5.0
(0.6)
0.3
61.7
6.0
9.5
77.2
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15. DeferreD tAxAtIon
The following are the major deferred tax assets and (liabilities) recognised by the Group.
At 1 January 2010
(Charge)/credit to income
(Charge)/credit to equity
Exchange differences
At 31 December 2010
(Charge)/credit to income
Credit to equity
Exchange differences
At 31 December 2011
Retirement
benefit
obligations
£million
Acquired
intangible
assets
£million
Accelerated
capital
allowances
£million
Other timing
differences
£million
39.6
(11.2)
(6.2)
–
22.2
(11.2)
7.2
–
18.2
(7.3)
1.4
–
–
(5.9)
1.8
–
–
(4.1)
(6.1)
1.1
–
(0.4)
(5.4)
7.8
–
–
2.4
5.2
(0.4)
0.2
0.6
5.6
0.8
0.3
0.2
6.9
Total
£million
31.4
(9.1)
(6.0)
0.2
16.5
(0.8)
7.5
0.2
23.4
Included in the movements in the year ended 31 December 2011 are amounts reflecting the change in corporation tax that was enacted during
the year, amounting to £1.0 million charged to equity and £0.6 million credited to the income statement.
Certain deferred tax assets and liabilities, as shown below, have been offset on the consolidated balance sheet.
Deferred tax liabilities
Deferred tax assets
2011
£million
(4.1)
27.5
23.4
2010
£million
(11.3)
27.8
16.5
no deferred tax asset has been recognised in respect of certain unused tax losses available for offset against future profits due to the
unpredictability of future profit streams in those businesses. The accumulated tax value of these losses is £6.3 million (2010: £2.6 million) on
gross losses of £25.2 million (2010: £9.6 million).
16. InventorIes
Goods held for resale
Materials
17. constructIon contrActs
Balances related to contracts in progress at the balance sheet date were:
Amounts due from contract customers included in trade and
other receivables
Amounts due to contract customers included in trade and
other payables
Contract costs incurred plus recognised profits less recognised
losses to date
Less: progress billings
31 December 2011
£million
31 December 2010
£million
31 December 2009
£million
21.4
0.8
22.2
19.2
0.4
19.6
19.9
0.2
20.1
31 December 2011
£million
31 December 2010
£million
31 December 2009
£million
32.0
(25.9)
6.1
4,456.8
(4,450.7)
6.1
39.0
(31.7)
7.3
4,090.6
(4,083.3)
7.3
38.5
(46.0)
(7.5)
3,938.9
(3,946.4)
(7.5)
At 31 December 2011, retentions held by customers for contract work amounted to £23.3 million (2010: £23.0 million) of which £3.6 million (2010:
£9.8 million) is receivable after one year. Advances received were £25.9 million (2010: £31.7 million) of which £nil is repayable after one year (2010: £nil).
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18. trADe AnD other receIvABles
Amounts recoverable from the sale of goods and services
Allowances for doubtful debts
Amounts due from construction contract customers
Retentions
Amounts owed by joint-venture and associated undertakings
Other receivables
Prepayments and accrued income
31 December 2011
£million
31 December 2010
£million
31 December 2009
£million
256.5
(33.8)
222.7
32.0
23.3
4.8
8.2
89.1
380.1
248.7
(33.1)
215.6
39.0
23.0
3.4
7.8
97.3
386.1
235.8
(37.2)
198.6
38.5
19.2
2.8
8.7
87.5
355.3
Included in the above are the following amounts recoverable after more than one year:
Retentions
31 December 2011
£million
31 December 2010
£million
31 December 2009
£million
3.6
9.8
8.5
The directors consider that the carrying amount of trade and other receivables approximates their fair value. Trade and other receivables are
included as part of the financial assets.
Average credit period taken on the sale of goods and services is 41 days (2010: 36 days). Allowances for doubtful debt are provided for on a
specific basis, based on estimates of irrecoverability determined by market knowledge and past experience.
Ageing of trade receivables, not impaired but net of allowances for doubtful debt, is as follows:
31 December 2011
£million
31 December 2010
£million
31 December 2009
£million
not more than one month past due
Between one and three months past due
Between three and six months past due
Greater than six months
Total past due but not impaired
not past due
Total net receivables
26.8
14.7
14.0
9.7
65.2
157.5
222.7
The average age of the receivables past due but not impaired is 89 days (2010: 86 days).
Movement in allowance for doubtful debt is as follows:
Balance at 1 January
Amounts written off as uncollectable
Impairment losses recognised in the year
Amounts recovered during the year
Exchange differences
Balance at 31 December
2011
£million
33.1
(11.1)
18.0
(5.8)
(0.4)
33.8
22.8
17.5
14.0
7.5
61.8
153.8
215.6
2010
£million
37.2
(13.5)
15.7
(7.7)
1.4
33.1
17.9
15.1
16.5
2.2
51.7
146.9
198.6
Notes to the Consolidated Financial StatementscontinuedNotes to the Consolidated Financial Statementscontinued Interserve AnnuAl report 2011 fInAncIAl stAtements consolIDAteD notes
93
19. cAsh, DeposIts AnD BorrowIngs
Cash and deposits comprise cash held by the Group and short-term bank deposits that have an original maturity of three months or less.
Deposits receive interest at floating rates related to UK base rates.
Cash and deposits
Bank overdrafts
Bank loans
Finance leases (note 23)
Total borrowings
net debt
31 December 2011
£million
31 December 2010
£million
31 December 2009
£million
46.1
(19.3)
(70.0)
(89.3)
(1.0)
(90.3)
(44.2)
67.6
(35.2)
(85.0)
(120.2)
(1.2)
(121.4)
(53.8)
60.9
(11.6)
(85.0)
(96.6)
(1.6)
(98.2)
(37.3)
Included within cash and deposits is £31.9 million (2010: £27.6 million) which is subject to various constraints on the Group’s ability to utilise
these balances. These constraints relate to minority interest holdings in the relevant companies and the regulatory cash funding requirements on
the Group’s captive insurance company.
Total borrowings are repayable as follows:
On demand or within one year
In the second year
In the third to fifth years inclusive
Less: Amount due for settlement within 12 months
Amount due for settlement after 12 months
31 December 2011
£million
31 December 2010
£million
31 December 2009
£million
19.8
70.3
0.2
90.3
(19.8)
70.5
35.8
0.4
85.2
121.4
(35.8)
85.6
12.1
85.5
0.6
98.2
(12.1)
86.1
The analysis of utilisation of committed bank facilities is as follows:
Drawn facilities
Undrawn facilities within one to two years
Undrawn facilities within more than two years but not more than five
years remaining
Total facilities
70.0
180.0
–
250.0
85.0
–
165.0
250.0
85.0
140.0
25.0
250.0
31 December 2011
£million
31 December 2010
£million
31 December 2009
£million
During April 2010 the Group entered into a syndicated loan facility of £250 million maturing in October 2013. Fees paid as a result of entering into
this new facility are held as a prepayment and are being amortised over the expected life of the facility of 36 months.
Subsequent to the balance sheet date, the Group has secured long-term refinancing (see note 32).
The majority of the Group’s borrowings bear interest at floating rates which are set according to published LIBOR rates. The remainder bear
interest at rates that are determined by bank base rates. The Group has access to committed borrowing facilities that expire in one to two years.
Amounts are drawn down against these facilities on a short-term basis but the ageing of the total amount borrowed is classified according to the
maturity of the facilities. Contractual interest on bank loans, that will accrue between the year end and the date of rollover of the amounts drawn
down, is £0.4 million and is all due for payment within one year (2010: £0.9 million within one year).
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20. fInAncIAl rIsk mAnAgement
Financial assets comprise trade and other receivables (excluding construction contracts, prepaid and accrued income), long-term debtors and
cash and deposits. Financial assets and liabilities have fair values not materially different to the carrying values. Financial liabilities comprise trade
and other payables (excluding construction contracts, accruals, deferred income and other tax and social security), bank borrowings, finance
leases, loan notes, long-term creditors and interest rate hedges.
The Group has the following categories of financial assets and liabilities:
31 December 2011
£million
31 December 2010
£million
Loans and receivables
Cash and deposits
Trade and other receivables (excluding construction contracts,
prepaid and accrued income)
Total financial assets
46.1
235.7
281.8
Bank loans and overdrafts and finance leases
Trade and other payables (excluding construction contracts,
accruals, deferred income and other tax and social security)
Interest rate hedge (non-PFI investments)
Total financial liabilities
31 December 2011
31 December 2010
Other
financial
liabilities
£million
(90.3)
222.6
–
132.3
Derivatives
used for
hedging
£million
–
–
1.8
1.8
Total
£million
(90.3)
222.6
1.8
134.1
Other
financial
liabilities
£million
(121.4)
225.7
–
104.3
Derivatives
used for
hedging
£million
–
–
2.2
2.2
67.6
226.8
294.4
Total
£million
(121.4)
225.7
2.2
106.5
Trade and other receivables and trade and other payables are held at amortised cost. The directors consider these values to approximate their
fair values. The interest rate hedges are held at fair value at each balance sheet date.
Financial instruments that are measured subsequent to initial recognition at fair value are grouped into three levels based on the degree to which
the fair value is observable, as defined by IFRS 7 paragraph 27:
– Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets and liabilities;
– Level 2 fair value measurements are those derived from inputs, other than quoted prices included within “Level 1”, that are observable either
directly (i.e. as prices) or indirectly (i.e. derived from prices); and
– Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on
observable market data.
Classification of financial assets/(liabilities) held at fair value according to the definitions set out in IFRS 7 paragraph 27:
Level 2
31 December 2011
£million
31 December 2010
£million
(1.8)
(2.2)
Derivatives used for hedging financial liabilities are considered to be within the grouping referred to as “Level 2”. Their fair values are calculated
based on the valuation models operated by the relevant counterparty bank, based on market interest rates in force on the date of valuation.
no financial instruments have been transferred between Levels during the year.
Exposure to credit risk on liquid funds and derivative financial instruments is managed by the Group’s requirement to trade with counterparties
with strong credit ratings as determined by international credit rating agencies. The transactional banking requirements are met by local banks in
each location with significant cash balances being remitted to Group treasury where short-term cash surpluses or cash not available for use by
the Group is deposited with investment grade rated banks.
Notes to the Consolidated Financial StatementscontinuedNotes to the Consolidated Financial Statementscontinued
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95
20. fInAncIAl rIsk mAnAgement (COnTInUED)
(a) currency exposures
Where material trade is transacted in non-local currency, the Company hedges the currency exposure and ordinarily this will be achieved with
forward contracts.
Analysis of financial assets, by currency:
Sterling
US dollar
Euro
Australian dollar
Dirham
Other
31 December 2011
31 December 2010
Floating
rates
£million
31.3
1.9
4.6
2.5
0.7
5.1
46.1
Fixed rates
£million
–
–
–
–
–
–
–
Non-interest
bearing
£million
186.9
3.5
4.1
8.3
17.5
15.4
Total
£million
218.2
5.4
8.7
10.8
18.2
20.5
235.7
281.8
Floating
rates
£million
45.8
3.7
7.3
3.2
1.0
6.6
67.6
Fixed rates
£million
–
–
–
–
–
–
–
Non-interest
bearing
£million
179.3
0.7
7.1
6.7
22.5
10.5
Total
£million
225.1
4.4
14.4
9.9
23.5
17.1
226.8
294.4
Analysis of financial liabilities, excluding derivatives used for hedging, by currency:
Floating
rates
£million
40.8
–
0.5
–
–
–
31 December 2011
Fixed rates
£million
Non-interest
bearing
£million
49.0
210.8
–
–
–
–
–
0.2
2.8
1.6
5.5
1.7
Total
£million
300.6
0.2
3.3
1.6
5.5
1.7
31 December 2010
Floating
rates
£million
69.3
Fixed rates
£million
Non-interest
bearing
£million
51.2
211.6
–
0.9
–
–
–
–
–
–
–
–
0.2
4.8
1.3
7.1
0.7
Total
£million
332.1
0.2
5.7
1.3
7.1
0.7
41.3
0.9%
49.0
3.6%
222.6
312.9
70.2
0.6%
51.2
3.6%
225.7
347.1
Sterling
US dollar
Euro
Australian dollar
Dirham
Other
Weighted average interest rates excluding
amortisation of arrangement fees and bank
margin
Where the Group has overseas operations, the revenues and costs of the business will typically be denominated in local currency. Gains
and losses arising on retranslation of monetary assets and liabilities that are not denominated in the functional currency of individual Group
companies are recognised in the income statement. The Group enters into forward foreign exchange contracts to manage material currency
exposures that arise on cashflows from sales or purchases not denominated in functional currencies immediately those sales or purchases are
contracted. Taking into account the effect of forward contracts, Group companies did not have a material exposure to foreign exchange gains or
losses on monetary assets and monetary liabilities denominated in foreign currencies at 31 December 2011.
The Group does not hedge anticipated future sales and purchases.
Gains and losses arising on the retranslation of foreign operations’ net assets into the consolidation currency are recognised directly in equity.
The Group does not hedge these translation differences.
The Group’s exposure to fluctuations in exchange rates is shown below where a change in value of foreign currencies against sterling would have
the following impact on the results of the Group:
A 1% change in exchange rates results in:
Change in profit
Change in reserves / net assets
31 December 2011
£million
31 December 2010
£million
0.2
1.5
0.3
1.4
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20. fInAncIAl rIsk mAnAgement (COnTInUED)
(b) market price risk – interest rate hedges
The Group seeks to control its exposure to changes in interest rates by using interest rate swaps to limit the impact on the interest charge in the
income statement. Contracts in place at the year end were as follows:
Interest rate swaps
31 December 2011
31 December 2010
Nominal
value
£million
20.0
30.0
Current
Current
Maturity
Strike price
2012
2013
3.62%
3.56%
Current
Current
Nominal
value
£million
20.0
30.0
Maturity
Strike price
2012
2013
3.62%
3.56%
The fair value of interest rate hedges at 31 December 2011 is estimated at (£1.8) million (2010: (£2.2) million). The contracts are designated as
cash flow hedges and to the extent that the hedges are effective hedges, changes in their fair value are recognised directly in equity. The fair
values of the hedge instruments are calculated based on the valuation computer models operated by the relevant counterparty bank valuation
models. no charges have gone through the income statement in the year (2010: £nil ) in respect of changes in the fair value of the hedges.
A gain of £1.1 million (2010: loss of £0.6 million) was credited through other comprehensive income in respect to changes in fair value of
the hedges.
The use of interest rate caps and swaps, where appropriate, diminishes the impact of an interest rate change. The impact of a 1% change in
interest rate to the Group’s results is shown in the table below:
A 1% change in interest rate results in:
Change in profit
(c) credit risk
31 December 2011
£million
31 December 2010
£million
–
–
The Group’s principal financial assets are bank balances and cash, trade and other receivables and investments, which represent the Group’s
maximum exposure to credit risk in relation to financial assets.
The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances
for doubtful receivables, estimated by the Group’s management based on prior experience and their assessment of the current economic
environment. To manage this risk, credit references are taken and where appropriate parent company guarantees are sought along with monthly
monitoring of age and recoverability of trade receivables.
Apart from receivables due from customers related to HM Government, the Group has no significant concentration of credit risk, with exposure
spread over a number of counterparties and customers.
(d) liquidity risk
The Group seeks to maintain sufficient facilities to ensure that it has access to funding to meet current and anticipated future funding
requirements determined from budgets and medium-term plans.
The maturity of financial assets and liabilities, with the exception of interest rate hedges above, are discussed in the specific asset and
liability notes.
(e) capital risk
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns, whilst seeking to optimise the debt
and equity balance, in order to maximise the return to stakeholders. The capital structure of the Group consists of net debt, which includes cash,
deposits and borrowings (note 19), and equity attributable to equity holders of the parent.
The Group has, over recent years, had a policy of progressively increasing dividends paid to shareholders. The Group may adjust the capital
structure of the Group by returning capital to shareholders, issue new shares or sell assets to reduce debt.
The Group is not subject to externally imposed capital requirements but is subject to covenants in its loan agreements which seek to maintain
the level of debt and interest that the Group may service at reasonable levels by reference to the Group’s earnings which ultimately limits the
amount of debt that the Group can take on.
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21. trADe AnD other pAyABles – Amounts fAllIng Due wIthIn one yeAr
Obligations under finance leases (note 23)
Trade payables
Advances received
Other taxation and social security
Other payables
Accruals and deferred income
31 December 2011
£million
31 December 2010
£million
31 December 2009
£million
0.5
191.5
25.9
30.4
30.8
213.6
492.7
0.6
194.7
31.7
29.4
30.5
205.9
492.8
0.5
202.1
46.0
25.5
37.8
170.8
482.7
22. trADe AnD other pAyABles – Amounts fAllIng Due After more thAn one yeAr
Obligations under finance leases (note 23)
Trade payables
Other payables
31 December 2011
£million
31 December 2010
£million
31 December 2009
£million
0.5
0.3
3.3
4.1
0.6
0.5
5.6
6.7
1.1
0.3
7.6
9.0
The carrying amount of trade and other payables approximates to their fair value.
On average our suppliers are paid within 82 days of receipt of invoice (2010: 76 days).
Ageing of amounts payable excluding advances, finance leases, accruals and deferred income is as follows:
Less than one year
Between one and two years
23. oBlIgAtIons unDer fInAnce AnD operAtIng leAses
(a) finance leases
31 December 2011
£million
31 December 2010
£million
31 December 2009
£million
252.7
3.6
256.3
254.6
6.1
260.7
265.4
7.9
273.3
Amounts payable under finance leases:
Within one year
In the second to fifth years inclusive
Less: future finance charges
Present value of lease obligations
Minimum
lease payments
Present value of minimum
lease payments
2011
£million
2010
£million
2011
£million
2010
£million
0.5
0.6
1.1
(0.1)
1.0
0.6
0.7
1.3
(0.1)
1.2
0.5
0.5
1.0
n/a
1.0
0.6
0.6
1.2
n/a
1.2
Certain of the Group’s plant and equipment is held under finance leases. The average lease term is four to six years. For the year ended
31 December 2011, the average effective borrowing rate was 4.0% (2010: 4.3%). Interest rates are fixed at the contract date. All leases are on a
fixed repayment basis and no arrangements have been entered into for contingent rental payments.
All finance lease obligations are denominated in sterling.
The carrying amount of the Group’s finance lease obligations approximate their fair value.
The Group’s obligations under finance leases are secured by the lessors’ charges over the leased assets.
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23. oBlIgAtIons unDer fInAnce AnD operAtIng leAses (COnTInUED)
(b) operating leases
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating
leases, which fall due as follows:
Within one year
In the second to fifth years inclusive
After five years
2011
2010
Land and
buildings
£million
11.4
28.0
17.5
56.9
Other
£million
Total
£million
7.1
10.0
0.1
17.2
18.5
38.0
17.6
74.1
Land and
buildings
£million
11.4
23.4
20.8
55.6
Other
£million
Total
£million
8.1
10.2
0.2
18.5
19.5
33.6
21.0
74.1
The majority of leases of land and buildings are subject to rent reviews at periodic intervals of between three and five years and are based on
market rates.
24. provIsIons
At 1 January 2010
Additional provision in the year
Release
Utilisation of provision
Exchange differences
At 31 December 2010
Additional provision in the year
Release
Utilisation of provision
Exchange differences
At 31 December 2011
Included in current liabilities
Included in non-current liabilities
The impact of discounting is not material.
Deferred
consideration
£million
Contract
provisions
£million
Other
£million
Total
£million
0.7
–
–
–
–
0.7
–
(0.7)
–
–
–
39.7
13.2
(2.5)
(13.6)
(0.4)
36.4
17.0
(2.0)
(6.6)
–
44.8
8.4
2.5
–
(1.6)
0.7
10.0
2.4
(0.8)
(1.4)
–
10.2
48.8
15.7
(2.5)
(15.2)
0.3
47.1
19.4
(3.5)
(8.0)
–
55.0
31 December 2011
£million
31 December 2010
£million
31 December 2009
£million
28.7
26.3
55.0
20.2
26.9
47.1
23.1
25.7
48.8
The deferred consideration of £0.7 million at 31 December 2010 related to the acquisition of R & D Holdings Ltd in 2008. Following the expiry of
the qualifying period for earn-out payments, this provision was released in the year ended 31 December 2011.
Contract provisions include costs of site clearance, remedial costs and other contractual provisions. These are expected to be utilised on final
settlement of the relevant contracts.
Notes to the Consolidated Financial StatementscontinuedNotes to the Consolidated Financial Statementscontinued Interserve AnnuAl report 2011 fInAncIAl stAtements consolIDAteD notes
99
25. shAre cApItAl
Authorised:
Under the Companies Act 2006, companies are no longer required to have an authorised share
capital and a resolution was passed by shareholders on 10 May 2010 to take advantage of the
deregulating measure. The Company, therefore, no longer has an authorised share capital
(2009: 210,000,000 ordinary shares of 10p each).
Issued and fully paid:
125,804,346 ordinary shares of 10p each (2010: 125,804,346 ordinary shares of 10p each)
At 1 January 2010
Share awards issued in 2010
At 31 December 2010 and 31 December 2011
31 December 2011
£million
31 December 2010
£million
31 December 2009
£million
n/a
n/a
21.0
12.6
12.6
12.5
Shares
thousands
Share capital
£million
125,367.8
436.6
125,804.4
12.5
0.1
12.6
Awards were granted during the year as indicated below. Exercise and vesting details are stated in the Directors’ Remuneration Report on
pages 52 to 62. Outstanding options and awards over shares in the Company at 31 December 2011 were as follows:
(a) Executive share option schemes
(b) Performance Share Plan
(c) Sharesave Scheme
31 December 2011
31 December 2010
Subscription
price per
10p share
Number of
beneficiaries
including
directors
Date of grant
26 March 2001
542.50p
25 April 2001
587.00p
19 March 2002
566.50p
23 April 2003
205.83p
26 May 2004
253.25p
9 December 2004
324.00p
–
–
4
1
9
1
Number of
shares
–
–
21,180
133,333
255,000
50,000
Number of
beneficiaries
including
directors
3
1
4
1
9
1
Number of
shares
16,587
5,110
21,180
133,333
255,000
50,000
14 March 2005
359.33p
23
808,723
23
808,723
15 April 2008
23 March 2009
19 April 2010
27 April 2010
20 April 2011
nil
nil
nil
nil
nil
–
61
58
1
62
7 August 2009
152.50p
14 May 2010
214.50p
15 April 2011
231.00p
1,346
836
912
1,268,236
–
1,937,812
1,593,319
10,386
2,001,138
5,542,655
780,138
345,805
345,774
1,471,717
62
63
59
1
–
1,520
950
–
1,289,933
972,438
1,967,883
1,605,782
10,386
–
4,556,489
875,361
391,702
–
1,267,063
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26. contIngent lIABIlItIes
The Company and its subsidiaries are, from time to time, parties to legal proceedings and claims which arise in the ordinary course of business.
Appropriate provision has been made in these accounts for all material uninsured liabilities resulting from proceedings that are, in the opinion of
the directors, likely to materialise.
The Company and certain subsidiary undertakings have, in the normal course of business, given performance guarantees and provided
indemnities to third parties in relation to performance bonds and other contract related guarantees. These relate to the Group’s own contracts
and to the Group’s share of the contractual obligations of certain joint ventures and associated undertakings. The Group acts as guarantor for
the following:
Maximum guarantee
Amounts utilised
Associated undertakings’ borrowings
Joint-venture and associated undertakings’ bonds and guarantees
2011
£million
7.3
206.4
213.7
2010
£million
17.1
200.6
217.7
2011
£million
0.2
127.4
127.6
27. shAre-BAseD pAyments
Under the Group’s share-based incentive schemes the following expense was charged:
Performance Share Plan
Sharesave Scheme
Total charge
Cash settled
Equity settled
Total charge
2011
£million
2.1
0.2
2.3
1.0
1.3
2.3
2010
£million
0.2
119.3
119.5
2010
£million
1.3
0.3
1.6
0.2
1.4
1.6
(a) executive share option schemes
The executive share option schemes provide for a grant price equal to the average quoted market price of the Group’s shares on the date of
grant. The vesting period was generally three to four years. If the options remain unexercised after a period of 10 years from the date of grant, the
options lapse. Furthermore, options are normally forfeited if the employee leaves the Group before the options vest.
Options granted before 7 november 2002 and hence not included in charge calculations:
Outstanding at beginning of period
Exercised during the period
Lapsed during the period
Outstanding and exercisable at the end of the period
Options granted since 7 november 2002:
Outstanding at beginning of period
Exercised during the period
Lapsed during the period
2011
2010
Weighted
average
exercise
price
£
5.60
–
5.53
5.67
Options
number
42,877
–
(21,697)
21,180
Options
number
53,701
–
(10,824)
42,877
1,247,056
3.20
1,420,252
–
–
–
–
–
(173,196)
Outstanding and exercisable at the end of the period
1,247,056
3.20
1,247,056
Weighted
average
exercise
price
£
5.59
–
5.54
5.60
3.24
–
3.51
3.20
The average share price during the year was £2.96. The outstanding options at the end of the period had exercise prices ranging from £2.06 to
£5.67 and had a remaining weighted average contractual life of 2.8 years.
The inputs to the Black-Scholes models in respect of the grants up to 2005 are set out in the 2010 Annual Report and Financial Statements.
There have been no grants under these schemes since 2005.
Notes to the Consolidated Financial StatementscontinuedNotes to the Consolidated Financial Statementscontinued Interserve AnnuAl report 2011 fInAncIAl stAtements consolIDAteD notes
101
27. shAre-BAseD pAyments (COnTInUED)
(b) performance share plan
The Performance Share Plan is a “free” share award with an effective exercise price of £nil, half of which is subject to a Total Shareholder Return
(TSR) performance condition with performance compared to a comparator group. The other half is subject to an Earnings Per Share (EPS)
performance condition. The vesting period is three years. Further details of these conditions are set out in the Directors’ Remuneration Report on
pages 52 to 62. Awards are normally forfeited if the employee leaves the Group before the awards vest.
Outstanding at beginning of period
Granted during the period
Vested during the period
Lapsed during the period
Outstanding at the end of the period
Exercisable at the end of the period
2011
Awards
number
4,556,489
2,015,501
–
(1,029,335)
5,542,655
–
2010
Awards
number
4,303,450
1,876,572
(435,869)
(1,187,664)
4,556,489
–
The remaining weighted average contractual life is 1.3 years (2010: 1.4 years).
The Group engaged external consultants to calculate the fair value of these awards at the date of grant. The valuation model used to calculate
the fair value of the awards granted under this plan was a stochastic valuation model, the inputs of which are detailed below:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk-free rate
Expected dividend yield
Average fair value of award per share
(c) sharesave scheme
2011
grants
2010
grants
2009
grants
2008
grants
261.0p
236.5p
197.0p
505.0p
0p
0p
0p
0p
49.0%
48.5%
47.0%
30.3%
3 years
3 years
3 years
3 years
1.6%
0.0%
1.8%
0.0%
1.8%
0.0%
4.2%
0.0%
231.9p
195.7p
158.1p
431.2p
The Sharesave Scheme is an all-employee HMRC-approved share scheme. The scheme involves employees saving a set amount from their
salary for a period of three years. At the end of the three-year period the employee is offered the opportunity to purchase shares based on the
amount saved at an option price set at the start of the period. The option price is set at a 10% discount of the average share price over five days
trading prior to the offer date of the scheme.
Outstanding at beginning of period
Granted during the period
Exercised during the period
Lapsed during the period
Outstanding and exercisable at the end of the period
2011
2010
Weighted
average
exercise
price
£
1.72
2.31
1.63
1.80
1.86
Options
number
1,267,063
360,828
(12,904)
(143,270)
1,471,717
Weighted
average
exercise
price
£
1.53
2.15
1.53
1.57
1.72
Options
number
958,304
398,739
(1,781)
(88,199)
1,267,063
The outstanding options at the end of the period had a weighted average exercise price of £1.86 (2010: £1.72) and had a remaining weighted
average contractual life of 1.3 years (2010: 2.0 years).
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27. shAre-BAseD pAyments (COnTInUED)
(c) sharesave scheme (continued)
The inputs into the Black-Scholes model are as follows:
Share price at date of grant
Exercise price
Expected volatility
Expected life
Risk-free rate
Expected dividend yield
Fair value of award per share
2011
grants
260.5p
231.0p
27.4%
3 years
1.7%
8.1%
32.5p
2010
grants
235.75p
214.5p
41.5%
3 years
3.3%
7.4%
38.3p
2009
grants
218.7p
152.5p
45.5%
3 years
3.7%
7.5%
69.0p
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous two years. The expected
life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and
behavioural considerations.
28. DefIneD BenefIt retIrement schemes
The principal pension schemes within the Group have been valued for the purposes of IAS 19 Employee benefits. For each of these pension
schemes, valuation information has been updated by Lane Clark & Peacock LLP, qualified independent actuaries, to take account of the
requirements of IAS 19 in order to assess the liabilities of the various schemes as at 31 December 2009.
Actuarial gains and losses are recognised in full in the period in which they occur. As permitted by IAS 19, actuarial gains and losses are
recognised outside profit or loss and presented in other comprehensive income. The liability recognised in the balance sheet represents the
present value of the various defined benefit obligations, as reduced by the fair value of plan assets. The cost of providing benefits is determined
using the projected unit credit method.
In February 2011, the RMD Ireland Pension Scheme was closed to future accrual of benefit and as a result a £0.4 million curtailment gain has
been recognised in the year ended 31 December 2011.
The following table sets out the key IAS 19 assumptions used to assess the present value of the defined benefit obligation:
Retail price inflation
Consumer price index
Discount rate
Pension increases in payment:
LPI/RPI
Fixed 5%
3% or RPI if higher (capped at 5%)
General salary increases
2011
3.10% pa
2.10% pa
4.80% pa
2010
3.40% pa
2.80% pa
5.40% pa
2009
3.50% pa
n/a
5.60% pa
3.00%/3.10%
3.30%/3.40%
3.40%/3.50%
5.00%
3.60%
5.00%
3.70%
5.00%
3.70%
3.85-4.60% pa
4.15-4.90% pa
4.25-5.00% pa
The expected rate of return is derived by taking the weighted average of the long-term expected rate of return on each of the asset classes that
the pension schemes were invested in at 31 December 2010 and making a deduction of 0.4% (2010: 0.4% pa) for the expenses incurred in
running the schemes (where these are not met separately). For the Interserve Pension Scheme, which represents the majority of plan assets, the
expected rate of return on assets during 2011 (net of expenses) was 6.0% pa (2010: 6.0% pa).
The post-retirement mortality assumption used to value the benefit obligation allows for future improvements in mortality and implies for the
majority of the obligation (that associated with the Interserve Pension Scheme) that a 65-year-old current pensioner is expected to live until age:
male 86.0 (2010: age 85.9) and female 87.9 (2010: age 87.9). A future pensioner who is currently aged 45 and retires at age 65 is expected to live
until age: male 87.8 (2010: age 87.7) and female 89.1 (2010: age 89.0).
Notes to the Consolidated Financial StatementscontinuedNotes to the Consolidated Financial Statementscontinued Interserve AnnuAl report 2011 fInAncIAl stAtements consolIDAteD notes
103
28. DefIneD BenefIt retIrement schemes (COnTInUED)
The amount included in the balance sheet arising from the Group’s obligations in respect of the various pension schemes is as follows:
Present value of defined benefit obligation
Fair value of schemes’ assets
Liability recognised in the balance sheet
The amounts recognised in the income statement are as follows:
Employer’s part of current service cost
Interest cost
Expected return on schemes’ assets
Gains on curtailments and settlements
Total expense recognised in the income statement
2011
£million
695.0
2010
£million
642.3
(638.8)
(590.8)
56.2
51.5
2009
£million
627.4
(532.1)
95.3
2011
£million
5.6
34.0
(35.3)
(0.4)
3.9
2008
£million
534.2
(381.1)
153.1
2007
£million
563.4
(480.3)
83.1
2010
£million
6.3
34.5
(32.3)
–
8.5
The current service cost and curtailment gain are included within operating profit. The interest cost and expected return on assets are included
within financing costs.
The actual return on the schemes’ assets over the year was a gain of £40.4 million (2010: gain of £50.4 million).
The current allocation of the schemes’ assets is as follows:
2011
˜2010
2009
Current
allocation
Fair value
£million
44%
47%
9%
278.6
299.8
60.4
Average
expected
return
per annum
7.0%
3.8%
5.5%
Current
allocation
Fair value
£million
48%
41%
11%
285.7
242.0
63.1
Average
expected
return
per annum
8.0%
4.5%
6.5%
Current
allocation
Fair value
£million
46%
42%
12%
245.7
224.9
61.5
Average
expected
return
per annum
8.0%
4.7%
6.5%
100%
638.8
5.3%
100%
590.8
6.4%
100%
532.1
6.3%
Performance-seeking
Defensive
Infrastructure
Expected return before
scheme expenses
Performance-seeking assets include asset classes such as equities, diversified growth funds and fund of hedge funds. Defensive assets include
government and corporate bonds and cash. The infrastructure holding is the portfolio of 13 PFI investments transferred by Interserve to the
Interserve Pension Scheme at the end of november 2009.
A reconciliation of the present value of the defined benefit obligation is as follows:
Opening defined benefit obligation
Employer’s part of current service cost
Interest cost
Contributions by schemes’ participants
Actuarial loss/(gain)
Benefits paid
Curtailments and settlements
Bulk transfers
Closing defined benefit obligation
2011
£million
642.3
5.6
34.0
1.2
38.0
(25.0)
(0.4)
(0.7)
695.0
2010
£million
627.4
6.3
34.5
1.4
(1.2)
(26.7)
–
0.6
642.3
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28. DefIneD BenefIt retIrement schemes (COnTInUED)
A reconciliation of the fair value of the schemes’ assets is as follows:
Opening fair value of the schemes’ assets
Expected return on schemes’ assets
Actuarial gain
Contributions by the employer
Contributions by schemes’ participants
Benefits paid
Bulk transfers
Closing fair value of the schemes’ assets
2011
£million
590.8
35.3
5.1
32.1
1.2
(25.0)
(0.7)
638.8
2010
£million
532.1
32.3
18.1
33.0
1.4
(26.7)
0.6
590.8
2011
£million
2010
£million
2009
£million
2008
£million
2007
£million
Experience adjustments on the schemes’ assets
Amount of gain/(loss)
Percentage of the schemes’ assets
Experience adjustments on the schemes’ liabilities
Amount of (loss)/gain
Percentage of the present value of the schemes’ liabilities
Gain/(loss) due to changes in assumptions
Amount of (loss)/gain
Percentage of the present value of the schemes’ liabilities
Total actuarial gains and (losses) recognised directly in equity in the year
5.1
1%
(5.9)
(1%)
(32.1)
(5%)
(32.9)
Cumulative amount of gains and (losses) recognised in other comprehensive income
(108.4)
18.1
3%
(2.8)
–
4.0
1%
19.3
(75.5)
60.0
11%
10.1
2%
(101.1)
(16%)
(31.0)
(94.8)
(141.1)
(37%)
(3.8)
(1%)
64.2
12%
(80.7)
(63.8)
(6.8)
(1%)
2.0
–
20.5
4%
15.7
16.9
Based on current contribution rates and payroll, the Group expects to contribute £32.8 million to the various defined benefit arrangements during
2012. This includes a deficit contribution of £23.2 million.
29. relAteD pArty trAnsActIons
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed
in this note. Transactions between the Group and its associates are disclosed below.
During the year, Group companies entered into the following transactions with related parties who are not members of the Group:
Joint-venture entities – PFI Investments
Associates
Sales of goods and
services
Purchases of goods and
services
Amounts owed by related
parties
Amounts owed to related
parties
2011
£million
180.2
98.6
2010
£million
225.2
103.1
2011
£million
2010
£million
2011
£million
2010
£million
2011
£million
2010
£million
–
1.1
0.1
1.0
1.6
3.3
1.1
2.3
–
0.4
–
–
Sales and purchases of goods and services to related parties were made on normal trading terms.
The amounts outstanding are unsecured and will be settled in cash. no guarantees have been given or received in respect of the outstanding
balances. no provisions have been made for doubtful debts in respect of the amounts owed by related parties.
Key management personnel are considered to be the directors of Interserve Plc. Amounts paid to key management personnel are given in the
audited section of the Directors’ Remuneration Report on pages 58 to 62.
Notes to the Consolidated Financial StatementscontinuedNotes to the Consolidated Financial Statementscontinued Interserve AnnuAl report 2011 fInAncIAl stAtements consolIDAteD notes
105
30. pfI/ppp ArrAngements
PFI/PPP arrangements that have reached financial close as at 31 December 2011:
Interserve services
Design/
build
Operate
Whole-life
value
£million
Dates
Status
Awarded
Fully
operational
Contract
end
Share of
equity/
sub-debt
%
£million
Total
capital
required
£million
Contract
Health
Cumberland Infirmary
UCL Hospital
newcastle nHS Trust
Tunbridge Wells
Enniskillen
Education
Holy Cross
Plymouth Schools
Leeds BSF
Leeds Phase 2
Leeds Phase 3
Derry Schools
Down & Connor
Downpatrick
Sandwell
St Helens
Leeds Phase 4
Custodial
Ashford Prison
Peterborough Prison
Addiewell Prison
Defence
Defence Training Estate
Corsham
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
135
403
130
67
60
19
59
279
48
49
23
17
10
114
63
25
47
60
73
600
200
operational
late 1997
early 2000
operational
mid 2000
mid 2005
operational
early 2005
mid 2013
operational
early 2008
mid 2011
construction
early 2009
early 2012
operational
late 2006
late 2008
operational
early 2007
late 2008
operational
early 2007
mid 2009
operational
early 2008
mid 2009
operational
mid 2008
mid 2010
operational
late 2008
early 2011
operational
mid 2009
early 2011
operational
mid 2009
early 2011
operational
mid 2009
late 2011
construction
late 2010
early 2013
construction
late 2011
late 2013
operational
late 2002
mid 2004
operational
early 2003
early 2005
operational
mid 2006
late 2008
operational
early 2003
mid 2003
operational
mid 2008
late 2011
2030
2040
2043
2042
2042
2033
2033
2034
2034
2035
2036
2035
2036
2036
2038
2038
2029
2030
2033
2013
2033
50
33
20
25
37
50
50
40
40
45
50
50
50
40
50
50
33
33
33
51
50
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
Central/local government
Inland Revenue, newcastle
yes
135
operational
early 1998
late 2002
2031
20
Invested to date
Shares
Loans
Remaining commitment
The Group’s share of the capital commitments of the joint ventures above amounts to £10.6 million (2010: £43.2 million).
2.9
1.4
4.9
5.4
10.6
1.5
1.7
3.4
1.0
1.0
2.0
1.9
1.0
2.8
1.7
0.7
1.9
2.3
3.0
84.0
292.0
337.0
279.5
276.3
32.0
45.0
123.0
35.0
31.2
45.3
35.2
18.0
51.1
33.0
18.0
65.0
90.0
100.0
-
6.8
-
90.0
256.0
0.2
58.1
1.7
43.4
13.0
58.1
business review overviewgovernancefinancial statements
106
106
106
Interserve AnnuAl report 2011 fInAncIAl stAtements consolIDAteD notes
Interserve AnnuAl report 2011 fInAncIAl stAtements
Interserve AnnuAl report 2011 fInAncIAl stAtements
31. reconcIlIAtIon of non-stAtutory meAsures
The Group uses a number of key performance indicators to monitor the performance of its business. This note reconciles these key performance
indicators to individual lines in the financial statements.
(a) headline pre-tax profit
Profit before tax
Adjusted for:
Amortisation of acquired intangible assets
Share of associates’ amortisation of acquired intangible assets
Exceptional items
Headline pre-tax profit
(b) operating cash flow
Cash generated by operations
Adjusted for:
Pension contributions in excess of income statement charge
Special pension contribution
Proceeds on disposal of plant and equipment – non-hire fleet
Capital expenditure – non-hire fleet
Cash impact of exceptional items
Operating cash flow
(c) free cash flow
Operating cash flow
Adjusted for:
Pension contributions in excess of income statement charge
Taxes paid
Dividends received from associates and joint ventures
Interest received
Interest paid
Effect of foreign exchange rate change
Free cash flow
(d) operating cash conversion
Operating cash flow
Operating profit, before exceptional items and amortisation of acquired intangible assets
Full-year operating cash conversion
Three-year rolling operating cash flow
Three-year rolling operating profit, before exceptional items and amortisation of acquired intangible assets
Operating cash conversion, three-year rolling average
2011
£million
67.1
2010
£million
64.1
5.2
0.5
–
5.0
0.5
–
72.8
69.6
2009
£million
89.2
5.0
0.4
(16.3)
78.3
2011
£million
48.1
2010
£million
25.2
2009
£million
37.6
27.0
–
0.5
(9.0)
–
66.6
26.7
–
1.9
(7.5)
–
15.5
61.5
0.6
(13.1)
11.6
46.3
113.7
2011
£million
66.6
2010
£million
46.3
(27.0)
(3.2)
20.6
4.4
(6.7)
(0.3)
54.4
(26.7)
(6.3)
32.1
3.8
(6.4)
0.3
43.1
2011
£million
66.6
45.9
2010
£million
46.3
43.4
2009
£million
113.7
(15.5)
(15.7)
17.6
7.2
(5.8)
(0.6)
100.9
2009
£million
113.7
56.6
145.1%
106.7%
200.9%
226.6
145.9
194.7
159.4
199.6
170.8
155.3%
122.1%
116.9%
Notes to the Consolidated Financial StatementscontinuedNotes to the Consolidated Financial Statementscontinued Interserve AnnuAl report 2011 fInAncIAl stAtements consolIDAteD notes
107
31. reconcIlIAtIon of non-stAtutory meAsures (COnTInUED)
(e) gross operating cash conversion
Operating cash flow
Dividends received from associates and joint ventures
Gross operating cash flow
Operating profit, before exceptional items and amortisation of acquired intangible assets
Share of results of associates and joint ventures, before exceptional items and amortisation
of acquired intangible assets
2011
£million
66.6
20.6
87.2
45.9
27.9
2010
£million
46.3
32.1
78.4
43.4
31.0
2009
£million
113.7
17.6
131.3
56.6
29.1
Total operating profit, before exceptional items and amortisation of acquired intangible assets
73.8
74.4
85.7
Full-year gross operating cash conversion
118.2% 105.4%
153.2%
Three-year rolling gross operating cashflow
Three-year rolling total operating profit before exceptional items and amortisation of acquired intangible assets
Gross operating cash conversion, three-year rolling average
296.9
233.9
257.9
248.1
239.1
247.0
126.9% 104.0%
96.8%
(f) gross revenue
Consolidated revenue
Share of revenues of associates and joint ventures
Gross revenue
(g) operating margins
Total operating profit, before exceptional items and amortisation of acquired intangible assets
Gross revenue
Total operating margin
32. events After the BAlAnce sheet DAte
2011
£million
2010
£million
2009
£million
1,847.5
1,872.0
1,906.8
472.1
443.4
563.9
2,319.6
2,315.4
2,470.7
2011
£million
73.8
2010
£million
74.4
2009
£million
85.7
2,319.6
2,315.4
2,470.7
3.2%
3.2%
3.5%
Subsequent to the balance sheet date, the Group has secured long-term refinancing. This has seen the previous £250 million syndicated revolving
credit facility, which was due to expire in October 2013, replaced with a series of committed facilities of £225 million and A25 million (combined total
of £246 million, at exchange rates on 29 February 2012). These new facilities run in parallel with each other and provide a diverse maturity profile
extending, at most, five years to February 2017.
business review overviewgovernancefinancial statements
108
Interserve AnnuAl report 2011 fInAncIAl stAtements compAny InDepenDent AuDItors’ report
Independent Auditors’ report
to the members of Interserve plc
opInIon on other mAtters prescrIBeD By the
compAnIes Act 2006
In our opinion:
•
•
the part of the Directors’ Remuneration Report to be audited has
been properly prepared in accordance with the Companies Act
2006; and
the information given in the Directors’ Report for the financial year
for which the financial statements are prepared is consistent with
the parent company financial statements.
mAtters on whIch we Are requIreD to report
By exceptIon
We have nothing to report in respect of the following matters where the
Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
•
the parent company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are
not made; or
• we have not received all the information and explanations we require
for our audit.
other mAtters
We have reported separately on the Group financial statements of
Interserve Plc for the year ended 31 December 2011.
Stephen Griggs (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditors
London, United Kingdom
29 February 2012
IntroDuctIon
We have audited the parent company financial statements of Interserve
Plc for the year ended 31 December 2011 which comprise the Company
balance sheet and the related notes A to P. The financial reporting
framework that has been applied in their preparation is applicable law
and United Kingdom Accounting Standards (United Kingdom Generally
Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them
in an auditors’ 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 and the Company’s members as a body, for
our audit work, for this report, or for the opinions we have formed.
respectIve responsIBIlItIes of DIrectors AnD
AuDItors
As explained more fully in the Directors’ Responsibility Statement, the
directors are responsible for the preparation of the parent company
financial statements and for being satisfied that they give a true and fair
view. Our responsibility is to audit and express an opinion on the parent
company financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s Ethical
Standards for Auditors.
scope of the AuDIt of the fInAncIAl
stAtements
An audit involves obtaining evidence about the amounts and disclosures
in the financial statements sufficient to give reasonable assurance that
the financial statements are free from material misstatement, whether
caused by fraud or error. This includes an assessment of: whether
the accounting policies are appropriate to the parent company’s
circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates made
by the directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information in
the annual report to identify material inconsistencies with the audited
financial statements. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for our
report.
opInIon on fInAncIAl stAtements
In our opinion the parent company financial statements:
• give a true and fair view of the state of the parent company’s affairs
as at 31 December 2011;
• have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the
Companies Act 2006.
Interserve AnnuAl report 2011 fInAncIAl stAtements compAny BAlAnce sheet
109
company Balance sheet
at 31 December 2011
Fixed assets
Tangible fixed assets
Interests in associated undertakings
Investments in subsidiary undertakings
Current assets
Debtors:
Due within one year
Due after one year
Cash at bank and in hand
Creditors: amounts falling due within one year
Bank overdrafts and loans
Trade creditors
Other creditors
Short-term provisions
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Other creditors
Long-term provisions
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Acquisition reserve
Profit and loss account
Shareholders’ funds
These financial statements were approved by the Board of Directors on 29 February 2012.
Signed on behalf of the Board of Directors
A M Ringrose
Director
Company number: 88456
T P Haywood
Director
Notes
2011
£million
2010
£million
E
F
G
H
H
I
J
K
J
M
n
n
n
n
O
3.1
2.7
464.6
470.4
62.2
2.6
8.8
73.6
(140.5)
(0.7)
(25.6)
(0.1)
(166.9)
(93.3)
377.1
3.1
2.7
464.6
470.4
50.6
2.4
1.5
54.5
(134.1)
(0.1)
(32.8)
(0.1)
(167.1)
(112.6)
357.8
(6.4)
(0.2)
370.5
(6.4)
(0.2)
351.2
12.6
112.7
0.1
108.5
136.6
370.5
12.6
112.7
0.1
108.5
117.3
351.2
business review overviewgovernancefinancial statements 110
Interserve AnnuAl report 2011 fInAncIAl stAtements compAny notes
notes to the company financial statements
for the year ended 31 December 2011
A) AccountIng polIcIes
The financial statements have been prepared in accordance with applicable United Kingdom law and accounting standards. The accounting
policies have been applied consistently throughout the year and the previous year.
The particular policies adopted by the directors are described below.
Basis of accounting
These financial statements have been prepared in accordance with the historical cost convention.
foreign currency
Transactions denominated in foreign currency are translated at the rates ruling at the dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated at the rates ruling at that date. These translation differences are dealt
with in the profit for the year.
property, plant and equipment
Tangible fixed assets are carried at cost less any accumulated depreciation and any impairment losses. Depreciation is provided on a
straight-line basis at rates ranging between:
Freehold land
Freehold buildings
Leasehold property
Computer hardware
Computer software
Furniture and office equipment
Plant and equipment
nil
2%
Over period of lease
33.3%
33.3%
33.3%
10% to 20%
The costs of operating leases are charged to the profit and loss account as they accrue.
provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount
of the obligation. Where the Company expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate
asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any
reimbursement. If the effect of the time value of money is material, provisions are discounted using an appropriate rate that takes into account
the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance
cost.
Investments
Investments are stated at cost less provision for any impairment in value.
pensions
The Company operates two principal pension schemes for the benefit of permanent members of staff: the Interserve Pension Scheme which is
of the defined benefit type and the Interserve Retirement Plan which is of the defined contribution type. The Company also set up a new defined
contribution section of the Interserve Pension Scheme with effect from 1 november 2002. Actuarial valuations of the Interserve Pension Scheme
are carried out every three years.
For the purposes of FRS 17 Retirement benefits, the Company is unable to identify its share of the underlying assets and liabilities in the main
Group scheme, the Interserve Pension Scheme, on a consistent and reasonable basis. Therefore, the Company will account for contributions to
the scheme as if it were a defined contribution scheme. note 28 to the Annual Report and Financial Statements of the Group sets out details of
the IAS 19 net pension liability of £56.2 million (2010: £51.5 million).
For defined contribution schemes, the amount recognised in the profit and loss account is equal to the contributions payable to the schemes
during the year.
The defined benefit scheme was closed on 31 December 2009 with the exception of passport members. All non-passport members transferred
to the defined contribution scheme as at 1 January 2010.
Interserve AnnuAl report 2011 fInAncIAl stAtements compAny notes
111
A) AccountIng polIcIes (COnTInUED)
taxation
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively
enacted by the balance sheet date.
Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay
less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the
inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the financial
statements. Deferred tax is not provided on timing differences arising from the revaluation of fixed assets where there is no commitment to sell
the asset, or on unremitted earnings of subsidiaries or associates where there is no commitment to remit these earnings. Deferred tax assets
are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not
discounted.
financial instruments
Trade receivables
Trade receivables are measured at fair value. Appropriate allowances for estimated irrecoverable amounts are recognised in the income
statement where there is objective evidence that the asset is impaired.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the income statement and are
added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Trade payables
Trade payables are measured at fair value.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Derivative financial instruments and hedge accounting
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Company becomes a party to the contractual
provisions of the instrument. Transactions in derivative financial instruments are for risk management purposes only. The Company 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. Derivatives are initially recognised at fair value at the date
a derivative contract is taken out and subsequently remeasured at fair value at each balance sheet date. Changes in fair value of derivative
instruments that are designated as, and effective as, hedges of future cash flows and net investments are recognised directly in the other
income statement. Any ineffective portion is recognised immediately in the income statement. Amounts deferred in equity are recycled through
the income statement in the same period in which the underlying hedged item is recognised in the income statement. However, when the
transaction that is being hedged results in a non-financial asset or non-financial liability, the gains and losses previously accumulated in equity
are transferred from equity and included in the initial measurement of the cost of that asset or liability. Hedge accounting is discontinued when
the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss on
the hedging instrument recognised in equity at that time is retained in equity until the forecast transaction occurs. If a hedged transaction is no
longer expected to occur, any cumulative gain or loss recognised in equity is transferred to the income statement for the period.
Changes in fair value of derivative instruments that do not qualify for hedge accounting, or have not been designated as hedges, are recognised
in the income statement as they arise. These derivative instruments are designated as fair value through the profit or loss. Derivatives embedded
in other financial instruments or other host contracts are treated as separate derivatives when their economic risks and characteristics are not
closely related to those of the host contracts and the host contracts are not carried at fair value.
share-based payments
The Company has applied the requirements of FRS 20 Share-based payment. In accordance with the transitional provisions, FRS 20 has been
applied to all grants of equity instruments after november 2002 that were unvested as at January 2004. The Company issues share-based
payments to certain employees of the Group headed by the Company. The fair value determined at the grant date is expensed on a straight-line
basis over the vesting period, based on the Company’s estimate of shares that will eventually vest. Fair value for grants pre-2006 was measured
by the use of the Black-Scholes model and subsequently a stochastic model was used. note 27 to the Annual Report and Financial Statements
of the Group sets out details of the share-based payments. The total value of equity-settled share-based payments is credited to the profit and
loss reserve of the Company. Share-based payments to employees of subsidiaries of the Company are recharged to the relevant employer and
the recharged income is credited to the profit and loss account of the Company.
business review overviewgovernancefinancial statements 112
112
Interserve AnnuAl report 2011 FInAnCIAl stAteMents CoMpAny notes
Interserve AnnuAl report 2011 FInAnCIAl stAteMents CoMpAny: Independent AudItors’ report
A) ACCountIng polICIes (CONTINUED)
exemptions
The Company’s financial statements are included in the Interserve Plc consolidated financial statements for the year ended 31 December 2011.
As permitted by section 408 of the Companies Act 2006, the Company has not presented its own profit and loss account. The Company has
also taken advantage of the exemption from presenting a cash flow statement under the terms of FRS 1 Cash flow statements. The Company is
also exempt under the terms of FRS 8 Related party disclosures from disclosing transactions with other members of the Interserve Group. The
Interserve Plc consolidated financial statements for the year ended 31 December 2011 contain financial instrument disclosures which comply
with FRS 29 Financial instruments: disclosures; therefore, the Company has taken advantage of the exemption in FRS 29 not to present separate
financial instrument disclosures for the Company.
B) proFIt For the yeAr
Interserve Plc reported a profit after taxation for the financial year ended 31 December 2011 of £39.3 million (2010: £35.3 million).
The auditors’ remuneration for audit services to the Company was £0.2 million (2010: £0.2 million).
C) eMployees
The average number of persons employed, being full-time equivalents, by the Company during the year, including directors, was 74 (2010: 81).
The costs incurred in respect of these employees were:
Wages and salaries
Social security costs
Share-based payments
Pension costs
Share-based payments to employees of the Company
Share-based payments to employees of subsidiaries
Group share-based payment charge
Cash settled
Equity settled
Group share-based payment charge
2011
£million
2010
£million
6.6
0.6
1.2
0.7
9.1
5.7
0.5
0.7
0.8
7.7
2011
£million
2010
£million
1.2
1.1
2.3
1.0
1.3
2.3
0.7
0.9
1.6
0.2
1.4
1.6
directors’ remuneration
Detailed disclosures of directors’ aggregated individual remuneration and share-based payments included in the above analysis are given in the
audited section of the Directors’ Remuneration Report on pages 58 to 62 and should be regarded as an integral part of this note.
Notes to the Company Financial Statementscontinued Interserve AnnuAl report 2011 fInAncIAl stAtements compAny notes
113
D) DIvIDenDs
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2010 of 12.4p (2009: 12.0p) per share
Interim dividend for the year ended 31 December 2011 of 6.0p (2010: 5.6p) per share
Proposed final dividend for the year ended 31 December 2011 of 13.0p per share
2011
£million
2010
£million
15.1
7.0
22.1
15.5
7.5
23.0
16.4
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in
these financial statements.
e) tAngIBle fIxeD Assets
(a) movement during the year
Cost
At 1 January 2011
Additions
At 31 December 2011
Depreciation
At 1 January 2011
Provided in year
At 31 December 2011
Net book value
At 31 December 2011
At 31 December 2010
(b) land and buildings
Net book value of land and buildings
Freehold:
Land at cost
Buildings at cost less depreciation
Leaseholds over 50 years at cost less depreciation
(c) operating leases
The Company had annual commitments under non-cancellable operating leases that expire as follows:
Within one year
Within two to five years
After five years
Land and
buildings
£million
Other
£million
Total
£million
4.2
0.1
4.3
1.6
0.2
1.8
2.5
2.6
2.7
0.3
3.0
2.2
0.2
2.4
0.6
0.5
6.9
0.4
7.3
3.8
0.4
4.2
3.1
3.1
2011
£million
2010
£million
1.0
–
1.0
1.5
2.5
1.0
0.1
1.1
1.5
2.6
Land and buildings
Other
2011
£million
2010
£million
2011
£million
2010
£million
–
0.3
1.1
1.4
–
0.3
1.1
1.4
–
0.1
–
0.1
–
0.1
–
0.1
The majority of leases of land and buildings are subject to rent reviews at periodic intervals of between three and five years.
f) Investment In AssocIAte unDertAkIngs
Investment
2011
£million
2.7
2010
£million
2.7
business review overviewgovernancefinancial statements 114
114
Interserve AnnuAl report 2011 FInAnCIAl stAteMents CoMpAny notes
Interserve AnnuAl report 2011 FInAnCIAl stAteMents CoMpAny: Independent AudItors’ report
notes to the Company Financial statements
continued
G) InvestMents In subsIdIAry undertAkInGs
Cost
At 1 January 2011
Additions
At 31 December 2011
Provisions
At 1 January 2011
Increase in provision
At 31 December 2011
Net book value
At 31 December 2011
At 31 December 2010
Details of principal Group undertakings are given on pages 117 to 124, which form part of these financial statements.
H) debtors
Amounts falling due within one year:
Trade debtors
Amounts owed by subsidiary undertakings
Corporation tax
Prepayments and accrued income
Amounts falling due after more than one year:
Deferred taxation (note L)
I) otHer CredItors
Amounts owed to subsidiary undertakings
Other creditors
Accruals and deferred income
J) provIsIons
At 1 January
Provision utilisation
Additional provision in the year
At 31 December
Included in current liabilities
Included in non-current liabilities
Shares at
cost
£million
485.9
0.6
486.5
21.3
0.6
21.9
464.6
464.6
2011
£million
2010
£million
–
56.6
2.9
2.7
62.2
2.6
2.6
2011
£million
2.2
17.9
5.5
25.6
0.2
43.2
3.1
4.1
50.6
2.4
2.4
2010
£million
8.0
19.8
5.0
32.8
2011
£million
2010
£million
(0.3)
–
–
(0.3)
(0.1)
(0.2)
(0.2)
–
(0.1)
(0.3)
(0.1)
(0.2)
Interserve AnnuAl report 2011 fInAncIAl stAtements compAny notes
115
k) other creDItors – Amounts fAllIng Due After more thAn one yeAr
Corporation tax
Amounts payable:
After five years
l) DeferreD tAxAtIon Asset
Movement in year
At 1 January
Provided in the year
At 31 December
The source of the balance on deferred tax account is as follows:
Accelerated capital allowances
Other timing differences
At 31 December
m) shAre cApItAl
Allotted and fully paid
125,804,346 ordinary shares of 10p each (2010: 125,804,346 ordinary shares of 10p each)
2011
£million
6.4
6.4
2010
£million
6.4
6.4
2011
£million
2010
£million
2.4
0.2
2.6
–
2.6
2.6
1.9
0.5
2.4
–
2.4
2.4
2011
£million
2010
£million
12.6
12.6
n) reserves
At 1 January 2011
Profit for the financial year (note B)
Dividends paid (note D)
Fair value adjustment
Investment in own shares
Deferred tax on items taken directly to equity
Share-based payments
At 31 December 2011
Share
premium
£million
112.7
–
–
–
–
–
–
112.7
Capital
redemption
reserve
£million
Acquisition
reserve
£million
Profit and
loss reserve
£million
0.1
–
–
–
–
–
–
0.1
108.5
–
–
–
–
–
–
108.5
117.3
39.3
(23.0)
1.1
0.1
0.5
1.3
136.6
Total
£million
338.6
39.3
(23.0)
1.1
0.1
0.5
1.3
357.9
Of the balance of £136.6 million in the profit and loss account at 31 December 2011, £56.6 million (2010: £56.6 million) is considered to be unrealised
and is therefore not distributable. A gain of £1.1 million (2010: loss of £0.6 million) was recorded in the profit and loss reserve in respect of changes in the
fair value of interest rate hedges.
o) reconcIlIAtIon of movement In shAreholDers’ funDs
Profit for the financial year attributable to the members of Interserve Plc
Dividends
Share-based payments
Deferred tax on items taken directly to equity
Investment in own shares
Fair value adjustments on hedging
net increase to shareholders’ funds
Shareholders’ funds at 31 December 2010
Shareholders’ funds at 31 December 2011
£million
39.3
(23.0)
16.3
1.3
0.5
0.1
1.1
19.3
351.2
370.5
business review overviewgovernancefinancial statements 116
Interserve AnnuAl report 2011 fInAncIAl stAtements compAny notes
notes to the company financial statements
continued
p) contIngent lIABIlItIes
At 31 December 2011, there were guarantees given in the ordinary course of business of the Company. The Company has given guarantees
covering bank overdrafts in its subsidiary and associated undertakings. At 31 December 2011, these amounted to £0.2 million (2010:
£0.2 million). The Company has provided a guarantee to the Interserve Pension Scheme for future contributions due from subsidiary
undertakings amounting to £149.6 million (2010: £172.2 million) in respect of the past funding deficit. In addition, contributions will also be
payable in respect of future service benefits.
The Company has given guarantees in respect of borrowing and guarantee facilities made available to joint-venture and associated undertakings
for sums not exceeding £9.3 million (2010: £12.4 million) in respect of borrowings and £171.5 million (2010: £141.1 million) in respect of
guarantees. At 31 December 2011, £0.2 million (2010: £0.2 million) had been utilised in borrowings and £109.0 million (2010: £106.0 million) in
guarantees.
Interserve AnnuAl report 2011 fInAncIAl stAtements prIncIpAl group unDertAkIngs
117
principal subsidiaries, Associated undertakings,
jointly-controlled entities and jointly-controlled
operations
The principal subsidiaries, associated undertakings, jointly-controlled entities and jointly-controlled operations of the Group
listed below are those that, in the opinion of the directors, principally affect the figures shown in the financial statements as at
31 December 2011. A full list of Group companies will be annexed to the next annual return of Interserve Plc. Except where
shown:
(a) the principal operations of each company are conducted in its country of incorporation or registration;
(b) the shareholdings of all subsidiaries relate to ordinary share capital and are equivalent to the percentage of voting rights held
by the Group;
(c) the equity capital of all subsidiaries, associated undertakings, jointly-controlled entities and jointly-controlled operations are
held by subsidiary undertakings of Interserve Plc;
(d) the accounting reference date is 31 December; and
(e) the consolidated financial statements include the results for the twelve months to 31 December even if the accounting
reference date is different.
Principal activities
Country of
incorporation or
registration
group
holding
(A) prIncIpAl suBsIDIArIes
Support Services
First Security (Guards) Ltd1
Provision of security manpower and associated
support services
England & Wales
100%
O
v
E
R
v
E
W
I
I
B
U
S
N
E
S
S
R
E
v
E
W
I
Interserve (Defence) Ltd
Property and facilities management services to the
Ministry of Defence
England & Wales
100%
Interserve Environmental Services Ltd
Provision of asbestos services to the private, public
and social housing sectors
England & Wales
100%
Interserve (Facilities Management) Ltd
Facilities management services in the public and
private sectors, engineering services to the building
industry, and refrigeration and air conditioning
maintenance
England & Wales
100%
g
O
v
E
R
N
A
N
C
E
Interserve (Facilities Services-Slough)
Ltd2 3
Building, maintenance and cleaning services to
office buildings and for 8,000 council-owned
homes
England & Wales
100%
Interservefm Ltd4
Holding company
Interserve Industrial Services Ltd
Interserve Security Ltd
Industrial support services, including thermal
insulation, system scaffolding, engineering
construction and project management
Provision of security personnel into the retail,
transport and leisure markets; event management
and electronic security solutions to the retail sector
England & Wales
100%
England & Wales
100%
England & Wales
100%
Interserve Security (Fire & Electronics) Ltd Supply, installation and maintenance of electronic
England & Wales
100%
Interserve Technical Services Ltd
security equipment and CCTV surveillance
equipment
Provision of technical services to the private, public
and social housing sectors including mechanical,
electrical, boiler, lift, fabric and air conditioning
installation and maintenance
England & Wales
100%
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
118
Interserve AnnuAl report 2011 fInAncIAl stAtements prIncIpAl group unDertAkIngs
principal subsidiaries, Associated undertakings,
jointly-controlled entities and jointly-controlled
operations
continued
(A) prIncIpAl suBsIDIArIes (COnTInUED)
Principal activities
Country of
incorporation or
registration
group
holding
Support Services (continued)
Landmarc Support Services Ltd2
Management of the Ministry of Defence Army
Training Estate
England & Wales
51%
MacLellan International Ltd
Facilities management services
England & Wales
100%
SSD UK Ltd
TASS (Europe) Ltd
Provision of internal and external window cleaning
services and specialist working at heights
England & Wales
100%
Installation and testing of specialist building
access equipment
England & Wales
100%
Construction
Interserve Construction Ltd
(formerly Interserve Project Services Ltd)
Interserve Engineering Services Ltd
Creation of sustainable solutions for the built
environment and delivery of these built assets and
infrastructure primarily via PFI, frameworks and
other long-term customer alliances
Design, installation and commissioning of
mechanical, electrical and public health building
engineering services
England & Wales
100%
England & Wales
100%
Equipment Services
RMD Kwikform (Al Maha) Qatar WLL5
Equipment hire and sales
Qatar
49%
RMD Kwikform Almoayed Bahrain WLL6
Equipment hire and sales
Kingdom of Bahrain 49%
Rapid Metal Developments (Australia)
Pty Ltd
Equipment hire and sales
Australia
100%
RMD Kwikform Middle East LLC7
Equipment hire and sales
Emirate of Sharjah
49%
Rapid Metal Developments (nZ) Ltd8
Equipment hire and sales
new Zealand
RMD Kwikform Chile SA
Equipment hire and sales
RMD Kwikform Guam, LLC
Equipment hire and sales
Chile
Guam
100%
100%
100%
RMD Kwikform Holdings Ltd
Holding company
England & Wales
100%
RMD Kwikform Hong Kong Ltd9
Equipment hire and sales
Hong Kong SAR
100%
RMD Kwikform Ibérica, SA
Equipment hire and sales
RMD Kwikform Ibérica – Cofragens e
Construções Metálicas, Unipessoal, Lda
Equipment hire and sales
Spain
Portugal
95%
95%
RMD Kwikform Ireland Ltd
Equipment hire and sales
Republic of Ireland
100%
RMD Kwikform Ltd
Equipment hire and sales
England & Wales
100%
RMD Kwikform north America Inc
Equipment hire and sales
USA
100%
RMD Kwikform Oman LLC
Equipment hire and sales
Sultanate of Oman
70%
RMD Kwikform Panama, SA
Equipment hire and sales
Republic of Panama 100%
RMD Kwikform Philippines, Inc9
Equipment hire and sales
Philippines
100%
Interserve AnnuAl report 2011 fInAncIAl stAtements prIncIpAl group unDertAkIngs
119
O
O
O
v
v
v
E
E
E
R
R
R
v
v
v
E
E
E
W
W
W
I
I
I
Principal activities
(A) prIncIpAl suBsIDIArIes (COnTInUED)
Equipment Services (continued)
RMD Kwikform Saudi Arabia LLC
Equipment hire
RMD Kwikform Singapore Pte Ltd
Equipment hire and sales
RMD Kwikform (South Africa)
(Proprietary) Ltd
Equipment hire and sales
Country of
incorporation or
registration
group
holding
Kingdom of
Saudi Arabia
Republic of
Singapore
Republic of
South Africa
100%
100%
100%
Holding company
England & Wales
100%
I
I
I
B
B
B
U
U
U
S
S
S
N
N
N
E
E
E
S
S
S
S
S
S
R
R
R
E
E
E
v
v
v
E
E
E
W
W
W
I
I
I
Developments
Interserve Investments Ltd
group Services
Interserve Finance Ltd
Group funding entity
Interserve Group Holdings Ltd9
Holding company
Interserve Holdings Ltd
Holding company
Interserve Insurance Company Ltd
Insurance
England & Wales
100%
England & Wales
100%
England & Wales
100%
Guernsey
100%
g
g
g
O
O
O
v
v
v
E
E
E
R
R
R
N
N
N
A
A
A
N
N
N
C
C
C
E
E
E
I
I
I
I
I
I
F
F
F
N
N
N
A
A
A
N
N
N
C
C
C
A
A
A
L
L
L
S
S
S
T
T
T
A
A
A
T
T
T
E
E
E
M
M
M
E
E
E
N
N
N
T
T
T
S
S
S
120
120
Interserve AnnuAl report 2011 fInAncIAl stAtements prIncIpAl group unDertAkIngs
Interserve AnnuAl report 2011 fInAncIAl stAtements
principal subsidiaries, Associated undertakings,
jointly-controlled entities and jointly-controlled
operations
continued
Principal activities
Country of
incorporation
or registration Issued share capital
group
holding
(B) AssocIAteD unDertAkIngs
Support Services
Khansaheb Group LLC
Madina Group WLL
Facilities management and
maintenance services
United Arab
Emirates
3,000 shares of
1,000 UAE Dirhams
Fabrication, engineering and
maintenance solutions for the oil,
gas and petrochemical industries,
both on and off shore
Qatar
1,000 shares of
1,000 Qatari Riyals
Occupational Training Institute LLC HSE and leadership training for
operatives and management to
recognised international standards
Sultanate of
Oman
150,000 shares of
1 Omani Rial
Qatar Inspection Services WLL
Qatar International Safety
Centre WLL
Severn Glocon (Qatar) WLL
Construction
Douglas OHI LLC
Gulf Contracting Co WLL
How United Services WLL
Provision of non-destructive testing
and third party inspection services
for the processing industry
HSE and leadership training for
operatives and management to
recognised international standards
Supply of valves and valve
maintenance services for the
process industry
Qatar
Qatar
Qatar
200 shares of
1,000 Qatari Riyals
200 shares of
1,000 Qatari Riyals
200 shares of
1,000 Qatari Riyals
Civil engineering and building
Sultanate of
Oman
100,000 shares of
10 Omani Rials
Civil engineering, building and
maintenance services
Installation, testing and
commissioning of building services;
maintenance and facilities services
Qatar
Qatar
Khansaheb Civil Engineering LLC Civil engineering, building and
maintenance services
Khansaheb Civil Engineering LLC Roads and infrastructure
Khansaheb Hussain LLC
SSPDL Interserve Private Ltd
construction
Civil engineering, building and
maintenance services
Civil engineering, building and
maintenance services
United Arab
Emirates
Sultanate of
Oman
United Arab
Emirates
India
1,000 shares of
1,000 Qatari Riyals
9,000 shares of
1,000 Qatari Riyals
11,000 shares of
1,000 UAE Dirhams
250,000 shares of
1 Omani Rial
1,000 shares of
1,000 UAE Dirhams
1,000,000 shares of
1 Rupee
49%
49%
49%
49%
49%
49%
49%
49%
49%
45%
46.36%
49%
49%
Interserve AnnuAl report 2011 fInAncIAl stAtements prIncIpAl group unDertAkIngs
121
O
v
E
R
v
E
W
I
Principal activities
Address of principal place(s)
of business
group
holding
(c) joIntly-controlleD entItIes
Jointly-controlled entities are where strategic and operating decisions of an incorporated joint venture require unanimous
consent of the parties sharing control.
Support Services
PriDE (SERP) Ltd2
The newcastle Estate Partnership Ltd2
Estate management services
under the Ministry of Defence
South East Regional Prime
Contract
Design, build, finance and
operation of the newcastle Estate
for HMRC and the Department for
Work and Pensions
Aldershot, Hampshire, England
50%
Benton Park View, Longbenton,
newcastle upon Tyne, England
20%
Developments
Addiewell Prison Ltd2
Design, build, finance and
operation of Addiewell Prison
HMP Addiewell, West Lothian,
Scotland
Ashford Prison Services Ltd2
Design, build, finance and
operation of Bronzefield Prison
HMP Bronzefield, Ashford,
Middlesex, England
Belfast Educational Services (Derry) Ltd2 Design, build, finance and
Belfast Educational Services
(Down & Connor) Ltd2
operation of St Mary’s College
and St Cecilia’s College
Design, build, finance and
operation of three new schools in
the diocese of Down and Connor,
northern Ireland
St Mary’s College, Derry,
northern Ireland;
St Cecilia’s College, Derry,
northern Ireland
St Mary’s Primary School,
Portglenone, Co Antrim,
northern Ireland;
St Joseph’s Primary School,
Carryduff, northern Ireland;
Our Lady and St Patrick’s College,
Knock, Belfast, northern Ireland
Belfast Educational Services
(Downpatrick) Ltd2
Design, build, finance and
operation of St Patrick’s Grammar
School
St Patrick’s Grammar School,
Downpatrick, Co Down,
northern Ireland
Belfast Educational Services
(Strabane) Ltd10
Design, build, finance and
operation of Holy Cross College
Holy Cross College, Strabane,
northern Ireland
Environments for Learning Ltd10
Environments for Learning Leeds
PFI Four Ltd10
Investment company for the
Building Schools for the Future
initiative
Design, build, finance and
operation of a Wellbeing Centre
for Leeds City Council
Twyford, Reading, England
Holt Park Wellbeing Centre,
Cookridge, Leeds, England
33.33%
33.33%
50%
50%
50%
50%
50%
50%
I
B
U
S
N
E
S
S
R
E
v
E
W
I
g
O
v
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
122
122
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Interserve AnnuAl report 2011 fInAncIAl stAtements
Interserve AnnuAl report 2011 fInAncIAl stAtements
principal subsidiaries, Associated undertakings,
jointly-controlled entities and jointly-controlled
operations
continued
Principal activities
Address of principal place(s)
of business
group
holding
(c) joIntly-controlleD entItIes (COnTInUED)
Developments (continued)
Environments for Learning Leeds
PFI One Ltd10
Design, build, finance and
operation of four schools for
Leeds City Council
Environments for Learning Leeds
PFI Three Ltd10
Design, build, finance and
operation of two leisure centres
for Leeds City Council
Environments for Learning Leeds
PFI Two Ltd10
Environments for Learning Sandwell
PFI One Ltd10
Design, build, finance and
operation of Swallow Hill
Community College
Design, build, finance and
operation of educational
establishments for the Borough
of Sandwell Council
Environments for Learning St Helens
PFI Ltd10
Design, build, finance and
operation of two schools for
St Helens Council
Harmondsworth Detention Services Ltd11 Design, build and operation of
Harmondsworth Immigration
Removal Centre
Allerton Grange School, Moortown,
Leeds, England;
Allerton High School, Moortown,
Leeds, England;
Pudsey Grangefield Maths &
Computing College, Pudsey,
Leeds, England;
Rodillian School, Lofthouse,
Wakefield, Leeds, England
Armley Leisure Centre, Armley,
Leeds, England;
Morley Leisure Centre, Morley,
Leeds, England
Swallow Hill Community College,
Armley, Leeds, England
Rowley Regis Learning Campus
(St Michael’s C of E High School, The
Westminster School and Whiteheath
Education Centre), Rowley Regis,
West Midlands, England
40%
45%
40%
40%
De La Salle School, Eccleston,
St Helens, England;
Rainford High Technology College,
Rainford, St Helens, England
49.5%
Harmondsworth Immigration Removal
Centre, West Drayton, England
49%
Healthcare Support (newcastle) Ltd
Design, build, finance and
operation of two hospitals for the
newcastle upon Tyne Hospitals
nHS Foundation Trust
Freeman Hospital,
newcastle upon Tyne, England;
Royal Victoria Infirmary,
newcastle upon Tyne, England
Health Management (Carlisle) Ltd
Health Management (UCLH) PLC
Inteq Services Ltd2
Design, build, finance and
operation of hospitals for the
north Cumbria University
Hospitals nHS Trust
Design, build, finance and
operation of the University
College Hospital
Design, build, finance and
operation of the Ministry of
Defence’s new office and
accommodation complex
at Corsham
Cumberland Infirmary,
Carlisle, England
University College Hospital,
London, England
MOD Corsham, Corsham,
Wiltshire, England
20%
50%
33.33%
50%
123
O
v
E
R
v
I
E
W
B
U
S
I
N
E
S
S
R
E
v
I
E
W
g
O
v
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Interserve AnnuAl report 2011 fInAncIAl stAtements prIncIpAl group unDertAkIngs
Interserve AnnuAl report 2011 fInAncIAl stAtements
123
123
O
O
v
v
E
E
R
R
v
v
E
E
W
W
I
I
Principal activities
Address of principal place(s)
of business
group
holding
(c) joIntly-controlleD entItIes (COnTInUED)
Developments (continued)
Kent and East Sussex Weald Hospital Ltd Design, build, finance and operation
Leeds D&B One Ltd10
of Tunbridge Wells Hospital
Design and build of various
schools for Leeds City Council
25%
40%
Tunbridge Wells Hospital,
Tunbridge Wells, Kent, England
Cockburn School, Beeston,
Leeds, England;
Temple Moor High School and
Science College, Leeds, England;
Crawshaw School, Pudsey,
Leeds, England;
Priesthorpe School, Pudsey,
Leeds, England;
Mount St Mary’s Catholic
High School, Leeds, England;
Corpus Christi Catholic College,
Leeds, England;
Leeds West Academy, Rodley,
Leeds, England;
Farnley Park Maths and Computing
College, new Farnley, Leeds, England
I
I
B
B
U
U
S
S
N
N
E
E
S
S
S
S
R
R
E
E
v
v
E
E
W
W
I
I
Leeds LEP Ltd10
Development and management
of the build and running of various
schools for Leeds City Council
Merrion Street, Leeds, England
40%
nIHG South West Health Partnership Ltd Design, build, finance, operation
and maintenance of the new acute
hospital at Enniskillen
Enniskillen Hospital, Enniskillen,
County Fermanagh, northern Ireland
36.5%
Peterborough Prison Management Ltd2
Design, build, finance and
operation of Peterborough Prison
HMP Peterborough, Peterborough,
England
33.33%
g
g
O
O
v
v
E
E
R
R
N
N
A
A
N
N
C
C
E
E
Pyramid Schools (Plymouth) Design &
Build Ltd10
Design and build of two schools
for Plymouth City Council
Pyramid Schools (Plymouth) Ltd10
Rehab Jobfit LLP
Sandwell Futures Ltd10
Design, build, finance and
operation of two schools for
Plymouth City Council
Employment-related support
services to the Department for
Work and Pensions
Development and management
of the build and running of various
schools for Sandwell Borough
Council
Ernsettle Community
School, Plymouth, England;
Shakespeare Primary School,
Plymouth, England
Riverside Community Primary School,
Plymouth, England;
Whitleigh Community Primary School,
Plymouth, England
50%
50%
Twyford, Reading, England
49%
Pope’s Lane, Oldbury, West Midlands,
England
40%
I
I
I
I
F
F
N
N
A
A
N
N
C
C
A
A
L
L
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
124
124
Interserve AnnuAl report 2011 fInAncIAl stAtements prIncIpAl group unDertAkIngs
Interserve AnnuAl report 2011 fInAncIAl stAtements
Interserve AnnuAl report 2011 fInAncIAl stAtements
principal subsidiaries, Associated undertakings,
jointly-controlled entities and jointly-controlled
operations
continued
Principal activities
Address of principal place(s)
of business
group
interest
(D) joIntly-controlleD operAtIons
Construction
Acciona Agua SAU Joint Venture
KMI Plus Water Joint Venture
KMI Water Joint Venture
Water desalination project for
Thames Water Utilities Ltd
Beckton Water Treatment Works,
Jenkins Lane, London, England
47%
Water project framework for
United Utilities
Water project framework for
United Utilities
Wigan, Lancashire, England
30.83%
Wigan, Lancashire, England
33.33%
notes:
1
Issued share capital consists of 200 ‘A’ deferred shares of 50 pence each, 99,800 ‘B’ deferred shares of 50 pence each and 200 ordinary shares of 1 pence each.
2
3
4
5
Accounting reference date is 31 March.
Issued share capital consists of 100 ordinary shares of £1 each and 100 deferred shares of £1 each.
Issued share capital consists of 15,000,000 redeemable ordinary shares of £1 each, 6,158 ordinary shares of 1 US cent each and 2 deferred shares of £1 each.
The Group has the right to appoint and remove the General Manager giving it control over the strategic and operating decisions of the company. It is therefore consolidated as a
subsidiary undertaking. Issued share capital consists of 200 shares of 1,000 Qatari Riyals each.
6
The Group has the right to appoint the Board of Managers and thus exercises control over the strategic and operating decisions of the company. It is therefore consolidated as a
subsidiary undertaking. Issued share capital consists of 200 shares of 100 Bahraini Dinars each.
7
The Group has the right to appoint the Manager and thus exercises control over the strategic and operating decisions of the company. It is therefore consolidated as a subsidiary
undertaking. Issued share capital consists of 500 shares of 1,000 UAE Dirhams each.
8
9
Shareholding split between Interserve Plc (2 ordinary shares of nZ$1 each) and Interserve Holdings Ltd (249,998 ordinary shares of nZ$1 each).
Shareholding held directly by Interserve Plc.
10 Accounting reference date is 30 September.
11 Accounting reference date is 31 August.
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Interserve AnnuAl report 2011 fInAncIAl stAtements fIve-yeAr AnAlysIs
Interserve AnnuAl report 2011 fInAncIAl stAtements
five-year Analysis
The revenue and headline profit of prior periods have been restated in line with the revised segmental analysis
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Revenue including share of associates and joint ventures
Support Services – UK
Support Services – International
Support Services
Construction – UK
Construction – International
Construction
Equipment Services
Investments
Inter-segment elimination
Consolidated revenue
Support Services – UK
Support Services – International
Support Services
Construction – UK
Construction – International
Construction
Equipment Services
Investments
Inter-segment elimination
Headline profit
Support Services – UK
Support Services – International
Support Services
Construction – UK
Construction – International
Construction
Equipment Services
Investments
Group Services
Total operating profit
Investment revenue
Finance costs
Headline profit
Earnings per share, pence
Basic EPS
Headline EPS
Dividend per share, pence
Interim
Final
2011
£million
2010
£million
2009
£million
2008
£million
2007
£million
1,069.6
25.9
1,095.5
1,098.7
23.7
1,122.4
731.1
223.7
954.8
154.3
160.2
(45.2)
2,319.6
754.3
239.2
993.5
139.9
106.6
(47.0)
2,315.4
1,007.3
–
1,007.3
1,024.8
–
1,024.8
731.1
–
731.1
154.3
–
(45.2)
1,847.5
754.3
–
754.3
139.9
–
(47.0)
1,872.0
36.4
3.6
40.0
18.0
16.6
34.6
13.6
6.0
(20.4)
73.8
39.7
(40.7)
72.8
25.1
3.4
28.5
24.5
22.8
47.3
14.4
4.2
(20.0)
74.4
36.1
(40.9)
69.6
1,051.3
19.0
1,070.3
822.7
300.1
1,122.8
157.1
156.7
(36.2)
2,470.7
963.2
–
963.2
822.7
–
822.7
981.6
12.3
993.9
772.7
271.9
1,044.6
171.7
134.5
(42.9)
2,301.8
898.5
–
898.5
772.7
–
772.7
910.8
6.8
917.6
763.4
186.4
949.8
132.0
69.0
(12.2)
2,056.2
854.8
–
854.8
763.4
–
763.4
157.1
–
(36.2)
1,906.8
171.7
–
(42.9)
1,800.0
132.0
–
(12.2)
1,738.0
21.3
2.1
23.4
17.0
22.4
39.4
35.9
4.7
(17.7)
85.7
31.6
(39.0)
78.3
35.1
1.1
36.2
22.5
14.8
37.3
29.6
2.8
(17.9)
88.0
39.9
(42.7)
85.2
31.4
0.6
32.0
22.1
9.9
32.0
23.9
2.1
(16.7)
73.3
38.1
(38.0)
73.4
45.9
49.3
39.5
42.8
54.9
49.7
43.5
46.7
37.5
39.9
6.0
13.0
5.6
12.4
5.5
12.0
5.3
11.7
5.0
11.2
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Interserve AnnuAl report 2011 fInAncIAl stAtements fIve-yeAr AnAlysIs
Interserve AnnuAl report 2011 fInAncIAl stAtements
Interserve AnnuAl report 2011 fInAncIAl stAtements
five-year Analysis
continued
Balance sheet
Intangible assets
Property, plant and equipment
Interests in joint ventures
Interests in associated undertakings
Investments
Deferred tax asset
non-current assets
Inventories
Trade and other receivables
Cash and deposits
Bank overdrafts and loans
Trade and other payables
Short-term provisions
net current liabilities
Bank loans
Trade and other payables
Long-term provisions
Retirement benefit obligation
non-current liablilites
net assets
Cash flow
Operating cash flows before movements in working capital
Movement in working capital
Changes in hire fleet
Taxes paid
net cash from operating activities
Acquisitions and investments
net capital expenditure - non-hire fleet
Dividends from joint ventures and associates
Interest received
net cash used in investing activities
Interest paid
Dividends paid
Other
net cash used in financing activities excluding debt
Effect of foreign exchange
Movement in net debt
Closing net debt
2011
£million
2010
£million
2009
£million
2008
£million
2007
£million
221.2
139.7
103.3
77.2
-
23.4
564.8
22.2
380.1
46.1
(19.3)
(498.6)
(28.7)
(98.2)
(70.0)
(13.3)
(26.3)
(56.2)
(165.8)
300.8
35.6
9.5
3.0
(3.2)
44.9
(19.3)
(8.5)
20.6
4.4
(2.8)
(6.7)
(25.5)
-
(32.2)
(0.3)
9.6
228.3
149.0
60.1
61.7
-
16.5
515.6
19.6
386.1
67.6
(35.2)
(496.7)
(20.2)
(78.8)
(85.0)
(15.8)
(26.9)
(51.5)
(179.2)
257.6
31.6
(21.5)
15.1
(6.3)
18.9
(32.6)
(5.6)
32.1
3.8
(2.3)
(6.4)
(24.8)
(2.2)
(33.4)
0.3
(16.5)
230.8
148.8
67.4
57.0
-
31.4
535.4
20.1
355.3
60.9
(11.6)
(491.2)
(23.1)
(89.6)
(85.0)
(18.1)
(25.7)
(95.3)
(224.1)
221.7
(11.6)
52.6
(3.4)
(15.7)
21.9
83.7
(27.6)
17.6
7.2
80.9
(5.8)
(24.5)
-
(30.3)
(0.6)
71.9
262.3
156.8
114.0
72.5
-
19.2
624.8
27.8
372.1
61.3
(3.1)
(479.8)
(14.0)
(35.7)
(165.5)
(14.2)
(24.0)
(153.1)
(356.8)
232.3
65.8
(7.2)
(20.4)
(14.0)
24.2
(7.7)
(14.2)
13.5
7.3
(1.1)
(10.2)
(23.5)
0.8
(32.9)
2.2
(7.6)
263.2
117.6
82.1
39.3
0.1
5.1
507.4
15.6
370.7
69.4
(5.9)
(478.3)
(5.8)
(34.3)
(163.0)
(17.8)
(26.0)
(83.1)
(289.9)
183.2
60.4
4.6
(8.0)
(4.5)
52.5
(11.9)
(14.3)
8.4
6.5
(11.3)
(9.1)
(21.9)
2.7
(28.3)
0.3
13.2
(44.2)
(53.8)
(37.3)
(109.2)
(101.6)
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Interserve AnnuAl report 2011 fInAncIAl stAtements shAreholDer InformAtIon
Interserve AnnuAl report 2011 fInAncIAl stAtements
shareholder Information
fInAncIAl cAlenDAr 2012
Final results announcement for the year ended 31 December 2011
Publication of Annual Report and Financial Statements
Annual General Meeting
Interim management statement
Final dividend payable (record date 10 April 2012)
Half-year results announcement for the six months ended 30 June 2012
Publication of Half-Year Report
Interim dividend payable
Interim management statement
shAre prIce
As at 31 December 2011
Lowest for the year
Highest for year
29 February 2012
28 March 2012
16 May 2012
16 May 2012
24 May 2012
15 August 2012
Late August 2012
October 2012
12 november 2012
320.70p
231.75p
341.25p
The current price of the Company’s shares is available on the Company’s website at www.interserve.com.
AnAlysIs of regIstereD shAreholDIngs
notifiable interests
Banks, institutions and nominees
Private shareholders
Total as at 29 February 2012
Holders
Number
7
1,003
2,761
3,771
%
0.18
26.60
73.22
100.00
Shares
Number
44,929,798
71,731,334
9,143,214
125,804,346
%
35.71
57.02
7.27
100.00
shAreholDer enquIrIes
If you have any questions about your shareholding or if you require any other guidance (e.g. to notify a change of address), please contact our
Registrar – Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU (telephone: +44 (0)20 8639 3399;
facsimile: +44 (0)1484 600911; email: ssd@capitaregistrars.com).
shAre portAl (www.capitashareportal.com)
Through the website of Capita Registrars, shareholders are able to manage their shareholding online by registering for the Share Portal – a free,
secure, online access to their shareholding. Facilities include:
• Electronic communications
This offers shareholders the option of receiving an email notification that shareholder communications such as annual reports, half-yearly reports
and notices of shareholder meetings are available for access on the Company’s website. It also provides an online proxy voting facility. You may
request a hard copy of the shareholder documents or change your election at any time.
• Account enquiry
This allows shareholders to access their personal shareholding, including share transaction history and dividend payment history, and to obtain
an up-to-date shareholding valuation.
• Amendment of standing data
This allows shareholders to change their registered postal address, add, change or delete dividend mandate instructions and change their
preferred method of communication.
Shareholders can also download from this site change of address, stock transfer and dividend mandate forms as well as buy and sell shares in the
Company. To make use of any of these facilities, please log on to Capita Registrars’ website at www.capitashareportal.com.
Should you have any queries in respect of the above facilities, please contact the Capita Share Portal helpline on +44 (0)20 8639 3367, or by email at
shareportal@capita.co.uk.
shAre DeAlIng servIces
The Company’s shares can be traded through most banks, building societies, stockbrokers or “share shops”. Capita Registrars also offer an online
and telephone dealing service for existing Interserve shareholders. Further information is available from www.capitadeal.com or by telephoning
+44 (0)20 3367 2686.
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Interserve AnnuAl report 2011 fInAncIAl stAtements
shareholder Information
continued
DIrect DIvIDenD pAyments
Dividends can be paid automatically into shareholders’ bank or building society accounts. This means that you will receive your dividends more
quickly as the payment is made directly into your account on the payment date (you do not have to wait for the cheque to clear) and is more secure
than receiving a cheque through the post. The service also helps Interserve improve its efficiency by reducing postage, printing and cheque clearing
costs. A tax voucher is issued each time a dividend is paid to the shareholder’s registered address. To register for this service, please contact Capita
Registrars (telephone: +44 (0)20 8639 3399; facsimile: +44 (0)1484 600911; email: ssd@capitaregistrars.com or go to www.capitashareportal.com).
DIvIDenD reInvestment plAn
The Dividend Reinvestment Plan provided by Capita IRG Trustees Limited is a convenient way to build up your shareholding by using your cash
dividends to buy additional shares in Interserve Plc. If you would prefer to receive shares for your next dividend instead of cash please complete an
application form online at www.capitashareportal.com or call Capita IRG Trustees on +44 (0)20 8639 3402.
shAregIft
ShareGift, the charity share donation scheme, is a free service for shareholders wishing to give shares to charitable causes. It is particularly useful for
shareholders who wish to dispose of a small number of shares where the market value makes it uneconomic to sell on a commission basis. Further
details are available at www.sharegift.org.uk or by telephoning +44 (0)20 7930 3737.
BenefIcIAl owners of shAres wIth ‘‘InformAtIon rIghts’’
Please note that beneficial owners of shares who have been nominated by the registered holder of those shares to receive information rights
under section 146 of the Companies Act 2006 are required to direct all communications to the registered holder of their shares rather than to the
Company’s Registrar, Capita Registrars, or to the Company directly.
cApItAl gAIns tAx
The market value of the Company’s shares as at 31 March 1982 for the purpose of capital gains tax was 16.67p per share. This has been adjusted
to take account of all capitalisation changes to 29 February 2012, as indicated below, other than the rights issue in 1986 (one new share for every
three existing shares at 140p per share).
cApItAlIsAtIon chAnges
22 June 1982
10 June 1983
31 October 1997
–
–
–
sub-division of each £1 share into four shares of 25p; bonus issue of two new 25p shares for each
£1 share held;
bonus issue of one new share of 25p for every four shares held; and
share split of five new 10p shares for every two 25p shares held.
wArnIng to shAreholDers regArDIng unsolIcIteD Investment contActs
In recent years many companies have become aware that their shareholders have received unsolicited telephone calls or correspondence
concerning investment matters. These are typically from overseas-based ‘‘brokers’’ who target UK shareholders offering to sell them what often turn
out to be worthless or high risk shares in US or UK investments. These operations are commonly known as “boiler rooms”. The “brokers” can be
very persistent and extremely persuasive. Shareholders are advised to be very wary of any unsolicited advice, offers to buy shares at a discount or
offers of free reports into the Company.
If you receive any unsolicited investment advice:
• Make sure you get the correct name of the person and organisation.
• Check that they are properly authorised by the FSA before getting involved. You can check at www.fsa.gov.uk/register/home.do.
• The FSA also maintains on its website a list of unauthorised overseas firms who are targeting, or have targeted, UK investors and any approach
from such organisations should be reported to the FSA so that this list can be kept up to date and any other appropriate action can be
considered. If you deal with an unauthorised firm, you would not be eligible to receive payment under the Financial Services Compensation
Scheme. The FSA can be contacted by completing an online form at www.fsa.gov.uk/pages/doing/regulated/law/alerts/overseas.shtml.
•
Inform Capita Registrars’ compliance department on +44 (0)20 8639 2041 or email compliance@capitaregistrars.com.
More detailed information on this or similar activity can be found at www.moneyadviceservice.org.uk.
Details of all share dealing facilities that the Company endorses are detailed above.
Please note that any electronic address provided in this document to communicate with the Company may not be used for any purpose other than
that expressly stated.
This Annual Report was printed in the UK by Royle Print, using vegetable based inks.
The printer is accredited with ISO 14001 Environmental Management Systems and Forest
Stewardship Council accredited. The paper is produced with 55% recycled fibre from both
pre- and post-consumer sources, together with 45% virgin ECF fibre comprising a selected
combination of FSC, PEFC and SFI fibre.
Designed by accrue.co.uk
Interserve Plc 2011 Annual Report and Financial Statements
Every day, we’re planning, creating
and managing the world around you.
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REGISTERED OFFICE
Interserve Plc
Interserve House
Ruscombe Park
Twyford Reading
Berkshire RG10 9JU
T. +44 (0)118 932 0123
F. +44 (0)118 932 0206
E. info@interserve.com
www.interserve.com