Interserve plc
Annual Report 2012

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IngenIous,InquIsItIve–wIthastrongfocusondelIveryIngenuItyatworKchangInglIvesthroughsustaInablejobsturnIngwasteIntorenewedwaterdelIverIngaworld-classsupportservIcetoallIancebootscoMpleXforMworKsolutIonforMaKKahMosqueInMeccaWorkingalongsideourpartners,wecombinetheirexperienceingettingpeopleintolong-termemploymentwithourrecordoflarge-scaleservicedeliverytoGovernment.TacklingQatar’smajorenvironmentalchallengebyuseofinnovativepurificationsystems.Aworld-classcompanylikeAllianceBootsneededamarket-leadingsolutiontototalfacilitiesmanagement.NojobtoobigRMDKwikformmobilisedateamandsupplied15,000tonnesofformworkandshoringfortheexpansionoftheMakkahMosqueinSaudiArabia.ReadmoreonpageReadmoreonpageReadmoreonpageReadmoreonpageWhatdoesingenuitylooklike?Tousit’susingourskillsandcapabilitiestorealiseourvisionofredefiningthefutureforpeopleandplaces.Asoneoftheworld’sforemostsupportservicesandconstructioncompanies,weseektoimprovetheimportantplacesinpeoples’lives–theirhomes,hospitals,schoolsandinthecommunitiesinwhichtheyworkandlive.Connectingwithourpartnersacrosstheworld,westrivetoimproveworkingandlearningenvironmentsformillionsofpeople–ineducation,healthcare,workplaces,retail,amongothers.Wetakeourroleincreating,improvingandsupportingtoheart,withtheprimaryaimofdeliveringvalueateverystageintheprocess.IngenIous, InquIsItIve – wIth a strong focus on delIveryIngenuIty at worKchangIng lIves through sustaInable jobsturnIng waste Into renewed waterdelIverIng a world-class support servIce to allIance bootscoMpleX forMworKsolutIon for MaKKah MosqueIn MeccaWorking alongside our partners, we combine their experience in getting people into long-term employment with our record of large-scale service delivery to Government. Tackling Qatar’s major environmental challenge by use of innovative purification systems.A world-class company like Alliance Boots needed a market-leading solution to total facilities management. No job too big – RMD Kwikform mobilised a team and supplied 15,000 tonnes of formwork and shoring for the expansion of the Makkah Mosque in Saudi Arabia.12311421Read more on pageRead more on pageRead more on pageRead more on pageWhat does ingenuity look like? To us it’s using our skills and capabilities to realise our vision of redefining the future for people and places. As one of the world’s foremost support services and construction companies, we seek to improve the important places in peoples’ lives – their homes, hospitals, schools and in the communities in which they work and live.Connecting with our partners across the world, we strive to improve working and learning environments for millions of people – in education, healthcare, workplaces, retail, among others. We take our role in creating, improving and supporting to heart, with the primary aim of delivering value at every stage in the process. Interserve annual report 2012 overvIew hIghlIghts CONTENTSFINANCIAL STATEMENTSINDEPENDENT AuDITOr’S rEPOrT (Consolidated FinanCial statements) 70CONSOLIDATED FINANCIAL STATEMENTS 72NOTES TO ThE CONSOLIDATED FINANCIAL STATEMENTS 78INDEPENDENT AuDITOr’S rEPOrT 118 (ComPanY FinanCial statements)COMPANY FINANCIAL STATEMENTS 120 NOTES TO ThE COMPANY FINANCIAL STATEMENTS 121PrINCIPAL grOuP uNDErTAKINgS 128FIVE-YEAr ANALYSIS 136ShArEhOLDEr INFOrMATION 138ADVISErS Back cover gOVErNANCEDIrECTOrS 40DIrECTOrS’ rEPOrT 42COrPOrATE gOVErNANCE 48DIrECTOrS’ rEMuNErATION rEPOrT 56DIrECTOrS’ rESPONSIBILITY STATEMENT 69BuSINESS rEVIEw ChIEF ExECuTIVE’S Q&A 10STrATEgIC OVErVIEw 13OPErATIONAL rEVIEw 15PrINCIPAL rISKS AND uNCErTAINTIES 22FINANCIAL rEVIEw 24SuSTAINABILITY rEVIEw 32OVErVIEw hIghLIghTS 01ChAIrMAN’S STATEMENT 02Our BuSINESS 04Our MArKETS 06Our STrATEgY 08FINANCIAL hIghLIghTSuNDErLYINg hEADLINE EPS*47.2p +8% PrOFIT BEFOrE TAx£182.9m +173% FuLL-YEAr DIVIDEND20.5p +8%grOSS OPErATINg CASh CONVErSION*94%NET CASh£25.8m NON-FINANCIAL hIghLIghTSALL-LABOur ACCIDENT INCIDENCE rATE (AIr) 298 per 100,000 -4% FuTurE wOrKLOAD £6.3bn +13%INTErSErVE ANNuAL rEPOrT 2012 OVErVIEw hIghLIghTS 01*See notes 11 and 33 to the consolidated financial statements on pages 91 and 116 respectively for a reconciliation of non-statutory measures to their statutory equivalents. While economic headwinds have been tougher and more enduring than most of us expected, I am encouraged by the progress we have made in delivering our strategy. In addition to achieving strong organic growth in mixed economic conditions, we realised significant latent value from our PFI portfolio and started to invest this cash in growth markets, new sectors and strengthening the funding position of the pension scheme.In line with our growth strategy, we continued to expand our frontline services capability though the acquisition of a welfare-to-work business in May, a home healthcare business in December and in January 2013 a Middle East oil and gas services provider. Organically we have invested in new territories through our Equipment Services division and new markets for the Construction division, such as energy from waste, as well as creating a new Justice business unit. Justice remains an important market for us and while the appointment of a new Secretary of State for Justice in 2012 signalled a short-term delay in the outsourcing programme, there are clear indications this will lead to accelerated outsourcing activity in the medium term from which we expect to see opportunities emerging in 2013.The breadth and scope of our operations is of significant benefit to the business. Our Support Services business has grown strongly, as the trend towards increased LORD BLACKWELL CHAIRMANIIIINNNN 2222000011111111 WWWWEEEE OOOOuuuuttttLLLLIIIINNNNEEEEDDDD OOOOuuuuRRRR ssssttttRRRRAAAAttttEEEEggggyyyy DDDDEEEEssssIIIIggggNNNNEEEEDDDD ttttOOOO ttttRRRRAAAANNNNssssffffOOOORRRRMMMM ttttHHHHEEEE BBBBuuuussssIIIINNNNEEEEssssssss,,,, DDDDEEEELLLLIIIIvvvvEEEERRRRIIIINNNNgggg ggggRRRROOOOWWWWttttHHHH AAAANNNNDDDD ssssHHHHAAAARRRREEEEHHHHOOOOLLLLDDDDEEEERRRR vvvvAAAALLLLuuuuEEEE WWWWIIIIttttHHHH AAAA BBBBOOOOLLLLDDDD AAAAssssppppIIIIRRRRAAAAttttIIIIOOOONNNN ttttOOOO DDDDOOOOuuuuBBBBLLLLEEEE HHHHEEEEAAAADDDDLLLLIIIINNNNEEEE EEEEAAAARRRRNNNNIIIINNNNggggssss ppppEEEERRRR ssssHHHHAAAARRRREEEE BBBByyyy 2222000011115555.... 2222000011112222 HHHHAAAAssss BBBBEEEEEEEENNNN AAAA WWWWAAAAttttEEEERRRRssssHHHHEEEEDDDD yyyyEEEEAAAARRRR IIIINNNN ttttHHHHIIIIssss EEEEvvvvOOOOLLLLuuuuttttIIIIOOOONNNN.... CHAIRMAN’s stAtEMENt 02 INtERsERvE ANNuAL REpORt 2012 OvERvIEW CHAIRMAN’s stAtEMENt8504 Interserve AR 2013 Chairmans Statement_5 CS5_5 tp.indd 219/03/2013 15:41 outsourcing in the UK accelerates and opportunities emerge in the oil and gas sector internationally. Our Construction division has been resilient, despite low demand in the UK and high levels of competition internationally, because of our continued focus on recurring business under framework contracts and our ability to innovate and differentiate ourselves from peers. Equipment Services, our most geographically diverse business, has experienced a wide range of local market conditions during the year. Active management of our global fleet has ensured that we have been well-placed to take advantage of the strongest markets, while making best use of our invested capital. We are now looking to increase levels of investment in this business as future demand progresses.During the year, we completed a major review of the Interserve brand, giving a better understanding of and a new emphasis on the unique strengths of the Company, which will help drive performance and improve the focus of our marketing. This is summarised by the phrase, “Ingenuity at Work”, which describes the intelligent approach our people take when designing solutions and dealing with the day-to-day challenges of meeting and hopefully exceeding, our customers’ expectations. Having redefined our vision and core values, we are engaged in a major communications programme across the business. We have developed plans for the imminent launch of a far-reaching and, in our view, bold sustainability strategy – SustainAbilities. This plan builds on our longstanding credentials in this increasingly important area: we have long recognised the need to develop not only financial capital, but also to look to areas such as environmental, social and knowledge ‘capitals’, to build a truly resilient, sustainable business. During the course of the year we have shaped this into a sustainability plan which underpins our corporate strategy.In addition, clear communication of both our brand and of SustainAbilities, will help ensure that potential customers and stakeholders have a better understanding of Interserve and the full extent of our capabilities. On behalf of the Board, I would like to thank all of our people for their continued hard work in bringing their ingenuity and commitment to providing great service to our customers and to furthering their individual as well as our corporate development. During the last 12 months the Company has won numerous awards, including Learning and Career Development from the British Institute of Facilities Management, gold and silver awards for health and safety from RoSPA, the UK Excellence Award, the British Quality Foundation’s Achievement Award for Leadership, Project of the Year Award from the Chartered Institute of Building and the National Engineering Award, presented by the Association for Project Safety. A number of Board changes were announced in January which were brought about by the retirements of David Paterson and David Trapnell. I would like to thank them both for their long years of excellent service to the Company, and to welcome their successors, Anne Fahy as non-executive director to the Group Board and George Franks and Ian Renhard as members of the Executive Board. We remain confident in the delivery of our strategy and our medium-term outlook and we are therefore recommending an increased final dividend of 14.1p (2011: 13.0p), bringing the total dividend for the year to 20.5p (2011: 19.0p), an increase of 7.9 per cent. The final dividend will be paid on 20 May 2013 to shareholders on the register at the close of business on 5 April 2013.Lord BlackwellChairman27 February 2013INtERsERvE ANNuAL REpORt 2012 OvERvIEW CHAIRMAN’s stAtEMENt 03 OvERvIEW gOvERNANCE BusINEss REvIEW fINANCIAL stAtEMENts OvERvIEW8504 Interserve AR 2013 Chairmans Statement_5 CS5_5 tp.indd 319/03/2013 15:41 OurbusinessHOwwecreatesHareHOldervalueinterserveOFFersGOOdPrOsPectsFOrlOnG-terMvalueandGrOwtH,underPinnedbYastrOnGbalancesHeetandcasHFlOwswHicHenableanattractivedividendYield.OurexPertise•Designingbespokesolutionsforourclientsacrossarangeofservicesfrominfrastructuretofacilitiesmanagementandfrommajorconstructionprojectstocomplexformworkprojects.•Ouraddedvaluecomesfrom:•Anintegratedapproach,leveragingourexperiencetodeliverarangeofsupportservicesandconstruction-combiningend-to-enddesignandconsultancy.•Ensuringsustainablegrowthisatthecoreofourstrategyandbusinessmodeltodrivefurthersuccess.•Beingflexibleandresponsivetotheneedsofourclients.•Nurturingandeffectivemanagementofacomplexsupplychain,aspartofanoverallcontractdeliveryapproach.•Identifyingandcarefullyassessingcommercialopportunitiesthatofferthepotentialofcreatinglong-termreturns.strenGtHandresilience•Thecombinationofourbusiness’sworkingcapitalprofilesensuresahighoverallconversionofprofittocash–insulatingusthrougheconomiccycles.•FurtherstrengtheningofourbalancesheetthroughrealisinglatentvaluefromourPFIportfolio.•Diversifyingearnings,bothgeographicallyandthroughthebusinessmix.•Strongorganicgrowthaugmentedbyacquisitions,eachagoodfitwithouroverallcorporatestrategy.•Anemphasisonlong-termframeworkcontracts,loweringtheriskassociatedwiththeconstructionsector.•Ourexposuretoriskininternationalmarketsiscontainedbyoperatingthroughstronglocalpartnerships,usingtriedandtestedmethodsanddeployingkeypeopleintoourinternationaloperations.•WehavefurtherreducedourpensionriskbyutilisingthevalueofourPFIinvestments.•Strongrelationshipswithassociatecompaniesacrosstheworldlendweighttoouroverallpropositionandextendouroperationalcapabilities.•Theskillsandexperienceofourglobalworkforceallowustodeliverourpromisetoclientsandcustomerseveryday.sectOrs(BYCONSOLIDATEDREVENUE)13%HealtH20%deFence7%industrY9%central/lOcalGOvt16%inFrastructure21%cOMMerce10%educatiOn4%JusticeOur business HOw we create sHareHOlder value 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.Our exPertise• Designing bespoke solutions for our clients across a range of services – from infrastructure to facilities management and from major construction projects to complex formwork projects.• Our added value comes from:• An integrated approach, leveraging our experience to deliver a range of support services and construction - combining end-to-end design and consultancy.• Ensuring sustainable growth is at the core of our strategy and business model to drive further success. • Being flexible and responsive to the needs of our clients.• Nurturing and effective management of a complex supply chain, as part of an overall contract delivery approach.• Identifying and carefully assessing commercial opportunities that offer the potential of creating long-term returns.strenGtH and resilience• The combination of our business’s working capital profiles ensures a high overall conversion of profit to cash – insulating us through economic cycles.• Further strengthening of our balance sheet through realising latent value from our PFI portfolio.• Diversifying earnings, both geographically and through the business mix.• Strong organic growth augmented by acquisitions, each a good fit with our overall corporate strategy.• An emphasis on long-term framework contracts, lowering the risk associated with the construction sector.• Our exposure to risk in international markets is contained by operating through strong local partnerships, using tried and tested methods and deploying key people into our international operations.• We have further reduced our pension risk by utilising the value of our PFI investments.• Strong relationships with associate companies across the world lend weight to our overall proposition and extend our operational capabilities. • The skills and experience of our global workforce allow us to deliver our promise to clients and customers every day.sectOrs (BY CONSOLIDATED REVENUE)04 interserve annual rePOrt 2012 Overview Our business 13% HealtH 20% deFence 7% industrY 9% central / lOcal GOvt 16% inFrastructure 21% cOMMerce 10% educatiOn 4% Justice 4%13%20%7%9%16%21%10% segmental(bycontributiontototaloperatingprofit)*segmental(byconsolidatedrevenue)geographic(bycontributiontototaloperatingprofit)*growthprospects•Ourstructure,expertiseandfocusonclientneedsmeanswearewell-placedtotakeadvantageofgrowthintheUKsupportservicesandinfrastructuremarket.•Around33percentofourprofitsarederivedfrominternationalmarkets,wherewehaveaccesstogrowthininfrastructurespendtoopportunitiesforsupportservicesasmarkets.SupportServices(UK)SupportServices(Int’l)Construction(UK)Construction(Int’l)EquipmentServicesInvestments*TotalOperatingProfitbeforecentralcosts,amortisationofacquiredintangibleassetsandexceptionalitems.67%unitedKingdom22%middleeast&africa11%restofworldsegmental (by contribution to total operating profit)*segmental (by consolidated revenue) 44% 4% 15% 14% 16% 7%geographic (by contribution to total operating profit)*growth prospects• Our structure, expertise and focus on client needs means we are well-placed to take advantage of growth in the UK support services and infrastructure market.• Around 33 per cent of our profits are derived from international markets, where we have access to growth in infrastructure spend to opportunities for support services as markets. Support Services (UK) Support Services (Int’l) Construction (UK) Construction (Int’l) Equipment Services Investments*Total Operating Profit before central costs, amortisation of acquired intangible assets and exceptional items. overview governance business review financial statementsinterserve annual report 2012 overview our business 05 67% united Kingdom 22% middle east & africa 11% rest of world 55% 37% 8% 11%67%22% WeOperateintheOutsOurcedservicesandcOnstructiOnmarkets,bOthintheukandinternatiOnally.Our markets suppOrt services• Our market includes facilities management (FM) i.e. activities concerned both with maintaining buildings or estates and with supplying services to people using the facilities.• We also deliver a broader set of services as part of our support services provision for specific groups, such as employment assistance, healthcare, waste management and training. • Our specific skills are in providing end-to-end capability, including design, management and delivery of such services.• We are making progress on increasing our footprint in a strengthening healthcare market for outsourced services – driven by cost-reduction requirements.• Reduced funding in local government is stimulating new models for partnership and delivery. uk• With a continued trend towards outsourcing and service integration, we are well-placed to take advantage of market growth in mature markets such as the UK. • In a fragmented UK market, with a range of small providers, Interserve is among the leaders (source: Frost and Sullivan).• The UK leads the way in the adoption of modern outsourcing and co-ordinated 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). • A widening range of operations includes Work Programme services, helping to get the long-term unemployed back into work and frontline domiciliary healthcare.06 interserve annual repOrt 2012 OvervieW Our marketsOur marketsWe Operate in the OutsOurced services and cOnstructiOn markets, bOth in the uk and internatiOnally. internatiOnal• Almost all international markets for outsourcing of FM services are significantly less developed than the UK. UK providers therefore have an opportunity to use their experience to enter these markets at an advantage.• Our presence in the Middle East provides a base from which to introduce our support services across several countries and markets in the region. This includes conventional building repairs, plant maintenance, health and safety training and assurance services in the oil and gas sector.• The Middle East outsourcing market continues to emerge, following significant increase in infrastructure development over recent years. We are making strategic progress in the region – evidenced through our investment in oil and gas maintenance business TOCO/Willbros Middle East Ltd. cOnstructiOnuk• Our strategic focus is on long-term repeat business with clients that trust us to deliver on our promise.• We have the capacity to deliver a range of projects from small works through to complex and high profile projects of up to £250 million in value.• Our expertise encompasses all technical and commercial aspects of building and engineering services and we are experienced in delivering complex high-value, multi-site projects in both the public and private sectors.• We have a number of strands to our construction proposition: • As a contractor, taking responsibility for the construction of buildings and infrastructure • As a site services provider to companies undertaking construction, engineering and FM • Interiors design and fit-outequipment services • RMD Kwikform is a well-respected and established brand, as a designer and provider of specialised formwork, falsework and shoring equipment used in major projects across the world. • The business operates around centres of excellence in the UK, Australia and the Middle East from where design and engineering support is provided to the operating units based in the UK and across international markets. cOnstructiOninternatiOnal• Working with strong partners, we focus on key sectors across markets: infrastructure, roads, rail, port schemes, power, water and drainage.• We operate from a network of regional offices, specialising in mid-sized contracts, while our specialist fit-out business provides joinery, steelwork and specialist temporary buildings.• We have been active in the Middle East for over 30 years, where our client base is more oriented towards the private sector. • Drawing on the market positioning of our local partners, our businesses are also characterised by a focus on recurring work from long-term relationships. OvervieW gOvernance business revieW financial statementsinterserve annual repOrt 2012 OvervieW Our markets 07 OvervieW Workload for next year Target: Visibility over 70% of next 12 months’ revenue (Market Consensus)Headline earnings per sHare Target: Double headline EPS over the five years to 2015operating casH conversion1, 3-year rolling average Target: 100% over medium termobjectivesattractive Uk demand environment despiteshort-term pressures:• Structural growth in outsourcing• Rising population, increasing pressure on ageing infrastructure• Drive for public sector efficiencies• Demand for increased integration and efficiencies across the asset life cycle• Consolidation• Enhancing existing offering or market extension through acquisition drivers• Emerging and high-growth markets• Opportunities arising from recovering economies• Markets moving closer to UK outsourcing model• Leveraging existing relationshipsbUild strong core bUsinessescase stUdy: alliance boots PAGE 14expand internationallycase stUdy: bionest PAGE 31captUre related expansion opportUnitiescase stUdy: Welfare to Work PAGE 12 2012 78% 2008 79% 2009 79% 2010 73% 2012 47.2p 2008 46.7.p 2009 49.7p 2010 42.8p 2012 116.8% 2008 88.6% 2009 116.9% 2010 122.1%Target Target08 interserve annUal report 2012 overvieW oUr strategyoUr strategy HoW We deliver groWtH 2011 78% 2011 49.3p* 2011 155.3%KEy pERfORManCE inDiCaTORSWe 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 AnnuAlised stAff turnover2 Target: Below 10%AnnuAlised All-employee Accident incidence rAte (per 100,000 employees) Target: Halve the rate by 2020 from a 2010 baseoutcomessubstantial future workload:• Strong revenue visibility afforded by a future workload in excess of £5 billionStrong earnings growth:• Attractive medium-term revenue growth• Margin trends over medium term:UK outsourcing c. 5%International outsourcing c. 13%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 deficitstrAtegyFocus on long-term, added-value client relationships• Understand client dynamics in depth• Adviser/manager role in outsourcing• Framework agreements• Public-private partnerships• Capture emerging opportunities for increasingly integrated solutions• Organic growth supplemented by selective accretive acquisitions• Extend our full range of services across existing markets• Enter new growth markets with attractive fundamentals• Operate in a range of markets to diversify and reduce risk1 See note 33 for a definition of cash conversion.2 Staff turnover measures the proportion of managerial, technical and office-based staff leaving voluntarily over the course of the period.* This includes a non-recurring Middle East tax benefit of 5.6 pps 2012 6.0% 2008 8.6% 2009 5.6% 2010 8.6% 2012 298 2008 429 2009 344 2010 377Target overview governAnce business review finAnciAl stAtementsinterserve AnnuAl report 2012 overview our strAtegy 09 overview 2011 7.0% 2011 310earnings 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. 1 How Has Interserve performed In 2012? 2012 has been a very good year for Interserve in the face of mixed market conditions. I am pleased with the continued progress we have made against our stated strategic objectives. We have grown revenue and profits and continue to build a strong future workload.In the UK, we have made good progress in spite of the economic environment, notably in our Support Services division, where we have grown revenue and remain on track to meet our margin target of five per cent by the end of 2013. Overseas we continue to build our support services business and we will look to continue this trend in 2013.The UK construction industry has faced challenges over the year, but our business here has shown good resilience and we continue to win work, growing future workload to £6.3 billion. Internationally, our construction business has shown a mixed performance, experiencing varying demand in different countries. Latterly we have started to see positive signs of recovery in the UAE, as well as signs of emerging infrastructure development in Oman and Qatar. Revenue and margins continue to improve in our Equipment Services business, which we have achieved through intelligent management of our global fleet, a timely pricing review and accessing new, attractive markets.10 Interserve annual report 2012 BusIness revIew CHIef exeCutIve’s statement (Q&a)CHIef exeCutIve’s statement (Q&a)adrIan rIngrose CHIef exeCutIve Strategically, we have made good progress in growing our business as planned, realising the latent value in our PFI portfolio to reinvest in future growth. During the year we increased our capacity for the delivery of services direct to the citizen, firstly in welfare with our acquisition of BEST (now Interserve Working Futures) and in the health sector with Advantage Healthcare. 2 How are you performIng agaInst Company strategy? Our strategy is to build strong core businesses, expand internationally and expand the scope of our core businesses. We have made good progress against all three aspects of this in 2012 and expect to see further progress in 2013. We are ambitious and optimistic about our medium-term growth potential. By crystallising value in our PFI assets we have further strengthened our balance sheet and are well placed to exploit opportunities for growth in line with our strategy. In 2012 we have done this both by building our capability in the justice market, and also through the acquisition of BEST and Advantage Healthcare, expanding our frontline service capability and exploiting adjacent markets.Our UK construction business has not only focused on long-term commercial structures such as framework agreements, but also continues to innovate with technologies such as PassivHaus and our own proprietary construction system - Podsolve. The UK business has also expanded the scope of its operations in attractive growth areas such as the energy from waste sector. Overseas we have developed our specialist joinery and interior fit-out operations in Qatar and UAE and remain well placed for infrastructure development in the region. Support Services in the UK has delivered strong revenue growth of 11 per cent based on the ongoing need for government and businesses to increase efficiencies and maximise effectiveness in difficult economic conditions. Overseas we continue to expand our capability, notably in our provision of services to the oil and gas industry, both through work-winning, but also with the acquisition of TOCO at the turn of the year.Equipment Services is our most global business and continues to expand its geographic reach, establishing new branch locations in India, Chile, Panama and latterly Kazakhstan. In addition we are also exporting to less developed markets in Central Africa, Iraq and the Caspian region, moving our equipment fleet to follow demand and capture new opportunities. 3 wHat are your plans for 2013? We will continue to build our core businesses, access adjacent markets and develop new opportunities for growth. At the start of the year, we acquired TOCO, which will enhance our existing capabilities in the provision of services to the oil and gas sector. The strength of our balance sheet leaves us well-placed to exploit further growth opportunities both in the UK and overseas. In December, the UK government announced PF2 and reasserted its commitment to infrastructure building projects, notably through a schools building programme. Both of these developments are positive signs for Interserve and play to our strengths of experience and innovation. We expect to see further outsourcing opportunities from both the private and public sector, through a combination of macroeconomic pressures and increasing demand for public services from a growing and ageing population. Developing and delivering our frontline capability will be a focus in areas such as health, welfare and justice, building on our 2012 activities. The justice market remains an important opportunity for Interserve, with the UK government’s announcement of a ‘rehabilitation revolution’ in December 2012 and a clear commitment to outsourcing services.We look forward with confidence to making further progress against our strategy in 2013 and beyond.Interserve annual report 2012 BusIness revIew CHIef exeCutIve’s statement (Q&a) 11 overvIew governanCe BusIness revIew fInanCIal statements overvIew Changing lives through sustainable jobsWelfare to WorkInterserve is working with its partners to make a difference to people’s lives, by helping them to find long-term employment.The Work Programme is the UK Government’s largest and most ambitious Government back-to-work initiative ever commissioned and caters for the long-term unemployed, or those with substantial difficulties in finding work. The programme brings together many of the best features of previous initiatives and combines them with some new approaches, all of which are designed to move more people into sustained employment. We are proud to be involved in the delivery of this flagship programme, delivered across West Yorkshire through interserve Working futures and in the South West and Wales through a joint venture with the Rehab Group called Rehab Jobfit.Our partnership with Work Programme providers blends their existing expertise in providing training, employment, health and social care and commercial services with our track record of large-scale service delivery to Government and management of supply chains.ingenuity at Work12 interserve annual report 2012 business revieW strategiC overvieW Strategic OverviewIn building our core businesses we benefit from long-term client relationships, through framework agreements, repeat business and account growth. We continue to reinvest in new operating models, business development and new asset purchases. We also continue to innovate through new products and technologies. This is reflected in our strong work-winning, notably in our UK operations and has also played a major part in providing a strong platform for growth.We have been expanding the scope of our operations by taking our core skills into new areas, notably in extending our offering in outsourced public services, in areas such as health and welfare-to-work and energy from waste infrastructure. We have also expanded our service offering to the oil and gas sector through the acquisition of TOCO in Oman, enabling us to service our clients over a wider geographic footprint. We continue to target growth in Equipment Services, increasing our investment in countries such as Saudi Arabia, Chile and Colombia and further expanding our reach through export opportunities to countries such as Kazakhstan and Iraq.We are a strong, sustainable and ambitious business and as we continue to develop we will invest in the training and development of our people and the management of complex supply chains. The development and imminent launch of our far-reaching SustainAbilities plan will further differentiate the Company through our approach to sustainable communities and the environments in which we operate. Our corporate strategy and the continued evolution of our capabilities place us well to meet both the risks and the opportunities that the future brings. grOup OutlOOkWe have confidence in our ability to make further progress in 2013. We expect Support Services to continue its strong progress with margins trending towards our medium-term targets. We also expect Construction’s performance to remain resilient in continuing difficult market conditions and that Equipment Services’ revenues will continue to show improvement. We remain on track to deliver strong medium-term growth. in 2012 we made Significant prOgreSS againSt Our cOrpOrate Strategy: building StrOng cOre buSineSSeS, expanding their ScOpe and cOntinuing Our internatiOnal grOwth. Our buSineSSeS have perfOrmed well in 2012 and are pOiSed fOr further SuStained Organic prOgreSS. we have created a StrOng balance Sheet giving uS the capacity tO Seize On grOwth OppOrtunitieS whilSt SubStantially addreSSing Our penSiOn funding pOSitiOn.interServe annual repOrt 2012 buSineSS review Strategic Overview 13 Overview gOvernance buSineSS review financial StatementS Overview support serviCesOur total facilities management contract with international health and beauty group, Alliance Boots, serves some 8,000 staff across eight office locations and more than 1,000 stores, establishing us as their single national provider across the UK and Ireland.Interserve’s team focuses on delivering facilities management services around the needs of Alliance Boots staff, their customers and visitors right across the company’s estate – including its headquarters building. The existing relationship between the two companies, which began in 2006, was central to Alliance Boots’ decision to select Interserve as its support services partner. “ Delivering a common facilities management model across all our UK businesses and corporate offices supports our ambition to provide legendary customer care and feel-good moments for all of our visitors and colleagues. In addition, this new partnership supports Alliance Boots in generating significant synergies and efficiencies across our estate.” jim townsend Head of Procurement and Facilities Management, Alliance Boots. ingenuity at Workdelivering a World-Class support serviCe to allianCe boots 14 interserve annual report 2012 business revieW operational revieW operational revieWWe segment our operational results into: Support Services, Construction and Equipment Services. Support Services and Construction are each subdivided into UK and International businesses. We also have Group Services, which consists of the Board and a range of central services and our investment activities. We allocate all central costs to Group Services, including those related to our financing and central bidding activities, and show the performance of our PFI investments separately as the Investments segment. Group Services’ costs in 2012 were £19.1 million (2011: £20.4 million).support serviCesSupport Services provides a broad range of outsourced services to public and private sector clients, predominantly in the UK but also increasingly in the Middle East, the majority of which we integrate and deliver ourselves.future WorkloadOur 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. 31 december 201231 December 2011Forward orders£4.7 billion£4.5 billionPipeline£1.6 billion£1.1 billionFuture workload£6.3 billion£5.6 billionAs a result of reorganisation we have reclassified £0.3 billion of future workload in 2011 from Construction UK to Support Services UK.kpi tableTarget20122011201020092008Workload for next yearVisibility over 70% of next 12 months revenue (market consensus)78%78%73%79%79%Headline earnings per share (EPS)Double headline EPS over 5 years to 201547.2p49.3p*42.8p49.7p46.7pOperating cash conversion1 3-year rolling average100% over medium term116.8%155.3%122.1%116.9%88.6%Annualised staff turnover2Below 10%6.0%7.0%8.6%5.6%8.6%Annualised all-employee accident incidence rate (per 100,000 employees)Halve the rate by 2020 from a 2010 base2983103773444291 See note 33 for a definition of cash conversion2 Staff turnover measures the proportion of managerial, technical and office-based staff leaving voluntarily over the course of the period*This includes a non-recurring Middle East tax benefit of 5.6 pps results summary (support services):20122011ChangeRevenue– UK£1,118.1m£1,007.3m+11.0%– International*£31.3m£25.9m+20.8%Contribution to Total Operating Profit£48.0m£40.0m+20.0%– UK£44.3m£36.4m+21.7%– International*£3.7m£3.6m+2.8%Operating margin (UK)4.0%3.6%+0.4%ptsOperating margin (International)12.8%15.1%-2.3%pts*Share of associatesinterserve annual report 2012 business revieW operational revieW 15 overvieW governanCe business revieW finanCial statements overvieW united kingdom In the period revenues increased 11.0 per cent with margins improving from 3.6 per cent in 2011 to 4.0 per cent in 2012. Revenue growth was primarily due to our success in developing our relationships with existing customers, but also reflected the benefits of continued strong work winning in current and prior years. This strong performance reflects our core capabilities to provide innovative and cost effective solutions, to help customers invest more efficiently and to develop existing relationships, thereby leading to an increased scope of activity. This is exemplified by our long-standing relationship which, in partnership with Alliance Boots, we have grown from a contract to provide cleaning services to 320 stores into a total facilities management (TFM) service for eight office locations and cleaning services across more than 1,000 stores in the UK and Ireland. We have continued to improve our margins in this division through a combination of investment in new systems and processes, a rationalisation of our organisational structures and a further drive to increase procurement efficiency. These activities, together with the benefits of increasing scale are also contributing to our continued progress towards our target of exiting 2013 with a margin of 5 per cent.The business has performed well in winning work during the year, with a number of significant contract wins with customers such as ScottishPower, Carphone Warehouse, East Thames Group, West Yorkshire Police Authority, London Borough of Southwark, London Universities Purchasing Consortium, The Environment Agency and the Defence Infrastructure Organisation.As a result future workload for the division increased to £5.2 billion in 2012 (2011: £4.5 billion), a strong platform for future years. We believe that demand for public services will continue to accelerate from a growing and ageing population, and that we are only now beginning to see the long-anticipated shift in thinking that will lead to the more widespread use of outsourcing as the most efficient way to maintain such services while reducing unit costs.Anticipating the acceleration of this trend, we have sought to position ourselves to take advantage of outsourcing in frontline services. To date we have made strategic investments in justice, welfare-to-work and healthcare. During the year we increased our investment in the provision of frontline welfare services through the acquisition of Yorkshire-based BEST (now renamed Interserve Working Futures). Combined with our existing joint venture, Rehab Jobfit, which operates in Wales and the South West, we are now one of the largest providers of training and work-placement services for the long-term unemployed, principally through the Government’s flagship Work Programme.In December we acquired Advantage Healthcare which provides community healthcare services including case management, social care, clinical and nursing services, for Primary Care Trusts (PCTs), private clients and through GP referrals. Our entry into the community healthcare market, which complements our existing offering to healthcare clients, anticipates the increasing demand for more flexible and cost effective service provision in this sector. The increasing range of our capabilities and the growing complexity of customers’ requirements were exemplified in the Leicestershire NHS Trust estate management contract win, announced in September. This is notable because of both its scale and the scope of services involved and also through its innovative relationship across three separate NHS Trusts. The contract comprises a full suite of support services ranging from facilities and estate management to strategic consultancy and advice, marking a new and radical approach leveraging the collective scale and rationalising the combined assets of the three Trusts. It will support three acute hospitals and a range of health facilities including mental health units, primary care facilities, and community and district hospitals in the area.In addition we have developed organically a new capability in the justice market to meet the demand from Government for greater private sector involvement in the prison and probation services market. Strategically these developments extend our offering in ‘frontline services’, building on the Company’s extensive experience and capability in outsourced government services, where we see significant and ongoing potential for growth.outlookWe expect the business to continue its strong progress as we expand into new markets, deliver more for our current customers, win new client contracts and execute our services more efficiently through our margin improvement programme.internationalThis business provides fabrication, maintenance, turnaround services and training to the oil and gas industry and hard and soft facilities management services across a broad range of markets across the Middle East. 16 interserve annual report 2012 business revieW operational revieW In the period we continued to build on our offering, winning more turnaround and long-term services contracts with both current and new clients including: Oryx (extension to onsite mechanical maintenance on their gas-to-liquid plant), Shell Pearl (five-year services contract and turnaround services), Dolphin Energy (five-year contract for plant modification works and maintenance services both on and offshore) and Punj Lloyd Limited (fabrication, installation and pre-commissioning of pipework for a polysilicon plant). We aim to expand our engineering services and facilities management activities in the Middle East, where economic progress is increasingly generating requirements for outsourced services. This has generated opportunities for us to harness the expertise gained from our outsourcing experience across many sectors in the UK with our knowledge of Gulf Cooperation Council markets. In January 2013 we expanded the footprint of our activities with the acquisition of TOCO, an Oman-based business specialising in fabrication, maintenance and repair services for oil and gas refineries and offshore facilities. The acquisition extends Interserve’s service offering in Oman, a key growth market offering c.US$2.5 billion of oil, gas and power contracts per annum as well as growing our offering across the region. outlookWe expect revenues and profits to progress well, driven by the petrochemical sector with margins trending towards our medium-term targets. We are intent on building a sizeable support services presence in this important region.ConstruCtionIn the UK and internationally we offer design and construction services in the creation of a broad range of buildings and infrastructure. The majority of our UK revenue comes through long-term framework agreements and from repeat business with blue-chip clients, with over three-quarters of this activity in the public and utilities sectors. We operate from a network of regional offices, specialising in mid-sized contracts.In the Middle East, where we have been active for over 30 years, our client base is more oriented towards the private sector. However, drawing on the market positioning of our local partners, our businesses are also characterised by a focus on recurring work from long-term relationships.united kingdom Despite challenging conditions, 2012 was a year of continued successful performance, innovation and new market development. The division’s contribution to Total Operating Profit fell by £3.4 million to £14.6 million at a margin of 2.0 per cent, reflecting increased competitive pressures in line with our expectations. We continue to expect margins to trend between 1.5 to 2.0 per cent over the medium term.During the year we have worked hard with local authority customers to address their twin problems of affordable build costs and sustainable running costs. Richmond Hill Primary School, which achieved the groundbreaking PassivHaus certification, exemplifies this well: the school will use up to 80 per cent less energy than a conventionally built equivalent facility. We have also extended our reach into targeted growth markets, such as energy-from-waste, completing the design and build of a plant in Westbury, Wiltshire and winning a £150 million contract with Viridor for the construction of Glasgow City Council’s new Residual Waste Treatment facility. The contract involves the design and build of a facility to treat up to 200,000 tonnes p.a. of waste via recycling, anaerobic digestion and energy recovery by gasification. Our sustainability credentials are becoming an increasingly important element of our offering alongside our more established operational and project finance capabilities, as evidenced by our success with West Yorkshire Police (in a £150 million PFI project to design, build, finance and operate three police facilities). Our proposal for this contract involved a significant amount of investment in community projects, generating local jobs and training and exemplified our ability to make places and deliver services that enhance peoples’ lives. results summary:20122011ChangeRevenue- UK£737.2m£731.1m+0.8%- International*£201.6m£223.7m-9.9%Contribution to Total Operating Profit£28.9m£34.6m-16.5%- UK£14.6m£18.0m-18.9%- International*£14.3m£16.6m-13.9%Operating margin (UK)2.0%2.5%-0.50% ptsOperating margin (International)6.5%8.4%-1.90% pts*Share of associatesinterserve annual report 2012 business revieW operational revieW 17 overvieW governanCe business revieW finanCial statements overvieW These skills, together with our traditional ability to tackle complex construction challenges, have also been brought to bear in our successful proposals for the refurbishment and renovation of 200-year old buildings at Advocate’s Close, Edinburgh. The new mixed-use development will comprise serviced apartments, restaurants, a bistro/bar and offices/retail units revitalising an area formerly occupied by the City of Edinburgh Council. In addition to the contracts mentioned above, we have enjoyed other successes, including: a multi-million pound project with Jaguar Land Rover to build a circa 65,000 square metre facility in Wolverhampton to produce a family of all-new advanced technology, low emission 4-cylinder Jaguar Land Rover petrol and diesel engines; further work under existing framework agreements with the NHS in England, Scotland and Wales, and with National Grid; together with numerous other contracts for English Heritage, St Luke’s Hospice, and the Highways Agency. As a result, our future workload as at 31 December 2012 has remained at £0.9 billion.outlookWe expect the UK construction market to continue to remain challenging during 2013, before a resumption of gradual growth from 2014, stimulated by increased government spending on infrastructure and some recovery in private sector investment. However, we have a strong order book and continue to diversify the business to position ourselves for growth across an expanding set of market segments.international Both volumes and profits continued to be affected by short-term client caution. Nevertheless we were able to continue to maintain our shape and readiness for an increase in demand, which we expect to materialise in the coming years given the underlying economic strength of the Middle East region. Against this overall backdrop of restraint, we are beginning to see cause for medium-term optimism. For example, in the UAE, we are starting to see an improvement in trading conditions, and during the year we won a number of sizeable contracts with both new and existing clients. These included: infrastructure projects such as the £11 million Fujairah internal roads system and the £6 million regional headquarters for the Habib Bank AG Zurich; shopping centres, such as the £49 million Jumeirah Beach Village and the £38 million Fujairah City Centre; and a £28 million contract for General Electric for the construction of Emirates’ Engine Overhaul Facility. Our fit-out business continues to see demand with the winning of numerous contracts including the Saint Regis Hotel in Abu Dhabi and the Bab Al Bahr Hotel in Ajman. In Qatar, which was more subdued, we are well prepared for the anticipated increase in infrastructure investment in the run-up to the 2022 World Cup. We won an important contract to fit out the main halls and 17 lounges at the new Doha International Airport which will compete as a new major international hub. Fit-out continues to be an important market for us, with prestigious contracts secured for the Private Engineers Office and the Al Deeble Tower in Doha. The planned new city of Lusail, to the north of Doha, is starting to generate demand for construction services. Over the year we have started to deliver infrastructure projects including the construction, installation and commissioning of two substations for Hyosung worth approximately £30 million and chilled water piping diversions for Ashghal who are building the Expressway in Lusail. Our ability to deliver complex projects is well exemplified by the Doha West Sewage Treatment works project for Ashghal, where we built a new plant, refurbished the existing plant and constructed two storage lagoons. The project was completed three months early and on budget. In Dubai we refurbished the existing ‘Gold Souk’, in the Dubai Mall, for Chalhoub Group into a bespoke 9,000m2 shoe district, comprising 40 designer outlets.Market conditions in Oman have been broadly stable with good levels of activity in industrial development and defence. Notable contracts included building a 132KV grid substation for Arabian Industries and a substantial package of works for the new Military Training College in Seeb. Our fit-out and joinery businesses have also performed well, with the completion of the flagship Sohar Court complex, which we also built, a particular highlight. outlookWe expect that in the short term demand will remain subdued; however, growth rates in the region are still attractive in the medium term as countries need to improve their infrastructure, we move closer to the 2022 World Cup and economic growth in the region shows signs of improvement. equipment serviCesEquipment Services designs bespoke engineering solutions and provides temporary structural equipment (formwork and falsework) for complex infrastructure and building projects. We have a strong position as one of the leading global suppliers in these specialist markets, operating across a wide range of geographies and sectors, with a fleet of equipment which we redeploy to meet the changing demands in our various markets.results summary:20122011ChangeRevenue£167.5m£154.3m+8.6%Contribution to Total Operating Profit£16.0m£13.6m+17.6%Margin9.6%8.8%+0.8% ptsWe have continued to see a gradual recovery in activity levels in a number of our key markets in 2012. 18 interserve annual report 2012 business revieW operational revieW Regionally:Middle East and AfricaSaudi Arabia remains our largest market in this region, and we have continued to expand our footprint in the area between Jeddah and Riyadh. Our largest project in the region is the provision of equipment to the Roots Group Arabia contract at the Mecca Grand Mosque, to which we have delivered approximately 15,000 tonnes of equipment over the last three years. In Jeddah our equipment is being used to build the six-lane raised approach roads to the new airport and several major infrastructure projects in Riyadh are continuing to support a good performance. In Oman, the business is performing well and we are strongly positioned with a high market share, currently undertaking a number of important projects, including: the redevelopment of Muscat and Salahlah airports, where in each case the innovative climbing formwork system, Tru-lift, is being used in the construction of new control towers.In the UAE there are early signs that more substantial infrastructure projects are coming to market after a lengthy period of stagnation. In November we won a prestigious contract for the Presidential Palace in Abu Dhabi, building momentum from earlier wins with customers such as Larson & Toubro and Seobon Construction. In Qatar the market remains subdued although increased bidding activity on planned major infrastructure projects (such as the underground light rail system at Lusail) points to early indications of improvement. Following a restructuring, our South African business saw much improved year-on-year performance and is well-placed to profit from growing signs of a pick-up in demand driven by civil infrastructure growth in areas such as roads and power stations. We are continuing to provide significant amounts of equipment to the Gruluk Bunker, in connection with a new power station near Lephalale in Limpopo province. We also won a number of important new contracts including Flicksburg reservoir with Ruwacon and the supply of shoring equipment to the Mhlatshane waste water treatment works for Cyclone Construction in Kwazulu Natal. Australasia and Far EastPerformance across the region was underpinned by infrastructure, major liquified natural gas and mining projects. In Australia this included Gorgon in Western Australia and three other liquified natural gas plants on Curtis Island, Queensland. Although the pace of investment in the natural resources sector may have slowed somewhat in recent months, and activity in commercial hubs remains low, Australia nevertheless represents an important and relatively resilient market in which we have a strong market-leading position. Following the substantial earthquake damage in Christchurch, we have experienced significant demand for both shoring and formwork, which has driven a very strong result from our operation in New Zealand.Growth in Hong Kong has been driven by a strong programme of infrastructure investment, including the $1.5 billion cruise ship terminal development and the Kowloon 810a/b public transport project, which includes the development of an integrated interchange for underground and overground trains, a bus station and a taxi hub.We also had a strong year in the Philippines, with demand being driven by projects such as the new Philippines Arena and Stadium complex. During the year we developed our international centre of excellence for design in Manila, drawing on the extensive labour pool of relevant skills in the Philippines and servicing our business across the Far East and in Europe.EuropeDemand was generally subdued, reflecting the continued pressures on the construction sector, both in the UK and mainland Europe. We implemented a number of cost-reduction and restructuring measures to ensure that our operations were appropriately sized for lower volumes. We undertook a number of important projects such as the support of the stadium roof in the Stade Vélodrome in Marseille and also in Spain, where we are working with Horta Cosalda as plans to increase stadia capacity ahead of UEFA’s Euro 2016 tournament begin to emerge.IntErsErvE AnnuAl rEport 2012 busInEss rEvIEW opErAtIonAl rEvIEW 19 ovErvIEW govErnAncE busInEss rEvIEW FInAncIAl stAtEMEnts ovErvIEW8504 Interserve AR 2013 Operational tp Review_7.indd 1919/03/2013 15:01 americasIn the US, the construction market has begun to show signs of recovery with both volumes and prices improving towards the end of the year. Prior to that, conditions were difficult, to which we responded with a number of organisational changes. Elsewhere, market conditions were much more favourable, and we have increased our investment in Chile and Panama and are planning market entry into Colombia. Chile, in particular, is growing strongly, driven by mining demand, and we have opened our third branch in the country, in Copiapo, to service the natural resources extraction industries in that region.outlookWe expect Equipment Services’ revenues to continue to improve with margins trending towards the medium-term target.investmentsInvestments is responsible for two broad areas: directing the Group’s PFI 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. The costs of these central functions are allocated to the Group Centre segment. The results summarised below reflect the performance of our equity investments in PFI projects.results summary:20122011ChangeContribution to Total Operating Profit£6.6m£6.0m+10.0%Interest received on subordinated debt investments£5.4m£4.0m+35.0%£12.0m£10.0m+20.0%Exceptional profit from PFI disposals£110.9m-Our strategy for our PFI portfolio is to optimise the cash flows of projects by intelligent operational and financial management. When we can add no further value, we seek to realise the latent value that we have created and to reinvest in new strategic opportunities.During 2012 we undertook a series of three transactions to unlock the significant value in our increasingly mature portfolio: In June and July we announced the sale of half of our holding in the UCLH project to the CFIG Fund, the exercise of our pre-emption rights in relation to a co-investor’s holding, and the onward sale of this holding to the CFIG Fund. In October we sold a minority stake in a portfolio of 19 PFI investments to Dalmore Investment Fund and in December we announced the transfer of £55 million of the remaining PFI assets into the Company’s pension scheme (a transaction which completed in January 2013).The combined effect of these transactions was to realise a total value of £174.3 million, £119.3 million of which was in cash. We intend to utilise these cash proceeds (and some of the capacity in our current debt facilities) on further strategic investments in growth markets or sectors, both in our existing businesses and by acquisitions. Notwithstanding these disposals, the PFI/Private Finance 2 (PF2) market remains an important area for Interserve, both as a source of construction and facilities management contracts, and for the available returns on our equity and debt investments. In 2012 our PFI equity investments made a total contribution to pre-tax profit of £12.0 million. We continue to seek out, and to win new contracts, such as the West Yorkshire Police PFI, won during 2012. This will involve the construction of two new divisional headquarters, custody suites and a specialist operational training facility (with firearm 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. At 31 December 2012 we had a remaining portfolio of two PFI assets (31 December 2011: 21), comprising Addiewell Prison, which is operational and West Yorkshire Police, which is under construction. Additionally, preferred bidder negotiations are ongoing at a third project, Alder Hey Children’s Hospital in Merseyside.outlookThe recently announced private finance initiative, PF2, and the announcement of a resumption in the schools’ capital programme, together with a further £5 billion of other infrastructure investment are positive developments. Given our strong track record in delivering, operating and financing PPP initiatives, we expect to enlarge our project portfolio over the next few years.20 interserve annual report 2012 business revieW operational revieW interserve annual report 2012 business revieW operational revieW 21 overvieW governanCe business revieW finanCial statements overvieWComplex formWork solution for makkah mosque in meCCaIn a mammoth undertaking, our global formwork and shoring experts, RMD Kwikform, completed the design and delivery of over 15,000 tonnes of formwork and shoring solutions to main contractor Roots Group Arabia, for the expansion of the landmark Makkah Mosque in the Kingdom of Saudi Arabia.Situated next to the Islamic holy shrine of the Prophet Mohammed, the project win provides facilities for 2.5 million people during their pilgrimage. With 250,000m2 of stunningly ornate prayer halls, ceremonial halls and courtyards, this was one of the largest projects delivered by RMD Kwikform Saudi Arabia to date.RMD Kwikform supplied an impressive engineering solution, with formwork supporting some 1,600 tonnes of concrete structural frame, consisting of heavy-duty Megashor shoring, R700 trusses, Superslim Soldiers, Albeam and Maxima wall panel systems.equipment serviCesingenuity at Work Business, economic and political environmentpotential impactmmmiiitttiiigggaaatttiiiooonnn aaannnddd mmmooonnniiitttooorrriiinnngggAmong 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 operateany 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.WWWeee ssseeeeeekkk tttooo mmmiiitttiiigggaaattteee ttthhheeessseee rrriiissskkksss bbbyyy fffooosssttteeerrriiinnnggg lllooonnnggg---ttteeerrrmmm rrreeelllaaatttiiiooonnnssshhhiiipppsss wwwiiittthhh ooouuurrr cccllliiieeennntttsss aaannnddd pppaaarrrtttnnneeerrrsss,,, ooouuurrr ppprrreeedddooommmiiinnnaaannntttlllyyy gggooovvveeerrrnnnmmmeeennntttaaalll///qqquuuaaasssiii---gggooovvveeerrrnnnmmmeeennntttaaalll mmmeeedddiiiuuummm---tttooo---lllooonnnggg---ttteeerrrmmm rrreeevvveeennnuuueee ssstttrrreeeaaammmsss,,, ttthhheee dddeeevvveeelllooopppmmmeeennnttt ooofff aaaddddddiiitttiiiooonnnaaalll cccaaapppaaabbbiiillliiitttiiieeesss tttooo mmmeeeeeettt aaannntttiiiccciiipppaaattteeeddd dddeeemmmaaannnddd iiinnn nnneeewww gggrrrooowwwttthhh aaarrreeeaaasss ooofff pppuuubbbllliiiccc ssseeerrrvvviiiccceee dddeeellliiivvveeerrryyy,,, cccaaarrreeefffuuulll sssuuupppppplllyyy ccchhhaaaiiinnn mmmaaannnaaagggeeemmmeeennnttt aaannnddd bbbyyy ooopppeeerrraaatttiiinnnggg iiinnn vvvaaarrriiiooouuusss rrreeegggiiiooonnnsss ooofff ttthhheee wwwooorrrlllddd,,, iiinnncccllluuudddiiinnnggg ttthhheee MMMiiiddddddllleee EEEaaasssttt,,, wwwhhheeerrreee wwweee aaarrreee aaabbbllleee tttooo tttrrraaannnsssfffeeerrr rrreeesssooouuurrrccceeesss tttooo mmmaaaxxxiiimmmuuummm eeeffffffeeecccttt bbbeeetttwwweeeeeennn ttthhheee dddiiiffffffeeerrriiinnnggg eeecccooonnnooommmiiieeesss ooofff ttthhhaaattt rrreeegggiiiooonnn... 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WWWhhheeettthhheeerrr wwweee wwwiiinnn,,, lllooossseee ooorrr rrreeetttaaaiiinnn aaa cccooonnntttrrraaacccttt wwweee aaannnaaalllyyyssseee ttthhheee rrreeeaaasssooonnnsss fffooorrr ooouuurrr sssuuucccccceeessssss ooorrr ssshhhooorrrtttcccooommmiiinnngggsss aaannnddd fffeeeeeeddd ttthhheee iiinnnfffooorrrmmmaaatttiiiooonnn bbbaaaccckkk aaattt bbbooottthhh tttaaaccctttiiicccaaalll aaannnddd ssstttrrraaattteeegggiiiccc llleeevvveeelllsss... WWWeee aaalllsssooo cccooonnnssstttaaannntttlllyyy mmmooonnniiitttooorrr ooouuurrr cccooosssttt bbbaaassseee aaannnddd tttaaakkkeee aaaccctttiiiooonnn tttooo eeennnsssuuurrreee iiittt iiisss sssuuuiiitttaaabbbllleee gggiiivvveeennn ttthhheee ppprrreeevvvaaaiiillliiinnnggg mmmaaarrrkkkeeettt eeennnvvviiirrrooonnnmmmeeennnttt...WWWeee hhhaaavvveee aaalllsssooo ssseeettt ooouuurrrssseeelllvvveeesss ttthhheee gggoooaaalllsss ooofff dddeeellliiivvveeerrriiinnnggg sssuuussstttaaaiiinnnaaabbbiiillliiitttyyy sssooollluuutttiiiooonnnsss tttooo ooouuurrr cccllliiieeennntttsss,,, eeennnsssuuurrriiinnnggg ttthhhaaattt wwweee aaannnddd ooouuurrr sssuuuppppppllliiieeerrrsss uuuppphhhooolllddd ttthhheee hhhiiiggghhheeesssttt ssstttaaannndddaaarrrdddsss iiinnn eeeqqquuuaaallliiitttyyy,,, dddiiivvveeerrrsssiiitttyyy,,, hhhuuummmaaannn rrriiiggghhhtttsss aaannnddd eeettthhhiiicccsss,,, ppplllaaayyyiiinnnggg aaannn aaaccctttiiivvveee rrrooollleee iiinnn ttthhheee cccooommmmmmuuunnniiitttiiieeesss iiinnn wwwhhhiiiccchhh wwweee ooopppeeerrraaattteee aaannnddd ppplllaaaccciiinnnggg sssuuussstttaaaiiinnnaaabbbiiillliiitttyyy aaattt ttthhheee hhheeeaaarrrttt ooofff ooouuurrr bbbuuusssiiinnneeessssss...maJor contractsAs 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 mis-pricing, 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.AAAmmmooonnnggg ooouuurrr mmmiiitttiiigggaaatttiiiooonnn ssstttrrraaattteeegggiiieeesss aaarrreee tttaaarrrgggeeetttiiinnnggg wwwooorrrkkk wwwiiittthhhiiinnn,,, ooorrr cccooommmpppllleeemmmeeennntttaaarrryyy tttooo,,, ooouuurrr eeexxxiiissstttiiinnnggg cccooommmpppeeettteeennnccciiieeesss,,, ttthhheee fffooosssttteeerrriiinnnggg ooofff lllooonnnggg---ttteeerrrmmm rrreeelllaaatttiiiooonnnssshhhiiipppsss wwwiiittthhh cccllliiieeennntttsss,,, ooopppeeerrraaatttiiinnnggg aaannn aaauuuttthhhooorrriiitttyyy mmmaaatttrrriiixxx fffooorrr ttthhheee aaapppppprrrooovvvaaalll ooofff lllaaarrrgggeee bbbiiidddsss,,, mmmooonnnttthhhlllyyy mmmaaannnaaagggeeemmmeeennnttt rrreeepppooorrrtttiiinnnggg wwwiiittthhh kkkeeeyyy pppeeerrrfffooorrrmmmaaannnccceee iiinnndddiiicccaaatttooorrrsss aaattt cccooonnntttrrraaacccttt aaannnddd bbbuuusssiiinnneeessssss llleeevvveeelll,,, ttthhheee uuussseee ooofff mmmooonnnttthhhlllyyy cccooosssttt---vvvaaallluuueee rrreeecccooonnnccciiillliiiaaatttiiiooonnn,,, sssuuupppppplllyyy ccchhhaaaiiinnn mmmaaannnaaagggeeemmmeeennnttt,,, tttaaakkkiiinnnggg rrreeessspppooonnnsssiiibbbiiillliiitttyyy fffooorrr ttthhheee aaadddmmmiiinnniiissstttrrraaatttiiiooonnn ooofff ooouuurrr PPPFFFIII///PPPPPPPPP SSSPPPCCCsss,,, ssseeecccuuurrriiinnnggg bbboooaaarrrddd rrreeeppprrreeessseeennntttaaatttiiiooonnn iiinnn ttthhheeemmm aaannnddd eeennnsssuuurrriiinnnggg ttthhhaaattt pppeeerrriiiooodddiiiccc bbbeeennnccchhhmmmaaarrrkkkiiinnnggg aaannnddd///ooorrr mmmaaarrrkkkeeettt ttteeessstttiiinnnggg aaarrreee iiinnncccllluuudddeeeddd iiinnn lllooonnnggg---ttteeerrrmmm cccooonnntttrrraaaccctttsss...22 interserve annual report 2012 Business revieW principal risks and uncertaintiesprincipal risks and uncertaintiesWe 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. keY peopleThe 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.WWWeee hhhaaavvveee aaa GGGrrrooouuuppp---wwwiiidddeee llleeeaaadddeeerrrssshhhiiippp ppprrrooogggrrraaammmmmmeee dddeeesssiiigggnnneeeddd tttooo sssuuuppppppooorrrttt ttthhheee ssstttrrraaattteeegggiiiccc aaaiiimmmsss ooofff ttthhheee CCCooommmpppaaannnyyy... WWWeee hhhaaavvveee vvvaaarrriiiooouuusss iiinnnccceeennntttiiivvveee sssccchhheeemmmeeesss aaannnddd rrruuunnn aaa bbbrrroooaaaddd rrraaannngggeee ooofff tttrrraaaiiinnniiinnnggg cccooouuurrrssseeesss fffooorrr pppeeeooopppllleee aaattt aaallllll ssstttaaagggeeesss iiinnn ttthhheeeiiirrr cccaaarrreeeeeerrrsss... WWWiiittthhh aaaccctttiiivvveee hhhuuummmaaannn rrreeesssooouuurrrccceeesss mmmaaannnaaagggeeemmmeeennnttt aaannnddd IIInnnvvveeessstttooorrrsss iiinnn PPPeeeooopppllleee aaaccccccrrreeedddiiitttaaatttiiiooonnn iiinnn mmmaaannnyyy pppaaarrrtttsss ooofff ttthhheee GGGrrrooouuuppp,,, wwweee mmmaaannnaaagggeee ooouuurrr pppeeeooopppllleee ppprrrooofffeeessssssiiiooonnnaaallllllyyy aaannnddd eeennncccooouuurrraaagggeee ttthhheeemmm tttooo dddeeevvveeellloooppp aaannnddd fffuuulllfififilll ttthhheeeiiirrr mmmaaaxxxiiimmmuuummm pppooottteeennntttiiiaaalll wwwiiittthhh ttthhheee GGGrrrooouuuppp...WWWeee hhhaaavvveee aaalllsssooo ssseeettt ooouuurrrssseeelllvvveeesss ttthhheee gggoooaaalllsss ooofff iiinnnssspppiiirrriiinnnggg ttthhheee nnneeexxxttt gggeeennneeerrraaatttiiiooonnn ooofff ppprrrooofffeeessssssiiiooonnnaaalllsss,,, mmmeeeaaasssuuurrriiinnnggg aaannnddd rrreeecccooogggnnniiisssiiinnnggg ttthhheee vvvaaallluuueee ooofff pppeeeooopppllleee,,, sssoooccciiieeetttyyy aaannnddd ttthhheee eeennnvvviiirrrooonnnmmmeeennnttt...HealtH and saFetY regimeThe 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.AAA cccooommmmmmiiitttmmmeeennnttt tttooo sssaaafffeeetttyyy fffooorrrmmmsss pppaaarrrttt ooofff ooouuurrr mmmiiissssssiiiooonnn ssstttaaattteeemmmeeennnttt aaannnddd ttthhheee sssuuubbbjjjeeecccttt llleeeaaadddsss eeevvveeerrryyy BBBoooaaarrrddd mmmeeeeeetttiiinnnggg bbbooottthhh aaattt GGGrrrooouuuppp aaannnddd dddiiivvviiisssiiiooonnnaaalll llleeevvveeelll... EEEaaaccchhh mmmeeemmmbbbeeerrr ooofff ttthhheee EEExxxeeecccuuutttiiivvveee BBBoooaaarrrddd uuunnndddeeerrrtttaaakkkeeesss dddeeedddiiicccaaattteeeddd vvviiisssiiitttsss tttooo lllooooookkk aaattt hhheeeaaalllttthhh aaannnddd sssaaafffeeetttyyy mmmeeeaaasssuuurrreeesss iiinnn ppplllaaaccceee aaattt ooouuurrr ooopppeeerrraaatttiiiooonnnaaalll sssiiittteeesss aaannnddd wwweee hhhaaavvveee ooonnngggoooiiinnnggg cccaaammmpppaaaiiigggnnnsss aaacccrrrooossssss ttthhheee GGGrrrooouuuppp eeemmmppphhhaaasssiiisssiiinnnggg iiitttsss iiimmmpppooorrrtttaaannnccceee...operating sYstempotential impactmmmiiitttiiigggaaatttiiiooonnn aaannnddd mmmooonnniiitttooorrriiinnngggWe 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.WWWeee hhhaaavvveee aaa ppprrrooovvveeennn tttrrraaaccckkk rrreeecccooorrrddd ooofff dddeeevvveeelllooopppiiinnnggg aaannnddd rrreee---eeennnfffooorrrccciiinnnggg sssuuuccchhh rrreeelllaaatttiiiooonnnssshhhiiipppsss iiinnn aaa mmmuuutttuuuaaallllllyyy bbbeeennneeefifificcciiiaaalll wwwaaayyy ooovvveeerrr aaa lllooonnnggg pppeeerrriiioooddd ooofff tttiiimmmeee aaannnddd ooouuurrr eeexxxpppeeerrriiieeennnccceee ooofff ttthhhiiisss ppplllaaaccceeesss uuusss wwweeellllll tttooo ppprrreeessseeerrrvvveee eeexxxiiissstttiiinnnggg rrreeelllaaatttiiiooonnnssshhhiiipppsss aaannnddd cccrrreeeaaattteee nnneeewww ooonnneeesss aaasss pppaaarrrttt ooofff ooouuurrr bbbuuusssiiinnneeessssss mmmooodddeeelll... TTThhheee mmmeeeaaasssuuurrreeesss tttaaakkkeeennn tttooo llliiimmmiiittt rrriiissskkk iiinnn ttthhhiiisss aaarrreeeaaa iiinnncccllluuudddeee::: bbboooaaarrrddd rrreeeppprrreeessseeennntttaaatttiiiooonnn,,, ssshhhaaarrreeehhhooollldddeeerrrsss’’’ aaagggrrreeeeeemmmeeennntttsss,,, mmmaaannnaaagggeeemmmeeennnttt ssseeecccooonnndddmmmeeennntttsss,,, lllooocccaaalll bbbooorrrrrrooowwwiiinnngggsss aaannnddd rrriiiggghhhtttsss ooofff aaauuudddiiittt iiinnn aaaddddddiiitttiiiooonnn tttooo iiinnnvvveeessstttiiinnnggg tttiiimmmeee iiinnn pppeeerrrsssooonnnaaalll rrreeelllaaatttiiiooonnnssshhhiiipppsss... damage to reputationIssues 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. CCCooonnntttrrrooolll ppprrroooccceeeddduuurrreeesss aaannnddd ccchhheeeccckkksss gggooovvveeerrrnnniiinnnggg ttthhheee ooopppeeerrraaatttiiiooonnn ooofff ooouuurrr cccooonnntttrrraaaccctttsss aaannnddd ooofff ooouuurrr bbbuuusssiiinnneeesssssseeesss aaarrreee sssuuuppppppooorrrttteeeddd bbbyyy bbbuuusssiiinnneeessssss cccooonnntttiiinnnuuuiiitttyyy ppplllaaannnsss aaannnddd aaarrrrrraaannngggeeemmmeeennntttsss fffooorrr mmmaaannnaaagggiiinnnggg ttthhheee cccooommmmmmuuunnniiicccaaatttiiiooonnn ooofff iiissssssuuueeesss tttooo ooouuurrr ssstttaaakkkeeehhhooollldddeeerrrsss...WWWeee hhhaaavvveee aaalllsssooo ssseeettt ooouuurrrssseeelllvvveeesss ttthhheee gggoooaaalllsss ooofff cccrrreeeaaatttiiinnnggg aaa cccuuullltttuuurrreee ooofff iiinnnnnnooovvvaaatttiiiooonnn iiinnn sssuuussstttaaaiiinnnaaabbbiiillliiitttyyy aaannnddd oooffffffeeerrriiinnnggg tttrrraaannnssspppaaarrreeennncccyyy tttooo cccllliiieeennntttsss ooonnn pppuuubbbllliiiccc ssseeeccctttooorrr ppprrrooojjjeeeccctttsss...climate cHangeAdverse weather events, travel disruption, long-term climate shifts, water stress and sea-level rises leading to a failure to be able to provide services and financial penalties.WWWeee hhhaaavvveee ssseeettt ooouuurrrssseeelllvvveeesss ttthhheee gggoooaaalllsss ooofff bbbeeeiiinnnggg rrreeessspppooonnnsssiiibbbllleee fffooorrr zzzeeerrrooo nnneeettt lllooossssss iiinnn bbbiiiooodddiiivvveeerrrsssiiitttyyy,,, ppprrrooocccuuurrriiinnnggg ppprrroooddduuuccctttsss aaannnddd ssseeerrrvvviiiccceeesss bbbeeeyyyooonnnddd bbbeeesssttt ppprrraaaccctttiiiccceee iiinnn eeennnvvviiirrrooonnnmmmeeennntttaaalll aaannnddd sssoooccciiiaaalll ssstttaaannndddaaarrrdddsss,,, bbbeeecccooommmiiinnnggg aaa wwwaaattteeerrr pppooosssiiitttiiivvveee bbbuuusssiiinnneeessssss,,, hhhaaalllvvviiinnnggg ooouuurrr aaabbbsssooollluuuttteee cccaaarrrbbbooonnn eeemmmiiissssssiiiooonnnsss aaannnddd ttthhhooossseee fffrrrooommm ooouuurrr sssuuupppppplllyyy ccchhhaaaiiinnn,,, hhheeelllpppiiinnnggg ooouuurrr cccllliiieeennntttsss tttooo iiinnncccrrreeeaaassseee ttthhheeeiiirrr eeennneeerrrgggyyy ssseeecccuuurrriiitttyyy,,, cccaaarrriiinnnggg fffooorrr ttthhheee nnnaaatttuuurrraaalll rrreeesssooouuurrrccceeesss wwweee uuussseee (((iiinnncccllluuudddiiinnnggg tttrrreeeaaatttiiinnnggg wwwaaasssttteee aaasss aaa rrreeesssooouuurrrccceee))) aaannnddd bbbuuuiiillldddiiinnnggg rrreeesssiiillliiieeennnccceee tttooo eeennnvvviiirrrooonnnmmmeeennntttaaalll ccchhhaaannngggeee iiinnn eeevvveeerrryyyttthhhiiinnnggg wwweee dddooo...Financial risksWe are subject to certain financial risks which are discussed in the Financial Review on pages 29 and 30.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 29 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.WWWeee hhhaaavvveee pppooollliiiccciiieeesss iiinnn ppplllaaaccceee tttooo mmmooonnniiitttooorrr ttthhheee eeeffffffeeeccctttiiivvveee mmmaaannnaaagggeeemmmeeennnttt ooofff wwwooorrrkkkiiinnnggg cccaaapppiiitttaaalll,,, iiinnncccllluuudddiiinnnggg ttthhheee ppprrroooddduuuccctttiiiooonnn ooofff dddaaaiiilllyyy bbbaaalllaaannnccceeesss,,, wwweeeeeekkklllyyy cccaaassshhh rrreeepppooorrrtttsss aaannnddd fffooorrreeecccaaassstttsss tttooogggeeettthhheeerrr wwwiiittthhh mmmooonnnttthhhlllyyy mmmaaannnaaagggeeemmmeeennnttt rrreeepppooorrrtttiiinnnggg...AAA nnnuuummmbbbeeerrr ooofff aaaccctttiiiooonnnsss hhhaaavvveee bbbeeeeeennn tttaaakkkeeennn iiinnncccllluuudddiiinnnggg ccclllooosssuuurrreee ooofff ttthhheee DDDeeefififinnneeeddd BBBeeennneeefififittt SSSccchhheeemmmeee tttooo fffuuurrrttthhheeerrr aaaccccccrrruuuaaalll fffooorrr aaallllll nnnooonnn---pppaaasssssspppooorrrttt mmmeeemmmbbbeeerrrsss fffrrrooommm ttthhheee eeennnddd ooofff DDDeeeccceeemmmbbbeeerrr 222000000999,,, ttthhheee cccooonnntttrrriiibbbuuutttiiiooonnn ooofff PPPFFFIII iiinnnvvveeessstttmmmeeennntttsss tttooo ttthhheee pppeeennnsssiiiooonnn sssccchhheeemmmeee aaannnddd aaaddddddiiitttiiiooonnnaaalll eeemmmpppllloooyyyeeerrr cccooonnntttrrriiibbbuuutttiiiooonnnsss iiinnn eeexxxccceeessssss ooofff ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt ccchhhaaarrrgggeee... overvieW governance Business revieW Financial statementsinterserve annual report 2012 Business revieW principal risks and uncertainties 23 overvieWThe Group continues to have no material exposure to currency risks or volatility in commodity prices. The Group’s principal businesses operate in countries which we regard as politically stable. 24 Interserve AnnuAl report 2012 busIness revIeW FInAncIAl revIeWsummAry Financial highlights of 2012 included:• Increase in underlying headline earnings per share of 8 per cent.• A robust trading performance in line with expectations, based on: • Continued improvement in margins at Support Services • Stable activity levels in UK Construction with margins in line with expectations • Return to growth at Equipment Services with enhanced operating margins.• Continued strong cash generation with a three-year rolling profit conversion of 117 per cent.• Realisation of value from a maturing PFI investment portfolio to provide £119 million of cash for strategic growth and development opportunities plus a contribution of £55 million worth of assets to our Pension Scheme. • Investment of £67 million in acquisitions increasing our presence in the provision of frontline public services in welfare (Interserve Working Futures) and healthcare (Advantage Healthcare) and in expanding our geographic footprint for oil and gas maintenance service provision in the Middle East (TOCO) (completed in January 2013).• Actuarial Pension Scheme deficit agreed at £150 million as at 31 December 2011 (before contribution of PFI assets, completed in January 2013), and future annual deficit contributions reduced from £23 million to £12 million.• Successful refinancing of bank facilities completed, providing committed financing of circa £245 million.FInAncIAl perFormAncerevenue And operAtIng proFItConsolidated revenues increased by 6 per cent compared with 2011, and total gross revenues (including our share of joint ventures and associates) by 2 per cent.Strong work winning and account development delivered an 11 per cent increase in revenues at UK Support Services. International Support Services grew its volumes by 21 per cent as these services become an increasingly important part of our activities. Despite challenging market conditions, UK Construction maintained revenues at £737.2 million but our International Construction activities, in line with our expectations, reported a small decline in revenues. Equipment Services delivered a 9 per cent increase in revenues, following a 10 per cent increase last year, as it continues on its path to recovery.A full-year operating margin on gross revenues of 3.4 per cent (2011: 3.2 per cent) again reflects a stronger second half than first half with an operating margin of 3.7 per cent (H1 2012: 3.1 per cent). Within this, the operating margin at UK Support Services strengthened from 3.4 per cent in the first half to 4.5 per cent in the second half, reflecting the benefits of ongoing operational efficiency improvements and the emerging scale benefits of increased revenue. The full-year operating margin at 4.0 per cent (2011: 3.6 per cent) provides further evidence of the significant progress made in our Support Services operations in the UK as we track towards the medium-term target of 5 per cent operating margins. Our International Support Services business delivered a healthy, but reduced, margin of 12.8 per cent (2011: 15.1 per cent) on significantly increased volumes. In line with expectations, UK Construction margins at 2.0 per cent (2011: 2.5 per cent) have reverted to near long-term norms whilst margins in our International Construction operations have declined from 8.4 per cent to 6.5 per cent on volumes down 10 per cent in increasingly competitive global markets. Equipment Services delivered increased full-year margins, on increased activity levels, of 9.6 per cent (2011: 8.8 per cent) resulting in the anticipated return to full-year growth. Second-half margins in this division returned to double-digits at 10.7 per cent (H2 2011: 9.6 per cent) with a further recovery towards medium-term margin expectations of 15 per cent expected over the coming years.Average and closing exchange rates used in the preparation of these results were:Average ratesClosing rates2012201120122011US dollar1.591.601.621.55Qatar Rial5.795.845.895.63UAE Dirham5.835.885.945.68Movements in exchange rates during the year had no material impact on the results of the Group.FInAncIAl revIeW Interserve AnnuAl report 2012 busIness revIeW FInAncIAl revIeW 25Investment revenue And FInAnce costsThe net interest charge for the year of £2.0 million can be analysed as follows:£million20122011Net interest on Group debt(6.6)(6.3)Interest receivable from PFI sub-debt5.44.0Pensions related items: Expected return on Scheme assets32.035.3 Interest cost on pension obligations(32.8)(34.0)Group net interest charge(2.0)(1.0) The interest cost on Group debt appears high, relative to the amounts of drawn debt. This is due to the high proportion of fixed costs relating to the amortisation of upfront arrangement fees and the accelerated amortisation of arrangement fees relating to the previous debt facility, together with a commitment fee payable as a percentage of undrawn committed facilities.Interest receivable on sub-debt increased to £5.4 million (2011: £4.0 million) reflecting the increasing operational maturity of the PFI investment portfolio and increasing associated returns. Transactions disposing of the majority of the assets that generated these returns were completed before the year end or shortly thereafter and as a consequence returns of this nature are expected to be materially reduced in the coming year. It is anticipated that this reduction in income will be more than offset by the benefits of reinvesting the cash proceeds.A lower assumed rate of return on Scheme assets of 4.9 per cent (2011: 6.0 per cent), reflecting generally depressed equity and bond markets, resulted in a reduced interest credit to the income statement of £32.0 million (2011: £35.3 million) despite actual returns on assets exceeding this expectation by £17.7 million in the year. This was partially offset by the reduced interest cost on liabilities resulting from a lower assumed discount rate of 4.4 per cent (2011: 4.8 per cent). The net impact of these two pension-related items was a (non-cash) net interest cost of £0.8 million in 2012 (2011: £1.3 million credit).tAxAtIonThe tax charge for the year of £11.2 million represents an effective rate of 6.1 per cent on total Group profit before taxation. The factors underlying this effective rate are shown in the table below:20122011£millionProfittaxrateProfit TaxRateGroup companies43.013.531.4%39.713.935.0%Joint ventures and associates*25.0-0.0%27.4-0.0%Underlying tax charge and rate68.013.519.8%67.113.920.7%PFI disposals114.9---Prior period adjustments(2.3)(0.4)Middle East remittances-(7.0)Total per Income Statement182.911.26.1%67.16.59.7%*The Group’s share of the post-tax results of joint ventures and associates is included in profit before tax in accordance with IFRS.As anticipated last year, the underlying tax charge and rate is slightly lower than in the previous year due to management action to stem losses in overseas tax jurisdictions that are not available for relief against other Group profits. Last year’s tax charge benefited from actions taken that improved the tax efficiency of earnings remitted from a subsidiary in the Middle East.The profit on disposal of PFI assets of £114.9 million recognised in the year is not subject to corporation tax.dIvIdendThe directors recommend a final dividend for the year of 14.1 pence, to bring the total for the year to 20.5 pence, an increase of 8 per cent over last year. This dividend is covered 2.3 times by headline earnings per share and is comfortably covered by free cash flow. overvIeW governAnce busIness revIeW FInAncIAl stAtements overvIeW net debt And cAsh FloWAverage net debt for the year was £27 million (2011: £3 million). At the year end, we had net cash of £25.8 million (net debt 2011: £44.2 million), due to our strong operating cash flow, and disposal proceeds from PFI investments of £119.3 million net of cash reinvested in acquisitions of £44.7 million. £million20122011Operating profit before exceptional items and amortisation of intangible assets55.045.9Other exceptional items(4.0)–Depreciation and amortisation29.3 29.9Net capital expenditure(14.9)(5.5)Gain on disposal of property, plant and equipment(14.3)(15.5)Share-based payments4.32.3Working capital movement0.29.5Operating cash flow55.666.6Pension contributions in excess of the income statement charge(30.8)(27.0)Dividends received from associates and joint ventures19.820.6Tax paid(10.7)(3.2)Other(1.4)(2.6)Free cash flow32.554.4Dividends paid(27.0)(25.5)Investments (net)(11.6)(19.3)Disposals119.3-Acquisitions(44.7)-Other non-recurring1.5-Increase in cash/decrease in net debt70.09.6 The operating cash flow of £55.6 million (2011: £66.6 million) was driven by continued close control of capital expenditure and efficient management of working capital. The resulting 101 per cent conversion of operating profit before amortisation of intangible assets and exceptional items (2011: 145 per cent), brings our rolling three-year conversion rate to 116.8 per cent, compared with our KPI target of 100 per cent.Despite a £5.3 million net outflow of advances received from customers (2011: £5.8 million) working capital movements represented a small net inflow of £0.2 million. Net capital expenditure increased from £5.5 million to £14.9 million as we continue to invest in the growing activity levels in Support Services and Equipment Services. Even at this increased level, this remains significantly below the annual depreciation charge as we continue to generate cash returns on hire fleet investments made in earlier years within Equipment Services.The strong cash generation of our operations in the Middle East and of our Investment special purpose vehicles has enabled us broadly to maintain the levels of dividends remitted at £19.8 million (2011: £20.6 million) despite a decline in the overall contribution from joint ventures and associates.Tax paid of £10.7 million (2011: £3.2 million) remains lower than the Consolidated Income Statement charge incurred by the Group, due principally to timing differences and the tax deductions for pension deficit payments.Investments outflow of £11.6 million (2011: £19.3 million) reflects additional equity and sub-debt invested in PFI joint-venture companies.Disposals of PFI and other investments generated a net inflow of £119.3 million.Acquisitions outflow of £44.7 million in 2012 represents the cash purchase consideration for the acquisitions of Business Employment Services Training (BEST) (£18 million) and Advantage Healthcare (£26.5 million), along with aggregate acquired net debt of £0.2 million.reFInAncIngAs noted in last year’s Annual Report, in February 2012 we were successful in securing a long-term refinancing for the Group. This saw our previous £250 million syndicated revolving credit facility, which was due to expire in October 2013, replaced with a series of committed facilities totalling circa £245 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 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.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.26 Interserve AnnuAl report 2012 busIness revIeW FInAncIAl revIeW Disposals/pFiIn accordance with our long-term strategy of recycling capital from our investments portfolio, we completed two separate disposals of PFI investments during the year. Subsequently, in January 2013, we contributed the majority of the remaining PFI investment portfolio into the Interserve Pension Scheme. Following these transactions our PFI portfolio now consists solely of our investments in the Addiewell Prison and West Yorkshire Police projects, and our interest in the Alder Hey Children’s Hospital project on which we are preferred bidder, but which has not yet reached financial close. On 21 June 2012, we announced a sequence of transactions (including the exercise of pre-emption rights over the holding of a fellow investor) that gave rise to the disposal of half of our 331/3 per cent holding in the UCLH project in exchange for a net £33 million of cash.On 12 October 2012, we sold for cash consideration of £85.5 million interests representing 49.9 per cent of the equity and 62 per cent of the debt instruments in two subsidiaries that between them owned 19 of our PFI investments. In aggregate, these transactions contributed an exceptional profit on disposal of £110.9 million after associated costs.On 28 November 2012 we announced that we had entered into a conditional agreement with the trustee of the Pension Scheme to transfer our remaining interest in a portfolio of 19 PFI assets to the Trustee at a valuation of £55 million. Subsequent to the year-end, the transfer was approved by shareholders at a General Meeting and completed on 7 January 2013.acquisitionsDuring the year we began the process of reinvesting the proceeds raised from these asset disposals in new growth areas, by completing two acquisitions for aggregate consideration of £44.7 million, with another completed shortly after the year end.On 3 May 2012, consistent with our strategy to increase our capability to provide front-line public services, we acquired BEST, one of the UK’s leading providers of training and development for job seekers and employers, now renamed Interserve Working Futures. Total consideration was £18.0 million. The preliminary review of fair values identified acquired net assets of £3.8 million including £7.7 million of acquired intangible assets representing customer relationships. These intangible assets will be amortised over six years. The balance of £14.2 million has been recognised as goodwill.On 17 December 2012 we acquired Advantage Healthcare, a leading UK provider of community healthcare, for a total consideration of £26.5 million. The acquisition widens our access to a £10 billion market through offering a range of healthcare services at home. The preliminary review of fair values identified acquired net assets of £13.4 million including £16.5 million of acquired intangible assets representing customer relationships. These intangible assets will be amortised over 10 years, representing the estimated useful economic life of these relationships. The balance of £13.1 million has been recognised as goodwill.Shortly after the year end, on 7 January 2013, jointly with our partner in Oman, we acquired the oil and gas maintenance business of Willbros Middle East (known as TOCO). The acquisition expands our operational footprint in the oil and gas services business into Oman, a key growth market. Total cash consideration was US$41.3 million (circa £26 million), of which we contributed 85 per cent.We maintain a disciplined approach to reviewing potential acquisition opportunities, rejecting those which do not meet our strict valuation and other selection criteria, but with a strong balance sheet and significant available debt capacity and facilities, we remain well placed to take advantage of further appropriate acquisition opportunities as they are identified.pensionsAt 31 December 2012 the Group pension deficit under IAS 19, net of deferred tax, has increased to £77.8 million (2011: £42.2 million): £million20122011Defined benefit obligation799.3695.0Scheme assets(698.2)(638.8)Deferred tax thereon(23.3)(14.0)Net deficit77.842.2With the benefit of additional employer cash contributions significantly in excess of the Income Statement charge and an investment portfolio that out-performed expectations in the period, the value of Scheme assets increased by £59.4 million during the year after allowing for benefits paid. However, corporate bond yields, which are used to discount Scheme liabilities, have again fallen significantly during the year. As a result, the value of benefit obligations has increased by more than the increase in the value of Scheme assets.interserve annual report 2012 business revieW Financial revieW 27 overvieW governance business revieW Financial statements overvieW DefineD benefit liabilities anD funDingThe 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 was completed during the year with an assessed actuarial deficit of £150 million. A new programme of deficit recovery payments was also agreed with the Trustee, comprising a £55 million contribution of PFI assets (which completed in January 2013) and annual recovery payments of £12 million per annum, indexed each year until 2019. These new cash contribution levels, reduced from the current £23 million per annum, make available an additional £11 million of cash flow per annum to reinvest in operational activities.investment risksScheme 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 2012, 45 per cent of the Scheme assets were invested in performance-seeking assets (2011: 44 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.28 interserve annual report 2012 business revieW financial revieW£42.2m£5.8mcurrent year service costDec 2011Dec 2012£30.8m£5.8mcash contributions£125.4mincrease in liabilities£49.7mreturn on assetstax impact of movements£77.8m£0m-£20m-£40m-£60m-£80m-£100m-£120m-£140m£9.3m IAs 19 AssumptIons And sensItIvItIesAssumptions 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 principal sensitivities to the assumptions made with regard to the balance sheet deficit are as follows:Assumption adoptedSensitivityIndicative change in liabilities20122011Key financialassumptionsDiscount rate4.4%4.8%+/- 0.5%-/+ 8%-/+ £64mRPI / CPI3.0% / 2.3%3.1% / 2.1%+/- 0.5%+/- 6%+/- £47mReal salary increases0.0%- 0.5%0.75%- 1.5%+/- 0.5%+/- 0.2%+/- £1mlife expectancy (years)Current pensioners1Men87.386.0Women89.387.9Future pensioners2+ 1 year+3%+24mMen89.187.8Women90.989.11Life expectancy of a current pensioner aged 65.2Life expectancy at age 65 for an employee currently aged 45.The Group will apply the new accounting standard, IAS 19R Employee benefits from 1 January 2013. As a result, when we publish results for 2013, comparative numbers for 2012 and earlier years will be restated to be on a consistent basis. Going forward, scheme administration expenses will be expensed within operating profit (they are currently included in the return on scheme assets disclosed within interest) and the expected return on scheme assets will be accounted for at the lower liability discount rate (equivalent to an AA corporate bond yield). The combined impact of this restatement on 2012 is currently expected to be a reduction in the published Headline EPS of 1.9 pence. There will be no impact on the disclosed obligation, asset, balance sheet or cash flow. InvestmentsThe credit in the Income Statement relating to the performance of the Group’s share of the equity portfolio is analysed as follows:£million20122011Share of operating profit8.81.9Net finance credit0.97.5Taxation(3.1)(3.4)Share of profit included in Group Total Operating Profit6.66.0 With the majority of the investment portfolio having been disposed of by, or shortly after, the balance sheet date, we anticipate significantly lower levels of investment return in 2013 onwards. However, this reduction in investment return should be at least partially offset by bank interest on the £119 million of cash raised from the disposals, a return on the additional £55 million of pension scheme assets and/or returns from businesses acquired using these proceeds.treAsury rIsk mAnAgementWe 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 riskWe seek to maintain sufficient facilities to ensure access to funding for our current and anticipated future requirements, determined from budgets and medium-term plans.Under our new bank facilities signed in February 2012, we have access to committed syndicated revolving credit facilities totalling £150 million until February 2017 and circa £95 million of various bilateral agreements which expire between February 2015 and February 2016.market price riskThe 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.Interserve AnnuAl report 2012 busIness revIeW FInAncIAl revIeW 29 overvIeW governAnce busIness revIeW FInAncIAl stAtements overvIeW Foreign currency riskTransactional currency translationThe 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.Consolidation currency translationWe 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 2011 consolidated financial statements, has led to an decrease in consolidated net assets of £8.4 million (2011: £8.0 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 circa £245 million until a range of dates that extend beyond at least 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.30 Interserve AnnuAl report 2012 busIness revIeW FInAncIAl revIeW Interserve AnnuAl report 2012 busIness revIeW FInAncIAl revIeW 31 overvIeW governAnce busIness revIeW FInAncIAl stAtements overvIeWturnIng WAste Into reneWed WAterWAste WAter treAtmentGulf Contracting Company (GCC), an Interserve associate company, helped tackle one of Qatar’s major environmental challenges by turning sewage from its accommodation camps into renewed water.Increasing population and rapid development have placed strains on a country with one of the world’s lowest levels of rainfall. Using technology developed by Canadian company Bionest, GCC is revolutionising the supply of water for itself and its clients.Bionest has been developing waste water purification technology over the last 14 years and has installed more than 18,000 units across the world. This biological system requires minimal sludge removal – i.e. once a year, rather than several times per day. The system produces no odour and can be installed either above or below ground. Application of the technology has been so successful in Qatar that we have now supplied it to Oman, the UAE, Bahrain and India through our associate companies in these countries.This sustainable solution to waste water treatment is being transferred to other markets where promotion of good governance and socially responsible practice showcase Interserve’s commitment to sustainability.IngenuIty At Work Sustainability is an integral part of what we do as a company and how we fulfil our commitments to our shareholders, customers, employees and the communities in which we live and work. To manage risk and increase our opportunities for profitable growth, we recognise the need to put sustainability at the forefront of our decision-making as a business.During 2012 we have been working to accelerate our activities in this area, bringing renewed impetus to ensure we deliver a far-reaching and effective sustainability strategy. In order to build and grow our company there is an implicit need to support a sustainable environment, whether natural or social, wherever we operate. In March 2013 we will launch our new sustainability plan called SustainAbilities which builds on our progress to date, but also accelerates our ability to show increasing leadership in this area. Visit www.interserve.com/sustainabilities for more information.SustainAbilities is based around the management of four capitals: Natural, Social, Knowledge and Financial. Natural Capital – the stock of natural resources that enable the earth and everyone on it to exist - from drinking water to breathable air, to sources of energy and raw materials. We have a significant impact, and indeed rely on these resources, and we are committed to take action to protect them.Social Capital – this is the stock of social connections, benefits, roles and networks that enable societies to function and thrive. This is clearly important to us and employment opportunities, trust, belonging, a sense of place, wellbeing, health and education are major areas of focus.Knowledge Capital – this is the stock of skills, know-how and experience possessed by society. Here we will develop apprenticeships and graduate training schemes, support our employees and encourage all our stakeholders to contribute to a more sustainable world.Financial Capital – by taking steps to protect and enhance natural, social and knowledge capital, we will improve our ability to manage financial capital to create financial growth. 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Allia is a charitable organisation that creates opportunities for people to invest their money for social benefit. We are helping Allia deliver its vision to provide an important business innovation centre in Cambridge, while sharing their desire to grow businesses that benefit the community and the environment.We have worked closely with the charity over two years, funding a planning application and enabling the charity to develop and deliver the project. The unique design, to match the expectations of changing occupiers and the requirements of funders, now has full planning consent, and building has started. Through this scheme Allia will create employment and business opportunities for the local community and the centre will provide 35,000 sq ft of affordable mixed-office and workshop units and open-plan space for those wanting to start up or expand a social or environmental business.iNGeNuity at wOrKwOrKiNG tO SuppOrt buSiNeSS iNNOvatiON32 iNterServe aNNual repOrt 2012 buSiNeSS review SuStaiNability review SustainAbilities sets out our ambitious targets in the following five areas: 1. Create places that benefit people2. Deliver public service in the public interest3. Build more skills and more opportunities 4. Generate a positive environmental impact5. Deliver sustainable growthOur new plan includes 15 distinct goals, with clear deliverables against each one, all aimed at supporting these outcomes.While 2012 has been a year of development as we define our ongoing sustainability strategy, we also made good progress against our existing plans. In 2013 we will embed our strategy throughout the organisation, benchmarking through measurement and collating data to ensure we manage and track progress against our ambitious plans.What follows is an outline of how we performed in 2012, set against each of the four capitals that will define our area of focus going forward.Natural CapitalWe aim to provide a positive environmental impact by moving beyond compliance towards a positive and restorative contribution to the environment through each of our projects.In addition to our corporate responsibility 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. It also enables us to reduce our customers’ costs and their impact on the environment. During the year we completed two award-winning schools built to the Passivhaus standard – the highest in thermal efficiency. Interserve was the first company to build a school in the UK to this standard, reflecting our emphasis on innovation in design.We have used a spread of indicators relevant to each of our operating companies to monitor environmental performance. The following core impacts are identified for the Group as a whole:• Greenhouse (CO2) 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.We collect data in our wholly-controlled UK operations, based around our fixed office locations and the operations we support. This 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.During the year we achieved CEMARS (Certified Emissions Measurement and Reduction Scheme) accreditation for our carbon emissions reporting. This provides certification against the standard ISO14064 Part 1&3:2006 and covers our UK emissions for 2011. 2011 data has been restated using the certified figures.For 2012 our total greenhouse gas emissions were 37,702 tonnes CO2e, marginally increased from 37,555 tonnes recorded for 2011. The emissions can be broken down as 76 per cent Scope 1* (28,608 tonnes), 15 per cent Scope 2* (5,770 tonnes) and 9 per cent Scope 3* (3,324 tonnes). The increase in emissions arises from increased energy use in our fixed site locations influenced by an increase in the number of properties and the effect of cold weather at the end of the year.Measure2012 target2012 outcome/2013 targetReduce carbon emissions from energy used at UK fixed site locations (tonnes CO2e per £million UK revenue) by 2.5% per annum 3.25 tonnes/£m3.32 tonnes/£m 3.24 tonnes/£mReduce carbon emissions from fuel used in UK fleet and cars (tonnes CO2e per £million UK revenue) by 2.5% per annum12.45 tonnes/£m12.18 tonnes/£m 11.88 tonnes/£mReduce water consumption at UK fixed site locations (m3 water used per £million UK revenue) by 2% per annum 22.71m3/£m20.38m3/£m 19.97m3/£mReduce waste generated at UK fixed site locations (kg of waste generated per UK employee) by 2% per annum41.02kg/employee40.74kg/employee 39.93kg/employee*Scope 1: All direct greenhouse gas emissions.*Scope 2: Indirect greenhouse gas emissions from consumption of purchased electricity, heat or steam.* Scope 3: Other indirect emissions, such as the extraction and production of purchased materials and fuels, transport-related activities in vehicles not owned or controlled by Interserve, electricity-related activities not covered in Scope 2.iNterServe aNNual repOrt 2012 buSiNeSS review SuStaiNability review 33 Overview GOverNaNCe buSiNeSS review FiNaNCial StatemeNtS Overview SOCial CapitalOur business gives us the opportunity to provide places that benefit people and to deliver public service in the public interest. This includes making places and delivering services that enhance people’s lives, that they value, that contribute to their wellbeing and that are designed and built for the future. We also provide our employees with the opportunity to experience a safe and healthy workplace. The services we provide have a wider social impact – whether they are helping schools and hospitals to operate more efficiently, improving the built environment or working to get the long-term unemployed back into work.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 consultationWe are committed to involving our people in issues affecting them as employees and keep them informed of all relevant factors concerning the Group’s performance, strategy, brand, charitable activities and other issues. We achieve this through formal and informal briefings, our Group publications and our widely-used 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 opinion survey to help us understand how our employees view working in Interserve and what improvements we are able to make at a local or central level.Charitable givingIn early 2012 a group of senior managers 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 operate, enlisting the skills, capabilities, resources and enthusiasm of our employees. Ambassadors from across the business promote the aims of the Foundation and help publicise local projects, in particular through the Give a Day of Your Time initiative. The Foundation was launched with the completion of an ambitious project to construct a learning centre in Chennai, India. Interserve’s Big Book Drop initiative resulted in the donation of 50,000 books in support of Literacy for Life, a programme aimed at improving the life chances of disadvantaged children in the territories where we work. During the year grants were awarded to a range of projects that offer support to local communities, such as the Rally Homeless Project, Nottingham; Swansea Community Boat Project; Abergavenny Food Bank, Monmouthshire and the Coolaroo Literacy Program in Victoria, Australia.We continued to support Help for Heroes, who provide practical support to those wounded in UK military service. Our three-year partnership with Help for Heroes has currently raised a total of over £289,000. The total raised in 2012 was over £149,000, with staff taking part in a wide range of fundraising activities. A team took part in the Yukon River Quest 2012, contributing over £28,500 to the charity and a further £88,000 was raised at a charity ball.Beyond our chosen charity, Help for Heroes, we involve ourselves in other local and national charities with many of our employees supporting causes that are close to them personally or to our clients. Charitable activities initiated by employees have raised some £100,000 during the year for Together for Short Lives, a UK charity for children with life-threatening conditions, with a further £54,366 donated to smaller charities across the business, including our annual corporate donation to Help for Heroes.Interserve has been successfully assessed against BS 8903:2010, the world’s first standard for sustainable procurement. Critical areas such as supporting local supply chains, carbon measurement and energy conservation programmes are set challenging targets within the accreditation, and our Support Services procurement team was awarded the Gold Standard with an overall classification described as “approaching cutting edge”. iNGeNuity at wOrKGOld StaNdard FOr SuStaiNable prOCuremeNt34 iNterServe aNNual repOrt 2012 buSiNeSS review SuStaiNability review employee share schemesWe operate two all-employee HMRC-approved share schemes in order to support our Employer of Choice goal and to encourage our employees to share in the future of the Group. In our Sharesave Scheme employees save small amounts each month which can be then used to purchase company shares at a discount to the market price. In our Share Incentive Plan (SIP) employees can purchase company shares through lump-sum or monthly payments which are deducted from their salaries before income tax and national insurance liabilities are assessed. diversity Diversity in all its forms is fundamental to our business and we have adopted a Company-wide Diversity Policy to promote the principles of inclusion. 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.Our policy supports the fundamental belief that all our employees, including potential recruits, are equal regardless of gender, race, disability, sexual orientation, age, religion, religious belief or any other reason that might be assumed to limit their contribution or potential. Once someone is part of the Group they have the chance to contribute and develop their career in whatever way their abilities and the opportunities we can offer them allow.KNOwledGe CapitalWe understand that by providing more skills and opportunities for employees and stakeholders they will have opportunities for self-improvement, become more productive and more able to make a positive contribution.This is reflected in our focus on training and development, contributing to the education and career development of our workforce, as well as through our emphasis on local supply chains and training offered to customers. Interserve is now also a major provider in the Welfare to Work Services market, helping to train and place into jobs.Career development As a broad service provider, a principal differentiator for us is the quality of our people with the skills, knowledge and attitudes that they demonstrate every day, making a real difference to our customers’ needs. This industry-leading approach to learning and development was recognised when winning the British Institute of Facilities Management (BIFM) award for Learning and Career Development.Interserve has career development programmes throughout all levels of the Group. We pioneered the Facilities Management NVQ and have well-established apprenticeship programmes, literacy, numeracy and English language courses, nationally recognised certificates, awards and diplomas and a number of other professionally accredited programmes through organisations such as the Royal Institute of Chartered Surveyors (RICS) and the BIFM.Over the course of the year our people received more than 10,200 days’ worth of training - in addition to external courses and self-directed learning. FiNaNCial CapitalWe are focussed on delivering sustainable growth, building a profitable business that integrates the true costs into the business and delivers sustained value for all.By taking substantial steps towards the protection of natural, social and knowledge capital, we will enhance our ability to manage financial capital in ways that will generate a more profitable business through growth.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 nurturing the local supply chain and creating sustainable employment and training opportunities for local people.Details of the Company’s financial performance are well documented elsewhere in this report, but as part of our new sustainability plans we are looking at how best to integrate our financial and sustainability reporting in the future.equal OppOrtuNitieSInterserve is committed to eliminating discrimination among our workforce in order that we may offer employees an environment where there is no unlawful discrimination and all decisions are based on merit. Our policy is to promote equality and fairness for all in our employment. The Group aims to ensure that no job applicant or employee receives less favourable treatment or is disadvantaged by imposed conditions or requirements that cannot be shown to be justifiable, on the grounds of gender (including sex, marital or civil partner status, gender reassignment); race (including ethnic origin, colour, nationality and national origin); disability; sexual orientation; religion or belief; age; and pregnancy and maternity.We take every step to ensure working environments are free from harassment and bullying, where all individuals are treated equally and fairly and that selection for employment, promotion, training or any other benefit will be taken solely on merit and ability against job-based criteria. We avoid discrimination in working conditions and terms of employment and are committed to making reasonable adjustments for disabled employees. We oppose all forms of unlawful and unfair discrimination.iNterServe aNNual repOrt 2012 buSiNeSS review SuStaiNability review 35 Overview GOverNaNCe buSiNeSS review FiNaNCial StatemeNtS Overview HealtH and safetyOur ‘Aim to be Accident Free’ campaign is adopted by all Group companies and provides a focus on the individual behaviour that is critical to the effective implementation of our well-established safety management systems.During 2012 we again recorded no fatalities to our employees, contractors or members of the publicWe have restated our targets to include data from associates and to reflect changes in the reporting criteria under Reporting of Injuries, Diseases and Dangerous Occurrences (RIDDOR). Against the revised target of 240, we recorded a reportable Accident Incident Rate (AIR) of 239.For the first time we also recorded an AIR for all Lost Time Accidents and have set targets to reduce this at a similar rate.36 Interserve annual report 2012 BusIness revIeW sustaInaBIlIty revIeWOur new £2 million state-of-the-art waste recycling facility in the UK at Aldridge plays a key role in assisting the region’s councils, commercial and construction sectors in meeting their landfill reduction targets.The facility was built by Interserve and processes approximately 250,000 tonnes of waste material per year - returning a range of recycled products to the market. In addition, enhanced mechanisation over the three-acre site will enable the new plant to recycle a highly impressive 95 per cent of all the material it will process.IngenuIty at WorkWaste recyclIng facIlIty Interserve AnnuAl report 2012 BusIness revIeW sustAInABIlIty revIeW 37Within our Support Services division alone, over the last year 28 young people were given an opportunity to join our business as apprentices in several programmes including business administration, grounds maintenance, electrical and mechanical maintenance and customer service.Abi pullin (pictured) was a bar manager before joining Interserve on an Advanced Electro-Technical Maintenance apprenticeship at the Royal Victoria Infirmary in Newcastle. Abi had also completed a plumbing course at college. “I attend college one day a week and the other four days are spent working in the hospital. My role is based around maintaining the buildings and completing jobs as requested by the NHS. I have a very supportive team around me. Interserve is a good company to work for and I would definitely tell anyone interested in starting an Apprenticeship with Interserve to ‘Go for it!’” IngenuIty At Work2012 target2012 outcome2013 targetInjuries to employees, contractors or members of the publicZeroZeroZero fatal injuries to employees, contractors or members of the publicHalve our all-labour AIR by 2020 from a 2010 base240239 LTA AIR 524224 All-labour LTA AIR target: 489Major injury rate<7065Maintain fatal and major injury rate below 70Executive Board directors’ site visits per annum12Total: 74 Average: 12.312 per Executive Board memberAll employees with high occupational risk to their health to be engaged with the health surveillance programme 90%80%90%All site managers and supervisors to receive appropriate health and safety training90%90%90%All employees to work within safety management systems registered to Occupational Health and Safety Assessment Services (OHSAS) 18001>95%>97%95%The Accident Incidence Rate (AIR) is based on the number of injuries meeting the RIDDOR reporting requirements per 100,000 workforce.20122011201020092008All labour AIR (subsidiaries only)298310377344429AIR (including associates)239260326Not applicableNot applicabletarget240341310386373Lost Time Accidents (LTA) Incident Rate524ApprentIceshIps overvIeW governAnce BusIness revIeW fInAncIAl stAtements overvIeW8504 Interserve AR 2013 Sustainability Summary_8 tp.indd 3719/03/2013 14:58 •SafeContractor•ISO22000:2005FoodSafetyManagementSystem•ISO14001:2004EnvironmentalManagementSystem•ISO9001:2008QualityManagementSystem•PAS99:2006IntegratedManagementSystem•OHSAS18001:2007OccupationalHealthandSafetyManagementSystem•CEMARS(CertifiedEmissionsMeasurementandReductionScheme)ISO14064-1:2006Greenhousegasemissions•InvestorsinPeople•InvestorsinDiversity•ContractorsHealthandSafety(CHAS)AssessmentScheme•AchillesUVDBVerify•Constructionline•EFQMRecognisedforExcellence5starOURMARkEtS CERTIFICATION / ACCREDITATION• Safe Contractor• ISO 22000: 2005 Food Safety Management System• ISO 14001: 2004 Environmental Management System• ISO 9001: 2008 Quality Management System• PAS99: 2006 Integrated Management System• OHSAS 18001: 2007 Occupational Health and Safety Management System• CEMARS (Certified Emissions Measurement and Reduction Scheme) ISO 14064-1:2006 Greenhouse gas emissions• Investors in People• Investors in Diversity• Contractors Health and Safety (CHAS) Assessment Scheme• Achilles UVDB Verify• Constructionline• EFQM Recognised for Excellence 5 star SOCIAlCOnSIDERAtE COnStRUCtORS SCHEME Silver Award: Ripon Flood Alleviation Scheme, north YorkshireCOnSIDERAtE COnStRUCtORS SCHEME Silver Award: Shaldon and Ringmore tidal Defence Scheme, DevonCOnSIDERAtE COnStRUCtORS SCHEME Silver Award: John Hunt Primary School, newarkCOnSIDERAtE COnStRUCtORS SCHEME Bronze Award: leeds West Academy, West YorkshireCOnSIDERAtE COnStRUCtORS SCHEME Bronze Award: Bradgate Mental Health Unit, leicesterRoSPA AWARDS President’s Award: Interserve ConstructionBUIlt In QUAlItY AWARDS Winner: Healthcare Category, Good Hope Hospital, Sutton ColdfieldlOCAl AUtHORItY BUIlDInG COntROl (lABC) nORtH EASt AnD YORkSHIRE AWARDS Best Community Building: East Riding Community HospitallOCAl AUtHORItY BUIlDInG COntROl (lABC) nORtH EASt AnD YORkSHIRE AWARDS Best Project: East Riding Community HospitalBIFM Highly Commended – Service Provider: MOD single-living accommodation, DevonportOUR MARkEtSAWARDSIn 2012 our awards included:RECOGNITIONOUR COntRIBUtORS tO tHE SOCIAl, ECOnOMIC AnD EnVIROnMEntAl WEllBEInG OF tHE COMMUnItIES AnD SECtORS In WHICH WE OPERAtE ARE REGUlARlY RECOGnISED tHROUGH AWARDS AnD ACCREDItAtIOnS.38 IntERSERVE AnnUAl REPORt 2012 BUSInESS REVIEW SUStAInABIlItY REVIEW NaturalCHARTERED InSTITUTE OF BUILDIng (CIOB) Project of the year: Leicester Passivhaus officeSaNCtuary HeritaGe award Runner-up: Horse Guards restoration, london rOyal iNStitute OF CHartered SurveyOrS (RICS) AWARDS Highly Commended in Design and Innovation category: Leicester Passivhaus officeeaSt midlaNdS prOperty awardS Sustainability Project of the year: Leicester Passivhaus officeGreeN apple eNvirONmeNtal awardS Building and Construction (green Practices category): Leicester Passivhaus officeiCe eaSt OF eNGlaNd merit awardS Merit – Sustainability: Minsmere Flood Risk Management, SuffolkiCe eaSt OF eNGlaNd merit awardS Merit – Physical Achievement: Minsmere Flood Risk Management, SuffolkiCe eaSt OF eNGlaNd merit awardS Merit – Team Achievement: Minsmere Flood Risk Management, SuffolkiCe eaSt OF eNGlaNd merit awardS Merit – Technical Excellence and Innovation: Minsmere Flood Risk Management, Suffolk KNOwledGebritiSH quality FOuNdatiON 2012 UK Excellence Award: interserve ConstructionbritiSH quality FOuNdatiON 2012 Achievement Award – Leadership: interserve ConstructionweSt midlaNdS CONStruCtiNG exCelleNCe awardS Finalist – Project of the year: Sandwell College, west bromwichlabC NOrtH eaSt aNd yOrKSHire awardS Best Educational Building: Vocational Centre, Driffield School and Sixth Form College, east yorkshireBRITISH InSTITUTE OF FACILITIES MAnAgEMEnT (BIFM) Award for Learning and Career DevelopmentyOrKSHire aNd Humber CONStruCtiON Best Practice award: Richmond Hill Primary School (Passivhaus), Leeds CONStruCtiON NewS awardS Finalist – £10-£50 million projects category: rowley regis Campus, west bromwich Interserve is a member of the FTSE4Good and Kempen Social Responsibility indices. Overview GOverNaNCe buSiNeSS review FiNaNCial StatemeNtS OverviewiNterServe aNNual repOrt 2012 buSiNeSS review SUSTAInABILITy REVIEW 39 1997 he joined Building & Property Group as Head of Business Development. Adrian holds a BA (Hons) in Political Theory and Institutions from Liverpool University and 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 HaywoodGroup Finance direcTorTim joined Interserve as Group Finance Director in November 2010 and was previously Finance Director of St Modwen Properties. Earlier roles include 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 danceexecuTive direcTorSteven is Managing Director of RMD Kwikform, the Group’s Equipment Services division. He was appointed to the Board of Interserve in January 2008. Steven began his career with Schlumberger in the Middle East in the oilfield sector, after which he completed his MBA and moved into manufacturing. He then served 12 years with Coats Viyella where he held a variety of general management positions and was based in Germany, Portugal, South America and the UK. He subsequently worked for four years with ScottishPower, executing a number of M&A transactions including the disposal of utility subsidiaries in Australia and the UK, and the flotation of Thus. Most recently he spent three years with ERICO heading divisions supplying the international construction market with couplers, fixing and fastening systems, before joining Interserve in 2004. Steven is a Chartered Director and a member of the Board of Examiners at the Institute of Directors. He holds an MA in Natural Sciences from Oxford University and an MBA from London Business School.1. norman Blackwell (lord Blackwell) 1 3cHairmanNorman was appointed Chairman of Interserve in January 2006 having joined the Group as a non-executive director the previous September. He is a non-executive director of Lloyds Banking Group and was appointed Chairman of its insurance subsidiary (Scottish Widows Group) in September 2012. He is also a non-executive director of Halma and a non-executive board member OFCOM and of the Centre for Policy Studies. A former partner of McKinsey & Company, Norman was Head of the Prime Minister’s Policy Unit from 1995 to 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 Standard Life, SEGRO and Dixons Group, Non-Executive Board Member of the Office of Fair Trading and Commissioner of Postcomm. Norman also chairs the Nomination Committee.2. adrian rinGroSe 1cHieF execuTiveAdrian is Chief Executive of Interserve. He is responsible for developing and implementing the Group’s business strategy and for ensuring that the right people are in place at the head of Interserve’s operational divisions with the necessary support to achieve their targets. Adrian joined Interserve in December 2000 with the acquisition of the Building & Property Group. He was appointed Business Development Director of Interservefm and a year later was promoted to Managing Director. In January 2002 he joined the Board of Interserve, becoming Deputy Chief Executive in January 2003 before assuming the role fully the following July. Adrian began his career as a market researcher and then business analyst with London Electricity. Over the following nine years with the company he progressed rapidly through a variety of roles including the commercial management of subsidiaries in power distribution, mechanical and electrical contracting and fleet management. In 5. Bruce melizanexecuTive direcTorBruce is Managing Director of Interserve’s Support Services division. He was appointed to the Board of Interserve in January 2008. Bruce joined Interserve in 2003 and was Managing Director of Interserve Investments before being appointed to head Interserve Facilities Management in 2006. He has been in the outsourcing industry for nearly 20 years and has held a wide variety of roles ranging from direct delivery through to sales, marketing and general management. Previous organisations include Amey, Mowlem, Schlumberger and TYE Manufacturing both in the UK and globally. Bruce holds an MBA from Cranfield School of Management and a BSc in Electrical Engineering from Queen’s University, Canada. He is a member of the Business Services Association Council and a Trustee of the Safer London Foundation.6. david paTerSonexecuTive direcTorDavid is Managing Director of Interserve’s Construction division and was appointed to the Board of Interserve in January 2011. David 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 and then, in 2009, of the international division. He was involved in the early design-build-finance-operate road schemes, forerunners of the PFI approach, and also led the development of strategy for Construction’s UK business. David is a Chartered Civil Engineer and worked in senior management positions for Costain and Birse prior to joining Interserve (then Tilbury Douglas). His early career included working on the construction of the M25 and the Conwy Crossing. David will retire from the Board on 30 April 2013.7. douGie SuTHerlandexecuTive direcTorDougie is Managing Director of Interserve Developments. He was appointed to the Board of Interserve in January 2011. 1 Member of the Nomination Committee I 2 Member of the Audit Committee I 3 Member of the Remuneration Committee I 4 Senior Independent Director40 inTerServe annual reporT 2012 Governance direcTorSdirecTorS 9. Les CuLLen 1 2 3nOn-exeCutive DireCtOrLes 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. Les will hand over chairmanship of the Audit Committee to Anne Fahy and become Senior Independent Director at the conclusion of the AGM.10. Keith LuDeman 1 2 3nOn-exeCutive DireCtOrKeith was appointed as non-executive director of Interserve in January 2011. He is also non-executive Chairman of Bristol Water, and a non-executive director of Network Rail, Network Rail Infrastructure and Network Rail Consulting. Keith has many years’ experience in consulting 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 years working on transport policy in Hong Kong.Dougie joined Interserve in September 2006 from 3i, where he was a partner in its infrastructure team. He 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. From 1999 to 2004 Dougie was Managing Director of Amey Ventures where he was responsible for a wide portfolio of bids and investments in the education, defence, rail and roads sectors. He then moved to Lend Lease where he was Managing Director of its PFI hospitals and schools business before joining 3i. Dougie has a BSc (Hons) from Edinburgh and an MBA from Cranfield School of Management. Following the retirement of David Paterson on 30 April 2013, Dougie will also assume responsibility for Construction’s UK operations.8. DaviD trapneLL 1 2 3 4nOn-exeCutive DireCtOrDavid, who has extensive international experience in manufacturing, distribution and installation of building materials gained in positions in the USA and Europe, was appointed as non-executive director of Interserve in July 2003 and became Senior Independent Director in May 2011. Previous roles include a non-executive directorship at Newman Tonks and Chairman of the Audit Committee at The Royal Mint, Group Chief Executive of Marley and Vice President of the Construction Products Association. David will retire from the Board at the conclusion of the AGM. 11. DaviD thOrpe 1 2 3nOn-exeCutive DireCtOrDavid joined Interserve as a non-executive director in January 2009. He is non-executive Chairman of The Innovation 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 Arena Leisure, VT Group, Anite and Tunstall Holdings. David is a County Councillor and the Cabinet Champion for Change for Gloucestershire County Council and a Liveryman of the Worshipful Company of Information Technologists. David chairs the Remuneration Committee.12. anne FahY 1 2 3nOn-exeCutive DireCtOrAnne was appointed as non-executive director of Interserve and as a member of the Audit, Nomination and Remuneration Committees on 1 January 2013. She is also Chief Financial Officer of BP’s Global Fuels marketing business which trades in 50 countries. During her time at BP Anne has gained experience of global business and knowledge of the developing markets including China, UAE and Brazil, as well as a deep understanding of internal control, risk management and compliance. Anne is a Fellow of the Institute of Chartered Accountants in Ireland having worked at KPMG in Ireland and Australia prior to joining BP in 1988. Anne will become chair of the Audit Committee at the conclusion of the AGM.1 Member of the Nomination Committee I 2 Member of the Audit Committee I 3 Member of the Remuneration Committee I 4 Senior Independent Director Overview gOvernanCe business review FinanCiaL statementsinterserve annuaL repOrt 2012 gOvernanCe DireCtOrs 41 Overview1 47102581136912 42 Interserve AnnuAl report 2012 GovernAnCe dIreCtors’ reportdIreCtors’ reportThe 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 4 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 10 to 39 and the Corporate Governance report on pages 48 to 55 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 69 and 70, respectively, of this Annual Report.Group results And dIvIdendsFinancial reportingThe Group’s Consolidated Income Statement set out on page 72 shows an increase in Group profit before taxation to £182.9 million (2011: £67.1 million). The detailed results of the Group are given in the financial statements on pages 72 to 117 and further comments on divisional results are given in the Operational Review on pages 15 to 20.Since the balance sheet date, the Company has entered into an agreement to acquire Willbros Middle East Limited and its subsidiaries. In addition, at a general meeting of the Company held on 7 January 2013, shareholders approved the disposal of all of the Group’s interests in a portfolio of 19 PFI investments to the Interserve Pension Scheme. Further details are included in note 34 to the financial statements on page 117. There have been no further post balance sheet events that require disclosure or adjustment in the financial statements.dividendsAn interim dividend of 6.4p per 10p ordinary share (2011: 6.0p) was paid on 24 October 2012. The directors recommend a final dividend of 14.1p per 10p ordinary share, making a total distribution for the year ended 31 December 2012 of 20.5p per 10p ordinary share (2011: 19.0p). Subject to approval of shareholders at the Annual General Meeting (“AGM”) on 13 May 2013, the final dividend will be paid on 20 May 2013 to shareholders appearing on the register at the close of business on 5 April 2013. The shares will be quoted ex-dividend on 3 April 2013.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 139.EES Trustees International Limited, the trustee of the Interserve Employee Benefit Trust during the period under review (the “Trust”), waived its right to receive a dividend over 1,072,720 shares held by the Trust in the name of Computershare Nominees (Channel Islands) Limited (formerly held in the name of Greenwood Nominees Limited) in respect of the dividend paid in May 2012 (June 2011: 1,089,702 shares) and 1,057,217 shares in respect of the dividend paid in October 2012 (October 2011: 1,083,263 shares).shAre CApItAlGeneralThe Company’s issued share capital as at 31 December 2012 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.During the year 929,883 shares were issued fully paid to participants of the Performance Share Plan on the vesting of awards granted in March 2009. A further 112,710 shares were issued fully paid to a participant of the 2002 Executive Share Option Scheme. As a result of the foregoing allotments, the Company’s issued share capital at the end of the year stood at 126,846,939 (2011: 125,804,346) ordinary shares of 10p each (£12,684,693.90) (2011: £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 2012 are set out in notes 27 and 29 to the financial statements on pages 108 and 109 respectively.Issue of sharesSection 551 of the Companies Act 2006 (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 16 May 2012. The AGM authorities were used in 2012 only in relation to the issue of shares pursuant to the Performance Share Plan and the 2002 Executive Share Option Scheme as described above.In accordance with the guidelines issued by the Association of British Insurers (the “ABI”), the directors propose Resolution 17 set out in the Notice of AGM to renew the authority granted to them at the 2012 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 18 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”). overview governance business review financial statementsInterserve AnnuAl report 2012 GovernAnCe dIreCtors’ report 43Shareholders 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 percentages of shares issued by the Company on a non-pre-emptive basis in 2012 and in the period 2010 to 2012 pursuant to employee share schemes (calculated by reference to the Company’s closing issued share capital at 31 December 2012), were 0.82 per cent and 1.17 per cent respectively.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 17 and 18 although they consider their renewal appropriate in order to retain maximum flexibility to take advantage of business opportunities as they arise.repurchase of sharesThe Company has authority under a shareholders’ resolution passed at the 2012 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 13 May 2013. No shares have been repurchased by the Company under the authority granted at the 2012 AGM. Resolution 19 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 shAresGeneralThe 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.votingSubject 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 2013 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 44 Interserve AnnuAl report 2012 GovernAnCe dIreCtors’ reportbeen 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.General meetingsNo 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.dividendsSubject 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.liquidationIf 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.ModIFICAtIon oF rIGhtsIf 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. overview governance business review financial statementsInterserve AnnuAl report 2012 GovernAnCe dIreCtors’ report 45trAnsFer oF shAresThere 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 dIreCtorsThe 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 51 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.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.dIreCtorAte, dIreCtors’ Interests And IndeMnItIesThe following have been directors throughout the year:Lord Blackwell* (Group Chairman)Adrian Ringrose (Chief Executive)Les Cullen*Steven DanceTim HaywoodKeith Ludeman*Bruce MelizanDavid PatersonDougie SutherlandDavid Thorpe*David Trapnell* (Senior Independent Director)*Non-executive director.Since the year end, Anne Fahy was appointed on 1 January 2013 as a non-executive director. David Paterson will retire from the Board on 30 April 2013. David Trapnell will also retire from the Board following the conclusion of the AGM and will be succeeded as Senior Independent Director by Les Cullen, who will in turn be succeeded as Chair of the Audit Committee by Anne Fahy.Under the Company’s Articles of Association, any director appointed by the Board since the last AGM may only hold office until the date of the next AGM, at which time that director must stand for election by shareholders. Anne Fahy will therefore be standing for election at the AGM on 13 May 2013.The directors acknowledge the Corporate Governance Code provision which encourages board members to stand for annual re-election at the AGM and, as last year, each director (save for David Paterson and David Trapnell) will submit himself for re-election at this year’s AGM.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 66 to 68 of this Annual Report and Financial Statements.Between the year end and the date of this report, Steven Dance, Adrian Ringrose and Dougie Sutherland have purchased an additional 57 shares each and David Paterson has purchased 56 shares pursuant to the Interserve Share Incentive Plan 2009. Further details are disclosed on page 68 in the Directors’ Remuneration Report. There have been no further changes in the shareholdings of the directors who held office at the year end.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.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 46 Interserve AnnuAl report 2012 GovernAnCe dIreCtors’ reportindemnity 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 but the indemnity remains in force.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 shAreholdInGsAs at 31 December 2012 the Company had been notified of the following interests in the voting rights over shares, as shown in the table below:Name of holderNumber of ordinary shares% of total voting rightsNature of holdingHenderson Global Investors Ltd9,454,1407.45IndirectMondrian Investment Partners Ltd7,587,5215.98IndirectJPMorgan Asset Management Holdings Inc6,354,3685.01IndirectStandard Life Investments Ltd6,159,1144.86Direct & indirectSageview Capital MGP, LLC5,653,0264.46IndirectPrudential plc group of companies4,634,4073.65DirectBetween the year end and the date of this report, the Company has been notified of the following:• the interest of JPMorgan Asset Management Holdings Inc in the voting rights has increased to 6,492,194 shares (5.12 per cent of total voting rights); and• the interest of Sageview Capital MGP, LLC in the voting rights has decreased to 4,774,780 shares (3.76 per cent of total voting rights).sIGnIFICAnt AGreeMents – ChAnGe oF Control provIsIonsThe 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 detailed 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 donAtIonsCharitable donations made by the Company during the year amounted to £54,366 (2011: £40,610). Details of the beneficiaries of donations are given on page 34 in the charitable giving section of the Sustainability Review.No political donations were made during the period (2011: £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 16) to ensure that the Company acts within the provisions of current UK law when carrying out its normal business activities.CredItor pAyMent polICyIt 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 2012 were 63 days (2011: 82 days). The Company’s trade creditor days at 31 December 2012 (calculated in accordance with the 2006 Act) were 23 days (2011: 19 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. overview governance business review financial statementsInterserve AnnuAl report 2012 GovernAnCe dIreCtors’ report 47AudItorsResolutions 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 auditorsEach person who is a director at the date of approval of this report confirms that:(a) so far as he/she is aware, there is no relevant audit information of which the Company’s auditors are unaware; and(b) he/she has made such enquiries of his/her fellow directors and of the Company’s auditors and has taken such other steps as were required by his/her duty as a director of the Company to exercise due care, skill and diligence in order to make himself/herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.AnnuAl GenerAl MeetInG resolutIonsThe resolutions to be presented at the AGM to be held on 13 May 2013, 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 Approved by the Board of Ruscombe Park directors and signed on Twyford behalf of the Board Reading Berkshire RG10 9JU t bradbury Company Secretary 27 February 2013Cautionary statementThe 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. 48 Interserve AnnuAl report 2012 GovernAnCe CorporAte GovernAnCeCorporAte GovernAnCeDear ShareholderThe Board has a critical role in providing both governance and leadership for Interserve. We take those responsibilities very seriously.Interserve’s success depends on following a clear and robust strategy to deliver continued growth and shareholder value. The Board is confident in the strategy we have developed, and we are continually testing our current and proposed activities against this framework. We aim to set stretching financial objectives while maintaining our prudent risk appetite. In addition the Board has an important role in providing leadership on the values and ethics of the business, and in encouraging innovation and enterprise that provides better solutions for our customers.To perform these roles effectively we believe we need a strong and diverse Board, with an open culture of debate and challenge. All directors are appointed on merit, based on the experience and insights they can bring to the Board as well as their commitment to our values. Our mix of executive and non-executive directors works well for our business, ensuring we have knowledge and accountability around the Board table as well as a range of external experiences. Although there was not a majority of non-executive directors during the period under review, I continue to be satisfied through my own observations and our Board review that the strength and independence of our non-executives and our open style of debate ensures an effective governance check within the Board while maintaining the overall Board size at an optimum level.The Board continues to seek to widen its diversity in all its forms. In making new appointments to the Board an important criterion is assessing the additional range of insights and perspectives that new candidates can contribute to an effective, cohesive and challenging mix of individuals around the Board table. I am delighted that in January we appointed Anne Fahy as a new non-executive director – who brings a wide range of international experience in a major industrial company. Anne will take over the role of Chairman of the Audit Committee from Les Cullen, who will succeed David Trapnell as Senior Independent Director upon his retirement.We will continue to monitor our success in developing the diversity of the Board as part of the annual evaluation of Board effectiveness. The forthcoming AGM will see the retirement of David Trapnell, our Senior Independent Director. David has served on the Board for almost 10 years, providing great wisdom and support throughout. On 30 April David Paterson will also retire from the Board. He has been a huge source of strength in the management of our successful construction business over many years, but fortunately his legacy includes having developed a strong cadre of senior managers who we are confident can carry the business forward. As last year, all other directors who wish to remain in office will seek re-election.lord Blackwell ChairmanlorD BlACKWell CHAIRMAN overview governance business review financial statementsInterserve AnnuAl report 2012 GovernAnCe CorporAte GovernAnCe 49CoMplIAnCe WIth the CodeThe Financial Services Authority (the “FSA”) requires the Company to disclose how it has applied the principles of the UK Corporate Governance Code (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). Procedures have also been put in place to address the new edition of the Code which was published in September 2012 and which applies to reporting periods beginning on or after 1 October 2012.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 2012 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 four non-executive directors plus the Chairman during the period under review. The appointment of Anne Fahy as a non-executive director on 1 January 2013 brings the number of non-executive directors to five until the conclusion of the AGM, whereupon the composition of the Board will revert to four non-executive directors, the Chairman and five executive directors. 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 51.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;• reviewing the Group’s strategic direction, governance, ethics and values;• approving the sale of the Group’s PFI assets and, subject to shareholder approval, the transfer of assets into the pension scheme;• approving the acquisition of BEST, Advantage Healthcare and TOCO;• 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 contract (including joint ventures) and capital expenditure; and• approving the Group’s sustainability plan.board composition The role of the Group Chairman and Chief Executive are split and clearly defined in written terms of reference.the role of the ChairmanThe 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 Group Chairman, assisted by the Company Secretary, sets the agenda for Board meetings and 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 role of the Chief executiveThe Chief Executive bears primary responsibility for the management of the Group and in leading the formulation of and, once set by the Board, implementing strategy. 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 role of the Company secretaryThe 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. 50 Interserve AnnuAl report 2012 GovernAnCe CorporAte GovernAnCenon-executive director independence and appointmentsThe 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 2013 Anne Fahy was appointed as a non-executive director. At the conclusion of the AGM on 13 May 2013 David Trapnell will retire from the Board, Les Cullen will succeed him as Senior Independent Director and Anne Fahy will replace Les Cullen as chair of the Audit Committee.The Senior Independent Director 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 2012 the Board comprised eleven members: the Group Chairman, six executive and four non-executive directors.Meetings 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 below.BoardAudit RemunerationNominationNumber of Meetings15565Lord Blackwell1565L G Cullen15565S L Dance15T P Haywood15K L Ludeman15465D J Paterson15B A Melizan15A M Ringrose155D I Sutherland15D A Thorpe13564D A Trapnell15565The 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. board induction, time commitment and developmentOn appointment, new directors take part in an induction programme arranged by the Company Secretary, which includes training on the duties of a listed company director by the Group’s corporate lawyers, meetings with management and other corporate advisers, and operational site visits.An ongoing programme of site visits, staff meetings and business presentations provides additional opportunities for the Chairman and non-executive directors to visit various operations of the Group and to receive insight and feedback from employees. During the year under review each of the non-executive directors attended at least two seminars and/or other non-executive forums relevant to their role.Development below Board level has been through the Trusted Partner Programme, a Group-wide leadership development programme established to support the ambitious vision of the business. The programme includes topics associated with the new corporate vision, values and SustainAbilities plan. To help achieve the vision, the programme aims to enhance leadership capability as well as strategic relationships across the different businesses within the Group. performance evaluationDuring 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 15 days in addition to the time taken to read Board papers and attendance at four meetings held by the Group Chairman.The Board evaluation was undertaken this year by the Senior Independent Director by means of a structured interview with each director, the Company Secretary, the Group Financial Controller, the Director of Communications and the external audit partner.The results of the review were that the Board remains effective, having generated long-term shareholder value. Corporate governance was considered to be strong, with a high degree of trust and honesty existing between Board members. The non-executive directors were considered to possess the relevant experience required by the Board and provide an appropriate level of constructive challenge.The Audit, Remuneration and Nomination committees also conducted a review of their terms of reference and their performance against them. overview governance business review financial statementsInterserve AnnuAl report 2012 GovernAnCe CorporAte GovernAnCe 51Information and supportIndividual 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. election and re-electionAnne Fahy will submit herself for election by shareholders at the AGM on 13 May 2013. All remaining directors (save for David Paterson and David Trapnell) will submit themselves for re-election at the AGM.Biographical details for each of the directors standing for election or re-election are set out on pages 40 and 41.IndemnitiesAs 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.eXeCutIve boArdThe Executive Board, which, during the year, comprised the executive directors and the Company Secretary, is chaired by the Chief Executive. On 1 January 2013 Ian Renhard and George Franks joined the Executive Board.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 roleThe principal roles of the Audit Committee are to: • review the Group’s consolidated report and accounts and the half-year report and any formal announcements relating to the Group’s financial performance based on the statutory audit or half-yearly review, as the case may be, and other enquiries; • provide an independent overview of the Group’s systems of internal control, risk management and financial reporting processes through the co-ordination and supervision of the scope, quality, independence and effectiveness of the internal and external audit, and other enquiries; and• 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.CompositionThe 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:NameDate of appointment to committeeQualificationsL G Cullen14 November 2005MBA BSc (Hons) FCCA FCTK L Ludeman1 January 2011BA (Hons) MSc DSc (Hon)D A Thorpe1 January 2009CPFAD A Trapnell11 September 2003BSc (Hons)Anne Fahy was appointed to the committee on 1 January 2013.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, Anne Fahy and David Thorpe are all financially qualified.The Company Secretary is secretary to the committee.terms of referenceThe 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.MeetingsThe 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 two of the meetings. The Group Chairman, Chief Executive, Group Finance Director and Group Financial Controller attended the meetings by invitation. 52 Interserve AnnuAl report 2012 GovernAnCe CorporAte GovernAnCeThe 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 actionsDuring the year the committee: • reviewed the 2011 annual report and financial statements and the 2012 half-year report. As part of each review the committee received a report from the external auditors on their audit of the 2011 annual report and their review of the 2012 half-year report respectively;• reviewed, prior to their consideration by the Board, the representation letters to be given to the external auditors in respect of the 2011 annual report and the 2012 half-year report;• reviewed audit effectiveness following the audit of the 2011 annual report;• reviewed and approved the external auditors’ terms of engagement for the 2012 half-yearly review and for the audit of the 2012 annual report;• made a recommendation to the Board that the external auditors should continue in office for the 2013 financial year;• received a briefing from the Group Finance Director on the principal judgements made by the Board in determining the half-year report and an update prior to the full year end;• considered and agreed the scope and fees to be paid to the external auditors;• considered putting the external audit out to tender: this matter will be kept under review, bearing in mind the duration of audit provision by the incumbent auditors and audit partner rotation;• received an update on the Group’s monitoring of fraud risk assessment; • monitored non-audit fees in comparison to the audit fees in accordance with the Company’s policy on the provision of non-audit services (as detailed in External Auditor Objectivity and Independence below);• received regular reports on the progress of whistle-blowing matters;• reviewed the Company’s liability as a shareholder in its overseas associates and the effectiveness of the Group’s control over joint ventures and associated companies; and • conducted an evaluation exercise to review its own effectiveness.The committee chairman reported to the Board on the work carried out, including any improvement actions required, and copies of the minutes of committee meetings were included within the Board papers.external auditThe 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 independenceThe committee assessed the external auditors’ objectivity and independence and the effectiveness of the external audit process at the end of the 2011 audit cycle and again at the year end and concluded that Deloitte LLP remains independent. The Company 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, acting in the role of advocate for the Company or being appointed as recruitment consultants 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 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 18 per cent and 7 per cent of the overall audit fees, respectively (excluding accountancy and transactional advice given with regard to the Class 1 transaction that resulted in the disposal by the Group of certain of its PFI assets – which amounted to 5 per cent of the overall audit fee), did not compromise auditor independence.In the case of the work on the above-mentioned Class 1 transaction, 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 88. A change in audit partner is made every five years in accordance with latest guidance and best practice. There are no contractual obligations that restrict the committee’s choice of external auditors. Internal auditThe function of internal audit is to provide an independent and 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. overview governance business review financial statementsInterserve AnnuAl report 2012 GovernAnCe CorporAte GovernAnCe 53The committee monitors and assesses the role and effectiveness of internal audit in the overall context of the Group’s risk management system and review. The internal audit programme of work is risk based, with all business activities and financial reporting processes considered for internal audit review each year. The work is carried out by PwC under an outsource contract, renewable annually.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 Internal Audit partner has direct access to the Chairman of the Audit Committee.The committee received a summary of each internal audit review covering the findings, proposed corrective actions and management’s responsiveness to those findings and recommendations.Reports produced during the year covered matters such as: • a review of certain business units in the Middle East;• business continuity and information security across the Group;• back-to-basics reviews of certain of the Group’s operations;• a review of the commercial management of various contracts;• a review of certain procure-to-pay cycles;• a review of a division’s central HR and payroll functions;• a review of a division’s IT controls; and• financial control health checks for certain of the Group’s operations.The committee also agreed an internal audit work plan for 2013, designed to provide core assurance against areas identified as high risk together with further assurance on some of the medium-risk areas identified for rotational testing.overviewAfter 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.noMInAtIon CoMMIttee The Nomination Committee is chaired by the Group Chairman and the majority of the members are independent non-executive directors. External consultants are used for new appointments. 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.Business conducted during the year included the selection and appointment of Anne Fahy as non-executive director, recommendations to the Board for the re-election of retiring directors at the AGM, reviews of Board structure and composition and senior management succession and development up to and including those at Board level, and Board succession planning. The effectiveness of the committee and its terms of reference were also reviewed. The Zygos Partnership, which has no connection with the Company, was engaged to assist in the appointment of Anne Fahy.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 56 to 68.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.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.The Group’s Diversity Policy states that diversity in all its forms is fundamental to the Group’s business. It is available on the website at www.interserve.com/sustainability/policies. The goal is to recruit, motivate, develop and retain outstanding people that reflect the Group’s diversity of skills, cultural backgrounds and gender. The Board monitors the extent to which the Group is meeting this objective and is committed to taking action where necessary or helpful to promote equal opportunity.Good evidence of our achievements in this area was the Investors in Diversity accreditation by the National Centre for Diversity given to our Construction business, the first construction company to be so recognised.We have already increased the diversity of the Board and would expect the policy to lead to greater diversity on the 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. 54 Interserve AnnuAl report 2012 GovernAnCe CorporAte GovernAnCereMunerAtIon CoMMIttee The Remuneration Committee, composed entirely of independent non-executive directors, is chaired by David Thorpe. The names of the committee members are set out in the table on page 50. 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 56 to 68.other boArd CoMMItteesThe 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 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 Inside Information Committee comprises the Group Chairman, Chief Executive and Group Finance Director.The PFI Committee comprises any two or more directors.Each committee has written terms of reference and reports on the business conducted to the following Board meeting.Committee meetings held during the year are as follows:CommitteeNumber of meetingsConflicts5General Purposes41Inside Information0PFI1rIsK CoMMItteeThe 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 51, 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, Group Health, Safety and Environmental Manager, Group Insurance Manager, the Group Company Secretary (who is its secretary), the Group General Counsel and a representative from each of the Group’s operating divisions. The internal audit partner has a standing invitation to attend. The committee has written terms of reference and provides copies of its meeting minutes to the Board.The business covered during the year included: reviews of the Group’s prime risk areas and of contract risk allocation and control; business continuity planning and IT disaster recovery; information security risk assessment; regular reviews of the risks presented by forthcoming legislation; and updates on current insurance, internal audit, health and safety and IT developments.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 69, an Independent Auditors’ Report about their reporting responsibilities on page 70 and a going concern statement on page 30. 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 42 to 47, 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 Group’s 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 implements 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. overview governance business review financial statementsInterserve AnnuAl report 2012 GovernAnCe CorporAte GovernAnCe 55Financial reportingBased 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, forecasts of prospective financial performance are prepared 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.The Group has risk management systems and documented accounting policies and procedures to be applied by all entities in the Group in submitting their financial statements for consolidation to ensure that adequate accounting records are maintained and transactions are recorded accurately and fairly to permit the preparation of consolidated financial statements in accordance with International Financial Reporting Standards.Each month, every entity within the Group submits management accounts in local currency to the Group Finance team. The consolidated management accounts include the financial results, financial position, cash flows and projections and are submitted, along with analytical commentary, to the Executive Board and subsequently the Board for review. 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 applicable reporting standards. 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 30 a description of how the Group manages those risks is set out on pages 22 and 23. operational controlsThe 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. • Documented delegated authority limits 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. • The Group has certain key areas which are subject to central management or control, which include health, safety and environmental policies, legal, insurance, tax & treasury, real estate, internal and external communication, investor relations, information technology network services and operating systems and company secretarial. These functions report to members of the Executive Board.• 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 to discuss and monitor the performance of those businesses.• The Group has in place a whistle-blowing policy which sets 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 shAreholdersThe Company encourages two-way communication with both institutional and private investors. The Chief Executive, accompanied by the Group Finance Director, attended 55 meetings with analysts and institutional investors during the year ended 31 December 2012. In addition, the Chief Executive, the Group Finance Director and the Group Chairman, attended a further two, 23 and three meetings each, respectively.The Company’s brokers 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, presentations given to analysts and all announcements made through the RIS are published on the Company’s website at www.interserve.com. 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. 56 Interserve AnnuAl report 2012 GovernAnCe DIreCtors’ remunerAtIon reportDIreCtors’ remunerAtIon reportDear Shareholder I am pleased to present the Remuneration Committee’s annual report on directors’ remuneration. The Directors’ Remuneration Report has been prepared in accordance with the requirements of current legislation, but in response to the UK Government’s new legislation regarding the reporting of directors’ remuneration and changes to the voting rights, we have incorporated a number of the revised reporting requirements into this year’s report.The Group’s management has delivered good results in 2012 against the background of mixed market conditions. In particular, underlying headline earnings per share has increased by 8 per cent and good progress was made on a number of strategic fronts. From our PFI interests we realised £119 million in cash and effected a £55 million asset transfer to our pension scheme, completed in January 2013. This represents an excellent performance in delivering enhanced value from these investments through sustained management of the underlying projects. We also increased our involvement in the delivery of front-line services to the public in the UK through our acquisition of Interserve Working Futures and Advantage Healthcare and expanded our presence in the oil and gas services sector in the Middle East through the acquisition of TOCO in January 2013. Our share price increased by 21.21 per cent over the year, slightly outperforming our sector.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, with the exception of one incremental increase, increased by 2.5 per cent from 1 July 2012 which was broadly in line with the average increase in salaries across the entire business.The performance conditions for the annual variable pay arrangements were set such that the budgeted normalised earnings per share (“EPS”) had to be achieved before any benefit could be derived from the additional normalised EPS arising from the sale of the Group’s PFI assets. Performance was strong, leading to a bonus payment of 100 per cent.The increase in award levels under the Company’s Performance Share Plan from 100 per cent to 150 per cent of basic salary for the Executive Board was accompanied by significantly more demanding EPS performance conditions which require EPS in 2014 to be marginally ahead of the rate of increase in EPS that would result in a doubling of earnings per share over the five-year period from a 2010 base in order for the awards to pay out in full.However, the Committee remains conscious of the need 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.Total remuneration therefore remains close to (but not in excess of) mid-market levels for similar sized FTSE 250 businesses.The Committee is mindful that executive pay remains a highly topical issue and 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 seeking an advisory vote on both the Policy Report and Implementation 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 Committee1 Share price at 1 January 2012 was 320.7p and at 31 December 2012 was 388.8pDAvID tHorpe CHAIRMAN OF THE REMUNERATION COMMITTEE overview governance business review financial statementsInterserve AnnuAl report 2012 GovernAnCe dIreCtors’ reMunerAtIon report 57reMunerAtIon polICy report This part of the Directors’ Remuneration Report sets out the remuneration policy for the Company with effect from 1 January 2013. In setting and reviewing the remuneration policy for the executive directors, the Committee takes into account a range of different reference points. Key issues which it considers are:• the economic climate in the sectors and geographies in which the Company operates;• remuneration policies and practices across the Group as a whole; and• the culture and strategy of the business.reMunerAtIon polICy ACross the GroupThe remuneration policy for the executive directors is designed with regard to the policy for employees across the Group as a whole. There are some differences in the structure of the remuneration policy for executive directors and other senior employees, which the Committee believes are necessary to reflect the different levels of responsibility of employees across the Group. In particular, as remuneration levels overall are higher, performance-linked variable pay comprises a much higher proportion of remuneration at more senior levels and there is more of a focus on Group results, rather than business unit or individual performance. This provides a stronger alignment of interest between senior executives and investors.For less senior staff, variable pay comprises annual bonus only (participation in the PSP is limited to the top 130 or so senior employees) coupled with the opportunity to participate in the SIP and Sharesave Scheme. 58 Interserve AnnuAl report 2012 GovernAnCe DIreCtors’ remunerAtIon reportelement of pAypurpose AnD lInk to CompAny’s strAteGyHow operAteD In prACtICemAxImum opportunItyDesCrIptIon of performAnCe metrICsCHAnGes In 2013BBBaaassseee sssaaalllaaarrryyyTTTooo rrreeecccrrruuuiiittt aaannnddd mmmaaaiiinnntttaaaiiinnn eeexxxeeecccuuutttiiivvveeesss ooofff aaa sssuuuiiitttaaabbbllleee cccaaallliiibbbrrreee fffooorrr ttthhheee rrrooollleee aaannnddd ddduuutttiiieeesss rrreeeqqquuuiiirrreeeddd...RRReeevvviiieeewwweeeddd aaannnnnnuuuaaallllllyyy wwwiiittthhh iiinnncccrrreeeaaassseeesss fffrrrooommm JJJuuulllyyy... NNNooorrrmmmaaallllllyyy pppaaaiiiddd mmmooonnnttthhhlllyyy iiinnn cccaaassshhh...TTThhheee CCCooommmmmmiiitttttteeeeee mmmaaayyy cccooonnnsssiiidddeeerrr eeexxxccceeeppptttiiiooonnnaaalll iiinnncccrrreeeaaassseeesss wwwiiittthhh rrreeefffeeerrreeennnccceee tttooo mmmaaarrrkkkeeettt cccooonnndddiiitttiiiooonnnsss aaannnddd pppeeerrrfffooorrrmmmaaannnccceee...N/AN/ABroadly, cost of living increases in line with salaried workforce.BenefitsTo provide benefits commensurate to the market in which the Company operates and in line with policies applicable to all other senior salaried employees.Car (cash allowance and/or company car) and fuel (or fuel allowance).Private medical insurance.Permanent health insurance.Life assurance.N/AN/ANoneThese benefits are aligned with those provided to senior managers across the Group.AAAnnnnnnuuuaaalll VVVaaarrriiiaaabbbllleee PPPaaayyyTTTooo iiinnnccceeennntttiiivvviiissseee ttthhheee aaaccchhhiiieeevvveeemmmeeennnttt ooofff aaannnnnnuuuaaalll tttaaarrrgggeeetttsss rrreeewwwaaarrrdddiiinnnggg ssstttrrrooonnnggg ooopppeeerrraaatttiiiooonnnaaalll pppeeerrrfffooorrrmmmaaannnccceee iiinnn eeexxxccceeessssss ooofff bbbuuudddgggeeettteeeddd pppeeerrrfffooorrrmmmaaannnccceee...TTTaaarrrgggeeetttsss aaarrreee ssseeettt iiinnn rrreeelllaaatttiiiooonnn tttooo ssstttrrreeetttccchhhiiinnnggg bbbuuudddgggeeetttsss wwwhhhiiiccchhh aaarrreee ssseeettt aaannnnnnuuuaaallllllyyy... MMMaaarrrgggiiinnnaaallllllyyy,,, bbbeeelllooowww bbbuuudddgggeeettt pppeeerrrfffooorrrmmmaaannnccceee wwwooouuulllddd gggeeennneeerrraaattteee aaa sssmmmaaallllll pppaaayyymmmeeennnttt,,, rrriiisssiiinnnggg tttooo aaarrrooouuunnnddd 555000 pppeeerrr ccceeennnttt fffooorrr ooonnn bbbuuudddgggeeettt pppeeerrrfffooorrrmmmaaannnccceee aaannnddd 111000000 pppeeerrr ccceeennnttt fffooorrr pppeeerrrfffooorrrmmmaaannnccceee eeexxxccceeeeeedddiiinnnggg bbbuuudddgggeeettt...100 per cent of basic salary. Performance conditions for Variable Pay in 2013 are based on the achievement of normalised EPS set by reference to the agreed annual budget1.Variable Pay of between 50 per cent and 100 per cent of basic salary will become payable upon achievement of between 100 per cent and 131 per cent of budgeted normalised EPS1.A performance below budgeted normalised EPS1 will result in no Variable Pay.NoneAAAnnnnnnuuuaaalll VVVaaarrriiiaaabbbllleee PPPaaayyy iiisss dddeeellliiivvveeerrraaabbbllleee bbbyyy aaa mmmiiixxx ooofff cccaaassshhh aaannnddd dddeeefffeeerrrrrreeeddd ssshhhaaarrreeesss... IIIfff aaannn eeexxxeeecccuuutttiiivvveee dddiiirrreeeccctttooorrr’’’sss ssshhhaaarrreeehhhooollldddiiinnnggg iiinnn ttthhheee CCCooommmpppaaannnyyy iiisss llleeessssss ttthhhaaannn 111000000 pppeeerrr ccceeennnttt ooofff hhhiiisss bbbaaasssiiiccc sssaaalllaaarrryyy,,, aaa pppeeerrrccceeennntttaaagggeee ooofff ttthhheee nnneeettt VVVaaarrriiiaaabbbllleee PPPaaayyy rrreeeccceeeiiivvvaaabbbllleee iiinnn eeexxxccceeessssss ooofff 222555 pppeeerrr ccceeennnttt ooofff bbbaaasssiiiccc sssaaalllaaarrryyy iiisss rrreeeqqquuuiiirrreeeddd tttooo bbbeee iiinnnvvveeesssttteeeddd iiinnn CCCooommmpppaaannnyyy ssshhhaaarrreeesss iiinnn aaaccccccooorrrdddaaannnccceee wwwiiittthhh ttthhheee aaarrrrrraaannngggeeemmmeeennntttsss ssstttaaattteeeddd bbbeeelllooowww:::aaa))) fffooorrr ttthhheee bbbaaalllaaannnccceee ooofff aaannnyyy VVVaaarrriiiaaabbbllleee PPPaaayyy rrreeeccceeeiiivvveeeddd bbbeeetttwwweeeeeennn 222555 pppeeerrr ccceeennnttt aaannnddd 555000 pppeeerrr ccceeennnttt ooofff bbbaaasssiiiccc sssaaalllaaarrryyy,,, 333000 pppeeerrr ccceeennnttt ooofff ttthhheee nnneeettt VVVaaarrriiiaaabbbllleee PPPaaayyy mmmuuusssttt bbbeee iiinnnvvveeesssttteeeddd iiinnn CCCooommmpppaaannnyyy ssshhhaaarrreeesss aaannnddd 777000 pppeeerrr ccceeennnttt mmmaaayyy bbbeee rrreeetttaaaiiinnneeeddd;;; aaannndddbbb))) fffooorrr ttthhheee bbbaaalllaaannnccceee ooofff aaannnyyy VVVaaarrriiiaaabbbllleee PPPaaayyy rrreeeccceeeiiivvveeeddd bbbeeetttwwweeeeeennn 555000 pppeeerrr ccceeennnttt aaannnddd 111000000 pppeeerrr ccceeennnttt ooofff bbbaaasssiiiccc sssaaalllaaarrryyy,,, 555000 pppeeerrr ccceeennnttt ooofff ttthhheee nnneeettt VVVaaarrriiiaaabbbllleee PPPaaayyy mmmuuusssttt bbbeee iiinnnvvveeesssttteeeddd iiinnn CCCooommmpppaaannnyyy ssshhhaaarrreeesss aaannnddd 555000 pppeeerrr ccceeennnttt mmmaaayyy bbbeee rrreeetttaaaiiinnneeeddd...CCCooommmpppaaannnyyy ssshhhaaarrreeesss sssooo aaacccqqquuuiiirrreeeddd mmmuuusssttt bbbeee hhheeelllddd fffooorrr ttthhhrrreeeeee yyyeeeaaarrrsss...CCClllaaawwwbbbaaaccckkk aaappppppllliiieeesss tttooo aaannnyyy ooovvveeerrrpppaaayyymmmeeennnttt ooofff AAAnnnnnnuuuaaalll VVVaaarrriiiaaabbbllleee PPPaaayyy iiinnn ttthhheee eeevvveeennnttt ooofff mmmiiisssssstttaaattteeemmmeeennnttt,,, eeerrrrrrooorrr ooorrr mmmiiissscccooonnnddduuucccttt...Performance Share Plan (PSP)To provide a longer term incentive to reward executive directors for achieving the Group’s ambition of doubling earnings per share over the five-year period from 2010.To provide alignment with shareholders and provide a retention tool. PSP awards are granted every year to senior executives.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.Awards will be made in the form of nil-cost options, exercisable between April 2016 and April 2018.150 per cent of basic salary (at the date of grant) for the executive directors.Lower award levels with an EPS-only performance condition will be granted to less senior executives.Performance conditions for two-thirds of the award will be dependent upon EPS targets, with the balance on total shareholder return (TSR):EPS performance range adjusted for 2013 awards compared to 2012 awards.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.PPPeeennnsssiiiooonnnTTTooo ppprrrooovvviiidddeee bbbeeennneeefffiiitttsss cccooommmmmmeeennnsssuuurrraaattteee tttooo ttthhheee mmmaaarrrkkkeeettt iiinnn wwwhhhiiiccchhh ttthhheee cccooommmpppaaannnyyy ooopppeeerrraaattteeesss...AAA CCCooommmpppaaannnyyy cccooonnntttrrriiibbbuuutttiiiooonnn cccaaalllcccuuulllaaattteeeddd aaattt 111555 pppeeerrr ccceeennnttt ooofff bbbaaassseee sssaaalllaaarrryyy fffooorrr eeexxxeeecccuuutttivvveee dddiiirrreeeccctttooorrrsss aaannnddd ooottthhheeerrr ssseeennniiiooorrr eeemmmpppllloooyyyeeeeeesss...EEEmmmpppllloooyyyeeeeeesss wwwhhhooossseee pppeeennnsssiiiooonnn ppprrrooovvviiisssiiiooonnn eeexxxccceeeeeedddsss HHHMMMRRRCCC llliiimmmiiitttsss aaarrreee pppeeerrrmmmiiitttttteeeddd tttooo ooopppttt ooouuuttt ooofff mmmaaakkkiiinnnggg pppeeennnsssiiiooonnn cccooonnntttrrriiibbbuuutttiiiooonnnsss aaannnddd iiinnnsssttteeeaaaddd rrreeeccceeeiiivvveee ttthhheee CCCooommmpppaaannnyyy cccooonnntttrrriiibbbuuutttiiiooonnn aaasss aaa sssaaalllaaarrryyy sssuuuppppppllleeemmmeeennnttt...EEEmmmpppllloooyyyeeeeeesss wwwhhhooo eeellleeecccttt tttooo tttaaakkkeee ttthhheee cccaaassshhh aaallllllooowwwaaannnccceee ssstttiiillllll bbbeeennneeefffiiittt fffrrrooommm ttthhheee llliiifffeee cccooovvveeerrr ooofff fffooouuurrr tttiiimmmeeesss sssaaalllaaarrryyy ppprrrooovvviiidddeeeddd tttooo mmmeeemmmbbbeeerrrsss ooofff ttthhheee pppeeennnsssiiiooonnn sssccchhheeemmmeee aaannnddd dddeeeaaattthhh---iiinnn---ssseeerrrvvviiiccceee cccooovvveeerrr... AAAdddrrriiiaaannn RRRiiinnngggrrrooossseee aaannnddd BBBrrruuuccceee MMMeeellliiizzzaaannn mmmaaadddeee sssuuuccchhh aaannn eeellleeeccctttiiiooonnn aaannnddd hhhaaavvveee,,, sssiiinnnccceee 111 JJJaaannnuuuaaarrryyy 222000111222 aaannnddd 111 AAAppprrriiilll 222000111222 rrreeessspppeeeccctttiiivvveeelllyyy,,, bbbeeeeeennn rrreeeccceeeiiivvviiinnnggg aaa sssaaalllaaarrryyy sssuuuppppppllleeemmmeeennnttt ooofff 111555 pppeeerrr ccceeennnttt ooofff bbbaaassseee sssaaalllaaarrryyy iiinnn llliiieeeuuu ooofff aaannnyyy eeemmmpppllloooyyyeeerrr pppeeennnsssiiiooonnn cccooonnntttrrriiibbbuuutttiiiooonnn...AAAllllll ttthhheee eeexxxeeecccuuutttiiivvveee dddiiirrreeeccctttooorrrsss (((wwwiiittthhh ttthhheee eeexxxccceeeppptttiiiooonnn ooofff AAAdddrrriiiaaannn RRRiiinnngggrrrooossseee aaannnddd BBBrrruuuccceee MMMeeellliiizzzaaannn sssiiinnnccceee 111 JJJaaannnuuuaaarrryyy 222000111222 aaannnddd 111 AAAppprrriiilll 222000111222,,, rrreeessspppeeeccctttiiivvveeelllyyy))) pppaaarrrtttiiiccciiipppaaattteeeddd ddduuurrriiinnnggg ttthhheee yyyeeeaaarrr iiinnn ttthhheee CCCooommmpppaaannnyyy’’’sss “““SSSMMMAAARRRTTT PPPeeennnsssiiiooonnnsss””” aaarrrrrraaannngggeeemmmeeennnttt... SSSMMMAAARRRTTT PPPeeennnsssiiiooonnnsss iiisss aaa sssaaalllaaarrryyy sssaaacccrrriiifffiiiccceee aaarrrrrraaannngggeeemmmeeennnttt ssseeettt uuuppp bbbyyy ttthhheee CCCooommmpppaaannnyyy ppprrrooovvviiidddiiinnnggg aaannn oooppptttiiiooonnn fffooorrr eeemmmpppllloooyyyeeeeee pppeeennnsssiiiooonnn cccooonnntttrrriiibbbuuutttiiiooonnnsss tttooo bbbeee mmmeeettt bbbyyy ttthhheeeiiirrr eeemmmpppllloooyyyeeerrr fffooollllllooowwwiiinnnggg aaa cccooorrrrrreeessspppooonnndddiiinnnggg sssaaacccrrriiifffiiiccceee iiinnn ttthhheeeiiirrr cccooonnntttrrraaaccctttuuuaaalll pppaaayyy... TTThhhiiisss sssccchhheeemmmeee aaaffffffooorrrdddsss ttthhheee CCCooommmpppaaannnyyy aaa sssaaavvviiinnnggg iiinnn eeemmmpppllloooyyyeeerrr’’’sss NNNaaatttiiiooonnnaaalll IIInnnsssuuurrraaannnccceee cccooonnntttrrriiibbbuuutttiiiooonnnsss...N/AN/AN/ARecruitmentWere any new executive director appointments to be made, the Committee may adopt an approach involving a lower base salary with incremental increases in excess of the cost of living as the new appointee becomes established within the role.SSShhhaaarrreeehhhooollldddiiinnnggg ggguuuiiidddeeellliiinnneeesssUUUnnndddeeerrr ttthhheee SSShhhaaarrreeehhhooollldddiiinnnggg GGGuuuiiidddeeellliiinnneeesss eeexxxeeecccuuutttiiivvveee dddiiirrreeeccctttooorrrsss aaarrreee eeexxxpppeeecccttteeeddd tttooo rrreeetttaaaiiinnn nnnooo fffeeewwweeerrr ttthhhaaannn 111000000 pppeeerrr ccceeennnttt ooofff ssshhhaaarrreeesss nnneeettt ooofff tttaaaxxxeeesss fffooollllllooowwwiiinnnggg aaannn oooppptttiiiooonnn eeexxxeeerrrccciiissseee ooorrr aaawwwaaarrrddd vvveeessstttiiinnnggg,,, uuunnntttiiilll sssuuuccchhh tttiiimmmeee aaasss aaa ssshhhaaarrreeehhhooollldddiiinnnggg eeeqqquuuiiivvvaaallleeennnttt tttooo 111000000 pppeeerrr ccceeennnttt ooofff ttthhheeeiiirrr bbbaaassseee sssaaalllaaarrryyy hhhaaasss bbbeeeeeennn aaaccchhhiiieeevvveeeddd... SSShhhaaarrreeesss pppuuurrrccchhhaaassseeeddd uuunnndddeeerrr ttthhheee AAAnnnnnnuuuaaalll VVVaaarrriiiaaabbbllleee PPPaaayyy aaarrrrrraaannngggeeemmmeeennntttsss (((ssseeeeee aaabbbooovvveee))),,, SSShhhaaarrreeesssaaavvveee SSSccchhheeemmmeee aaannnddd SSSIIIPPP cccooouuunnnttt tttooowwwaaarrrddd ttthhhiiisss llliiimmmiiittt... 1Normalised EPS is Headline earnings per share adjusted to (a) remove the effects of IAS 36 Impairment of assets and IAS 39 Financial Instruments; (b) remove the effect of IAS 19R Pensions; (c) take into account any return generated from the sale of any of the Group’s remaining PFI investments in excess of the internal rate of return set by the Board at the approval stage for that investment (excluding the transfer approved by shareholders on 7 January 2013) and any other items determined by the Committee.DIreCtors’ remunerAtIon report – polICy tAble The following table sets out a summary of each element of the executive directors’ remuneration packages, the policy for how these are operated and their link to the Company’s strategy. overview governance business review financial statementsInterserve AnnuAl report 2012 GovernAnCe DIreCtors’ remunerAtIon report 59element of pAypurpose AnD lInk to CompAny’s strAteGyHow operAteD In prACtICemAxImum opportunItyDesCrIptIon of performAnCe metrICsCHAnGes In 2013Base salaryTo recruit and maintain executives of a suitable calibre for the role and duties required.Reviewed annually with increases from July. Normally paid monthly in cash.The Committee may consider exceptional increases with reference to market conditions and performance.NNN///AAANNN///AAABBBrrroooaaadddlllyyy,,, cccooosssttt ooofff llliiivvviiinnnggg iiinnncccrrreeeaaassseeesss iiinnn llliiinnneee wwwiiittthhh sssaaalllaaarrriiieeeddd wwwooorrrkkkfffooorrrccceee...BenefitsTo provide benefits commensurate to the market in which the Company operates and in line with policies applicable to all other senior salaried employees.Car (cash allowance and/or company car) and fuel (or fuel allowance).Private medical insurance.Permanent health insurance.Life assurance.N/AN/ANoneThese benefits are aligned with those provided to senior managers across the Group.Annual Variable PayTo incentivise the achievement of annual targets rewarding strong operational performance in excess of budgeted performance.Targets are set in relation to stretching budgets which are set annually. Marginally, below budget performance would generate a small payment, rising to around 50 per cent for on budget performance and 100 per cent for performance exceeding budget.111000000 pppeeerrr ccceeennnttt ooofff bbbaaasssiiiccc sssaaalllaaarrryyy... PPPeeerrrfffooorrrmmmaaannnccceee cccooonnndddiiitttiiiooonnnsss fffooorrr VVVaaarrriiiaaabbbllleee PPPaaayyy iiinnn 222000111333 aaarrreee bbbaaassseeeddd ooonnn ttthhheee aaaccchhhiiieeevvveeemmmeeennnttt ooofff nnnooorrrmmmaaallliiissseeeddd EEEPPPSSS ssseeettt bbbyyy rrreeefffeeerrreeennnccceee tttooo ttthhheee aaagggrrreeeeeeddd aaannnnnnuuuaaalll bbbuuudddgggeeettt1...VVVaaarrriiiaaabbbllleee PPPaaayyy ooofff bbbeeetttwwweeeeeennn 555000 pppeeerrr ccceeennnttt aaannnddd 111000000 pppeeerrr ccceeennnttt ooofff bbbaaasssiiiccc sssaaalllaaarrryyy wwwiiillllll bbbeeecccooommmeee pppaaayyyaaabbbllleee uuupppooonnn aaaccchhhiiieeevvveeemmmeeennnttt ooofff bbbeeetttwwweeeeeennn 111000000 pppeeerrr ccceeennnttt aaannnddd 111333111 pppeeerrr ccceeennnttt ooofff bbbuuudddgggeeettteeeddd nnnooorrrmmmaaallliiissseeeddd EEEPPPSSS1...AAA pppeeerrrfffooorrrmmmaaannnccceee bbbeeelllooowww bbbuuudddgggeeettteeeddd nnnooorrrmmmaaallliiissseeeddd EEEPPPSSS1 wwwiiillllll rrreeesssuuulllttt iiinnn nnnooo VVVaaarrriiiaaabbbllleee PPPaaayyy...NNNooonnneeeAnnual Variable Pay is deliverable by a mix of cash and deferred shares. 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 in accordance with the arrangements stated below: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; andb) 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.Clawback applies to any overpayment of Annual Variable Pay in the event of misstatement, error or misconduct.Performance Share Plan (PSP)To provide a longer term incentive to reward executive directors for achieving the Group’s ambition of doubling earnings per share over the five-year period from 2010.To provide alignment with shareholders and provide a retention tool. PSP awards are granted every year to senior executives.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.Awards will be made in the form of nil-cost options, exercisable between April 2016 and April 2018.150 per cent of basic salary (at the date of grant) for the executive directors.Lower award levels with an EPS-only performance condition will be granted to less senior executives.Performance conditions for two-thirds of the award will be dependent upon EPS targets, with the balance on total shareholder return (TSR):EPS performance range adjusted for 2013 awards compared to 2012 awards.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.PensionTo provide benefits commensurate to the market in which the company operates.A Company contribution calculated at 15 per cent of base salary for executive directors and other senior employees.Employees whose pension provision exceeds HMRC limits are permitted to opt out of making pension contributions and instead receive the Company contribution as a salary supplement.Employees who elect to take the cash allowance still benefit from the life cover of four times salary provided to members of the pension scheme and death-in-service cover. Adrian Ringrose and Bruce Melizan made such an election and have, since 1 January 2012 and 1 April 2012 respectivelyyy,,, been receiving a salary supplement of 15 per cent of base salary in lieu of any employer pension contribution.All the executive directors (with the exception of Adrian Ringrose and Bruce Melizan since 1 January 2012 and 1 April 2012, respectively) 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.NNN///AAANNN///AAANNN///AAARecruitmentWere any new executive director appointments to be made, the Committee may adopt an approach involving a lower base salary with incremental increases in excess of the cost of living as the new appointee becomes established within the role.Shareholding guidelinesUnder the Shareholding Guidelines executive directors are expected to retain no fewer than 100 per cent of shares net of taxes following an option exercise or award vesting, until such time as a shareholding equivalent to 100 per cent of their base salary has been achieved. Shares purchased under the Annual Variable Pay arrangements (see above), Sharesave Scheme and SIP count toward this limit. 2Normalised EPS is Headline earnings per share adjusted to reflect growth in underlying value created by (a) removing the impact of IAS 19 & IAS 19R Pensions, IAS 36 Impairment of assets and IAS 39 Financial Instruments; and (b) recognising or removing “one off” events at the discretion of the committee. For the 2013 awards vesting in 2016, the committee intends that the award will reflect the underlying earnings growth, in line with our strategic ambitions.Normalised EPS2 growth of the Company over the performance periodVesting percentage of two-thirds of shares subject to the awardLess than 49%0%49% to 58%25% to 50%58% to 75%50% to 100%Over 75%100%TSR ranking of the Company compared to the Comparator Group over the performance periodVesting percentage of one-third of shares subject to the awardBelow median ranking0%Median ranking 30%Median to upper quartile ranking30% to 100% (pro-rated) 60 Interserve AnnuAl report 2012 GovernAnCe dIreCtors’ reMunerAtIon report Median Upper Quartile100%75%50%25%0%percentage vesting for one-thirdof awardtsr ranking of the CompanylonG-terM reWArdsThe performance conditions for the 2013 PSP awards to the Executive Board will be structured as follows:earnings per share growthContinuing with the strategic focus of doubling EPS over the five-year period from a 2010 base, vesting of two-thirds of an award will be dependent upon growth in normalised EPS1 (over a three-year performance period, commencing on the first day of the 2013 financial year) to meet this trajectory. This sliding scale of EPS performance and vesting is shown graphically below:Growth in normalised EPS will be determined by the Committee after verifying calculations made internally.total shareholder returnVesting 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 2013 financial year. TSR is calculated as the percentage change in the net return index from the start to the end of the performance period2. This 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:Atkins (WS)May Gurney Integrated ServicesBabcock InternationalMITIE GroupBalfour BeattyMorgan SindallCapita GroupRentokil InitialCarillionRPS GroupCostain GroupSercoKier Group 1 Normalised EPS is Headline earnings per share adjusted to reflect growth in underlying value created by (a) removing the impact of IAS 19 & IAS 19R Pensions, IAS 36 Impairment of assets and IAS 39 Financial Instruments; and (b) recognising or removing “one off” events at the discretion of the committee. For the 2013 awards vesting in 2016, the committee intends that the award will reflect the underlying earnings growth, in line with our strategic ambitions.2 The 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.This sliding scale of TSR performance and vesting is shown graphically below:The chart below shows how the executive directors’ remuneration packages vary at below threshold, threshold, target and maximum performance, by looking at the level of below target and target remuneration as a proportion of the maximum remuneration. This shows that almost 70 per cent of the remuneration is delivered via Annual Variable Pay and performance share awards at maximum payout levels under both plans.All-employee share schemesIn 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, the Interserve Sharesave Scheme 2009 (the “Sharesave Scheme”) and the Interserve Share Incentive Plan 2009 (the “SIP”). The executive directors are entitled to participate in both the Sharesave Scheme and the SIP.It is proposed to make a further grant under the Sharesave Scheme to eligible employees in April 2013. 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.below targeton targetMaximum salary pension Annual variable pay performance shares0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%0% 10% 20% 30% 40% 50% 60% 70% 80%100%75%50%25%0%percentage vesting for two-thirdsof awardnormalised eps growth over performance period49%58%75% overview governance business review financial statementsInterserve AnnuAl report 2012 GovernAnCe dIreCtors’ reMunerAtIon report 61dilution limits 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 (12,684,939 shares) under all its share schemes. At 31 December 2012 there remained headroom equivalent to 2,362,040 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 Executive Share Option Schemes and the Performance Share Plan will be satisfied by newly issued shares.eXeCutIve dIreCtors’ servICe ContrACtsThe 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 service contracts of all the executive directors are summarised below. Each contract has an indefinite unexpired term and a notice period of one year.NameDate of contractS L DanceT P HaywoodB A MelizanD J PatersonA M RingroseD I Sutherland10 January 200830 November 201010 January 20081 January 201113 December 20011 January 2011The Company’s policy on service contracts with executive directors is that they may be terminated with twelve months’ notice from either party.There are no provisions in executive directors’ service agreements entitling them to terminate their 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.policy on executive directors taking external directorshipsWhile the Board is comfortable with the principle of executive directors sitting on another company board as a non-executive, none of the executive directors (save for Bruce Melizan who is an un-remunerated director of the Safer London Foundation) currently holds directorships of other companies in which the Company does not have a direct or indirect interest.perCentAGe ChAnGe In spend on pAy CoMpAred to proFIt And dIvIdend eXpendItureThe following chart sets out the percentage change in profit, dividends and overall spend on pay in 2012 compared to 2011:2012 £million2011 £millionPercentage changeHeadline pre-tax profit78.472.87.7%Dividends24.423.06.1%Employee remuneration costs1624.7602.13.8%1Further information is contained in note 6 to the financial statements on page 89.terMs oF AppoIntMent And Fees For Group ChAIrMAn And non-eXeCutIve dIreCtorsNon-executive directors are appointed initially until the first AGM of the Company following appointment, when they are required to stand for election by shareholders. Non-executive directors do not have service contracts, they are engaged by letters of appointment which 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. The Group Chairman’s fee is reviewed annually by the Committee (without the Chairman present). The remuneration policy for the non-executive directors, other than the Group Chairman, is determined by a sub-committee of the Board comprising the Group Chairman and the executive directors. Non-executive directors receive a fee for carrying out their duties, together with additional fees for those non-executive directors who chair the primary Board committees (i.e. Audit and Remuneration Committees) and the Senior Independent Director.In December 2012 a full review of the annual basic fees of the Group Chairman and the non-executive directors was carried out which resulted in the Group Chairman’s fees being increased by £13,000 to £143,000 and the non-executive directors’ base fee being increased by £4,000 to £44,000, from January 2013. This is the first increase since January 2011.The current fee levels are set out in the table below:Annual fee £Base fee paid to all non-executive directors44,000Supplementary fees: Senior Independent Director7,000 Audit Committee Chairman6,000 Remuneration Committee Chairman5,000 Nomination Committee Chairman Group Chairman1 1 The Group Chairman receives no supplementary fee for chairing this committee. 62 Interserve AnnuAl report 2012 GovernAnCe dIreCtors’ reMunerAtIon reportDetails of non-executive appointments held during the financial year ended 31 December 2012 are as follows:Name Date first appointedDate last re-electedLord Blackwell1 September 200516 May 2012L G Cullen1 October 200516 May 2012K L Ludeman1 January 201116 May 2012D A Thorpe1 January 200916 May 2012D A Trapnell11 July 200316 May 2012Anne Fahy was appointed to the Board on 1 January 2013 and will be proposed for election by shareholders at the forthcoming AGM on 13 May 2013.IMpleMentAtIon report hoW the reMunerAtIon CoMMIttee operAtes to set the reMunerAtIon polICyIn determining the executive directors’ remuneration, the Committee consulted with and received recommendations from Adrian Ringrose, the Chief Executive. The Committee also received advice from New Bridge Street (“NBS”), a trading name of Aon plc (who also provide insurance broking services to the Company) and Trevor Bradbury, the Company Secretary, which materially assisted the Committee in relation to the 2012 financial year. Executives are not present when matters affecting their own remuneration arrangements are decided.role and membershipThe Committee is responsible for determining, on behalf of the Board, 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 when determining their own remuneration), 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.The table below lists the members of the Committee who served during the year and are regarded as independent by the Board. Their attendance at the meetings of the Committee was as follows:NameNumber of meetings attended out of potential maximumD A Thorpe6 out of 6Lord Blackwell 6 out of 6L G Cullen6 out of 6K L Ludeman6 out of 6D A Trapnell6 out of 6The Committee meets as often as is necessary to discharge its duties and met six times during the year ended 31 December 2012. The Chief Executive and Group Finance Director may be invited to attend meetings as appropriate. 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. No individual is present when matters relating directly to their own remuneration are discussed.eXternAl AdvIsersThe Committee is advised by NBS. The terms of NBS’s appointment and their performance is reviewed regularly by the Committee. NBS assists the Company annually by preparing an IFRS 2 option valuation relating to awards made under the Interserve Performance Share Plan 2006. The fee for this work was £2,000.NBS meets either on a one-to-one basis with the Committee Chairman, or with the Company Secretary present, as necessary, to discuss matters such as topical issues in remuneration which are of particular relevance to the Company or if there are specific pieces of work which the Committee requires to be undertaken.The total fees paid to NBS in respect of its services to the Committee during the year amounted to £17,500. These fees related to sundry ongoing advice, in line with NBS’s role of providing ongoing support and advice to the Committee over the entire remuneration year. This included:• advice upon the increase in award levels under the Company’s Performance Share Plan from 100 per cent to 150 per cent of basic salary for the Executive Board and the accompanying significant increase in the EPS performance conditions;• performance monitoring of the TSR element of the Performance Share Plan;• review of vesting documentation for the Performance Share Plan;• assistance with the drafting of the Directors’ Remuneration Report; and• updates on developments in remuneration practices. overview governance business review financial statementsInterserve AnnuAl report 2012 GovernAnCe dIreCtors’ reMunerAtIon report 63Any fees for major projects would normally be negotiated in advance of such a project being undertaken.NBS is a signatory to the Remuneration Consultants’ Code of Conduct.The total fees paid to Aon plc (the parent company of NBS) by the Group in the year, excluding collections of insurance premiums, were £72,500. These related to the provision of insurance-related services. The Committee is satisfied that these additional services in no way compromised the independence of advice provided by NBS.stAteMent oF shAreholder votInG At AGMAt last year’s AGM, the Directors’ Remuneration Report received the following votes from shareholders:Total number of votesPercentage of votes castFor79,640,66697.66Against398,0780.49Abstentions1,506,8701.85TOTAL81,545,614100.00perForMAnCe 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.Source: Thomson Reuters DatastreamThe graph demonstrates the value on 31 December 2012 of £100 invested in Interserve Plc on 31 December 2007 compared with the value of £100 invested in the Support Services sector of the FTSE All-Share Index.The information set out in Tables 1 to 4 in the following pages has been audited. These tables have been prepared in accordance with the requirements of the existing legislation (Schedule 8 of the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008), which remains the basis for statutory reporting until October 2013.As part of our commitment to be as transparent as possible in our reporting under the forthcoming legislation, we have also prepared remuneration tables in accordance with the new requirements. For this year, these are shown as tables to the Implementation Report.Historical TSR Performance Interserve Plc FTSE All-Share Support ServicesValue of hypothetical holdings – £ 2007 2008 2009 2010 2011201231 December£200 -£100 ---£0 -Source: Thomson Reuters Datastream 64 Interserve AnnuAl report 2012 GovernAnCe dIreCtors’ reMunerAtIon reportdIreCtors’ eMoluMents And CoMpensAtIonAggregate directors’ remunerationThe total amounts for directors’ remuneration were as follows: 2012 £ 2011 £Emoluments4,203,1583,991,308Compensation for loss of officenilNilGains made on the exercise of share optionsnilNilAmounts received under long-term incentive schemes971,843NilMoney purchase pension contributions (excluding SMART Bonus and AVC contributions)218,362313,681The Committee determined with one exception that, for the third consecutive year, executive directors’ salary levels should be increased by 2.5 per cent with effect from 1 July 2012, which was broadly in line with the overall increase for salaried employees of the Company and its subsidiaries.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 2012:tAble 1 – dIreCtors’ eMoluMents NameBasic salary/fee £Other cash emoluments3 £Benefits in kind £Annual variable pay1 £Pension contributions2 £Sub-total £Value of PSP4 £total remuneration 2012 £Total remuneration 20115 £Lord Blackwell130,000----130,000-130,000130,000L G Cullen46,000----46,000-46,00046,000S L Dance265,939-20,014269,22352,022607,198446,9231,054,121592,788T P Haywood321,722-14,965325,69450,058712,4390712,439695,803K L Ludeman40,000----40,000-40,00040,000B A Melizan265,93940,825320,939269,22313,250610,176446,9231,057,099596,492D J Paterson265,939-19,704269,22367,328622,194375,417997,611594,330A M Ringrose446,77886,20933,354452,2940988,635750,8341,739,469969,371D I Sutherland252,48613,8961,569269,22373,499610,673328,795939,468529,858D A Thorpe45,000----45,000-45,00042,692D A Trapnell47,000----47,000-47,00046,244Former director--------21,411total 20122,126,803140,93080,5451,854,880256,1574,459,3152,348,8926,808,207Total 20112,087,33758,64562,5961,782,730313,6814,304,9891 Annual Variable Pay for 2012 was based on the achievement of a range of targets based on normalised EPS (i.e. basic earnings per share adjusted to remove the effect 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 Annual Variable Pay of between 20 per cent and 100 per cent of basic salary would become payable upon achievement of between 96.5 per cent and 111 per cent of budgeted normalised EPS. A performance below 96.5 per cent of budgeted normalised EPS would result in no Annual Variable Pay becoming payable. The operation of the Annual Variable Pay scheme for the 2012 financial year resulted in a payment of 100 per cent of basic salary as at 31 December 2012 for each executive director, the details of which are shown in the table above.2 Reduced by SMART Pensions arrangement (see Table 2 on page 65).3 Inclusive of a 15 per cent salary supplement in lieu of pension contributions for Adrian Ringrose and Bruce Melizan with effect from 1 January 2012 (£67,017) and 1 April 2012 (£30,041) respectively. 4 The share price used to calculate the value of shares vesting for the total single figure of remuneration was 370.61p being the three-month average to 31 December 2012. This relates to the PSP awards that vest on 19 April 2013 based on the 2012 results. This value also includes a dividend equivalent of 55.4 pence per vested share.5 The remuneration for 2011 does not include the PSP awards that vested in March 2012, which explains the increase in year-on-year remuneration. overview governance business review financial statementsInterserve AnnuAl report 2012 GovernAnCe dIreCtors’ reMunerAtIon report 65tAble 2 - dIreCtors’ pensIon entItleMentsDefined Contribution SchemeAll the executive directors, with the exception of Adrian Ringrose and Bruce Melizan with effect from 1 January 2012 and 1 April 2012 respectively, are members of the Defined Contribution section of the Scheme and participated in the Company’s SMART Pensions arrangement (as detailed on page 58). Their base salaries shown in the above table were, as a result, reduced by the following amounts which were paid by the Company into their pension schemes: Name2012 £2011 £S L Dance12,03819,474T P Haywood1,80013,635B A Melizan3,40017,051D J Paterson15,86719,996A M Ringrose017,220D I Sutherland9,49518,630Details of the total contributions paid by the Company (including SMART contributions but excluding SMART Bonus and AVC arrangements) during the year ended 31 December 2012 are as follows:Name2012 £2011 £S L Dance51,92949,422T P Haywood50,05849,867B A Melizan13,25047,000D J Paterson55,75852,508A M Ringrose069,373D I Sutherland47,36745,511Non-executive directors’ fees are not pensionable and they have therefore not been included in the above table.Dougie Sutherland and David Paterson also participated in the Company’s SMART Bonus arrangement (available to all employees receiving an annual bonus). The contribution paid by the Company in respect of SMART Bonus for Dougie Sutherland and David Paterson was £23,542 and £7,700 respectively. 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 SchemeFollowing 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 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. 66 Interserve AnnuAl report 2012 GovernAnCe dIreCtors’ reMunerAtIon reporttAble 3 - outstAndInG optIons And ltIp AWArdsshare optionsThe number of options over shares in the Company (pursuant to the 2002 Executive Share Option Scheme) 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.Options over ordinary shares of 10p eachName 31.12.12lapsed during year31.12.11Exercise price penceExercise periodS L Dance50,000-50,000 324.0009.12.07 – 08.12.1483,489-83,489 359.3314.03.08 – 13.03.15T P Haywood-- -n/an/aB A Melizan75,140-75,140 359.3314.03.08 – 13.03.15D J Paterson-5,2955,295566.5019.03.05 – 18.03.1232,561-32,561359.3314.03.08 – 13.03.15A M Ringrose133,333-133,333 205.8323.04.06 – 22.04.13150,280-150,280 359.3314.03.08 – 13.03.15D I Sutherland---n/an/aNo share options were granted under the 2002 Executive Option Scheme to, or exercised by, any of the directors during the year ended 31 December 2012. The aggregate gain made on the exercise of options was £nil (2011: £nil). The market price of the shares as at 31 December 2012 was 388.80p. The highest and lowest market prices of the shares during the financial year were 392.80p and 270.10p respectively.sharesave schemeThe 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:Options over ordinary shares of 10p eachName31.12.12Granted during year31.12.11Exercise price penceExercise periodS L Dance595-595152.5001.10.12 – 31.03.13423-423214.5001.07.13 – 31.12.13390-390231.0001.07.14 – 31.12.14378378-238.0001.07.15 - 31.12.15T P Haywood390-390231.0001.07.14 – 31.12.14378378-238.0001.07.15 – 31.12.15B A Melizan390-390231.0001.07.14 – 31.12.14378378-238.0001.07.15 – 31.12.15D J Paterson---n/an/aA M Ringrose595-595152.5001.10.12 – 31.03.13423-423214.5001.07.13 – 31.12.13378378-238.0001.07.15 – 31.12.15D I Sutherland595-595152.5001.10.12 – 31.03.13423-423214.5001.07.13 – 31.12.13378378-238.0001.07.15 – 31.12.15No 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. overview governance business review financial statementsInterserve AnnuAl report 2012 GovernAnCe dIreCtors’ reMunerAtIon report 67performance share planThe 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:NameDate of awardMid-market price on award date penceAwards over ordinary shares of 10p each* 31.12.12Awarded during year vested during yearlapsed during yearAwards over ordinary shares of 10p each* 31.12.11Performance periodS L Dance23.03.09197.00--61,57661,576123,15201.01.09 – 31.12.11119.04.10236.50104,909---104,90901.01.10 – 31.12.12220.04.11261.0099,746---99,74601.01.11 – 31.12.13311.04.12275.80143,648143,648---01.01.12 – 31.12.144T P Haywood20.04.11261.00120,669---120,66901.01.11 – 31.12.13311.04.12275.80173,779173,779---01.01.12 – 31.12.144B A Melizan23.03.09197.00--61,57661,576123,15201.01.09 – 31.12.11119.04.10236.50104,909---104,90901.01.10 – 31.12.12220.04.11261.0099,746---99,74601.01.11 – 31.12.13311.04.12275.80143,648143,648---01.01.12 – 31.12.144D J Paterson23.03.09197.00--51,72451,724103,44801.01.09 – 31.12.11119.04.10236.5088,124---88,12401.01.10 – 31.12.12220.04.11261.0099,746---99,74601.01.11 – 31.12.13311.04.12275.80143,648143,648---01.01.12 – 31.12.144A M Ringrose23.03.09197.00--103,448103,448206,89601.01.09 – 31.12.11119.04.10236.50176,248---176,24801.01.10 – 31.12.12220.04.11261.00167,574---167,57401.01.11 – 31.12.13311.04.12275.80241,329241,329---01.01.12 – 31.12.144D I Sutherland23.03.09197.00--45,30045,30090,60001.01.09 – 31.12.11119.04.10236.5077,180---77,18001.01.10 – 31.12.12220.04.11261.0089,528-- -89,52801.01.11 – 31.12.13311.04.12275.80128,933128,933---01.01.12 – 31.12.144*The maximum number of shares that could be receivable by the executive if performance conditions set out below are fully met:3 the eps performance Condition for the 2011 AwardsAdjusted Headline EPS growth of the Company over the performance periodVesting percentage of 50% of shares subject to the awardLess than 15%0%15% to 30%25% to 50% (pro-rated)30% to 50%50% to 100% (pro-rated)Greater than 50%100%The 2011 PSP awards were granted in the form of nil-cost options, exercisable between 20 April 2014 and 19 April 2016.4 the eps performance Condition for the 2012 AwardsNormalised EPS growth of the Company over the performance periodVesting percentage of two-thirds of shares subject to the awardLess than 20%0%20% to 40%20% to 50% (pro-rated)40% to 60%50% to 100% (pro-rated)Greater than 60%100%The 2012 PSP awards were granted in the form of nil-cost options, exercisable between 11 April 2015 and 10 April 2017.1 the eps performance Condition for the 2009 AwardsEPS growth of the Company over the performance periodVesting percentage of 50% of shares subject to the awardLess than RPI + 20%0%RPI + 20%33%RPI + 20% to RPI + 33%33% to 100% (pro-rated)RPI + 33%100%2 the eps performance Condition for the 2010 AwardsAdjusted Headline EPS growth of the Company over the performance periodVesting percentage of 50% of shares subject to the awardLess than 5%0%5% to 20%25% to 50% (pro-rated)20% to 30%50% to 100% (pro-rated)Greater than 30%100% 68 Interserve AnnuAl report 2012 GovernAnCe DIreCtors’ remunerAtIon report1234 the tsr performance ConditionThis 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 after 2011), RPS Group, Serco, Spice (not after 2011) and WSP Group.TSR ranking of the Company compared to the comparator group over the performance periodVesting percentage of 50% of shares subject to the award*Below median ranking0%Median ranking (top 50%)30%Median to upper quartile ranking 30% to 100% (pro-rated)Upper quartile ranking (top 25%)100%*Vesting percentage of 50% is replaced by one-third for the 2012 PSP awards.For awards made in 2009 (measuring performance over the three years to 31 December 2011) the TSR element (representing 50 per cent of the awards) vested in full on 23 March 2012 as the Company’s TSR performance was above the upper quartile TSR performance against the peer group. However, none of the EPS element of those awards (representing the other 50 per cent) vested as the stretching EPS performance conditions were not met. The mid-market price of a share on the vesting date was 300.30p.The awards made in 2010 (measuring performance over the three years to 31 December 2012) will vest in full on 19 April 2013 as the Company’s TSR performance was above the upper quartile (top 25 per cent) TSR performance against the peer group and EPS growth has been greater than 30 per cent over the performance period (actual growth 149.7 per cent, including credit for the realised value from PFI investments).The EPS and TSR performance conditions for the 2013 awards are set out on page 59 of this report.tABle 4 – DIreCtors’ sHAre Interests 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:NameShareholding as a percentage of base salaryOrdinary shares of 10p each31.12.1231.12.1231.12.11Lord Blackwelln/a10,00010,000L G Cullenn/a10,0006,000S L Dance144%99,98864,839T P Haywood21%17,960451K L Ludemann/a3,0003,000B A Melizan146%101,112 65,950D J Paterson68%47,39117,811A M Ringrose227%263,514204,856D I Sutherland75%51,86212,449D A Thorpen/a12,79312,793D A Trapnelln/a4,5004,500The above figures include shares held in trust pursuant to the Interserve Share Incentive Plan 2009.Share ownership guidelines for executive directors require a holding of 100 per cent of salary to be built up over time. The value of their shareholdings as a percentage of base salary (as at 31 December 2012) is set out in the table above.Between the year end and the date of this report Steven Dance, Adrian Ringrose and Dougie Sutherland purchased an additional 57 shares each and David Paterson purchased 56 shares pursuant to the Interserve Share Incentive Plan 2009. The shares were purchased on 8 January 2013 (30 shares each at 412.00p per share) and 11 February 2013 (27 shares each and 26 shares in respect of David Paterson, at 471.00p per share). The directors’ interests information set out in the foregoing tables were as at 31 December 2012. There have been no changes between the year end and the date of this report other than those described above. There have been no variations to the terms and conditions or performance criteria for options or awards during the financial year.ApprovAlThis report was approved by the Board of Directors on 27 February 2013 and signed on its behalf by:D A thorpe Chairman of the Remuneration Committee 27 February 2013 overview governance business review financial statementsInterserve AnnuAl report 2012 GovernAnCe DIreCtors’ responsIbIlIty stAtement 69DIreCtors’ responsIbIlIty stAtementThe 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.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 BoardA m ringrose t p Haywood Chief Executive Group Finance Director27 February 2013 IIInnndddeeepppeeennndddeeennnttt aaauuudddIIItttooorrr’’’sss rrreeepppooorrrttt tttooo ttthhheee mmmeeemmmbbbeeerrrsss ooofff IIInnnttteeerrrssseeerrrvvveee ppplllccc 777000 IIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements IIInnndddeeepppeeennndddeeennnttt aaauuudddIIItttooorrr’’’sss rrreeepppooorrrttt tttooo ttthhheee mmmeeemmmbbbeeerrrsss ooofff IIInnnttteeerrrssseeerrrvvveee ppplllcccIntroductIonWWWeee hhhaaavvveee aaauuudddiiittteeeddd ttthhheee GGGrrrooouuuppp fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss ooofff IIInnnttteeerrrssseeerrrvvveee PPPlllccc fffooorrr ttthhheee yyyeeeaaarrr eeennndddeeeddd 333111 DDDeeeccceeemmmbbbeeerrr 222000111222 wwwhhhiiiccchhh cccooommmppprrriiissseee ttthhheee CCCooonnnsssooollliiidddaaattteeeddd IIInnncccooommmeee SSStttaaattteeemmmeeennnttt,,, ttthhheee CCCooonnnsssooollliiidddaaattteeeddd SSStttaaattteeemmmeeennnttt ooofff CCCooommmppprrreeehhheeennnsssiiivvveee IIInnncccooommmeee,,, ttthhheee CCCooonnnsssooollliiidddaaattteeeddd BBBaaalllaaannnccceee SSShhheeeeeettt,,, ttthhheee CCCooonnnsssooollliiidddaaattteeeddd SSStttaaattteeemmmeeennnttt ooofff CCChhhaaannngggeeesss iiinnn EEEqqquuuiiitttyyy,,, ttthhheee CCCooonnnsssooollliiidddaaattteeeddd CCCaaassshhh FFFlllooowww SSStttaaattteeemmmeeennnttt,,, aaannnddd ttthhheee rrreeelllaaattteeeddd nnnooottteeesss 111 tttooo 333444... 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TTThhhiiisss iiinnncccllluuudddeeesss aaannn aaasssssseeessssssmmmeeennnttt ooofff::: wwwhhheeettthhheeerrr ttthhheee aaaccccccooouuunnntttiiinnnggg pppooollliiiccciiieeesss aaarrreee aaapppppprrroooppprrriiiaaattteee tttooo ttthhheee GGGrrrooouuuppp’’’sss ccciiirrrcccuuummmssstttaaannnccceeesss aaannnddd hhhaaavvveee bbbeeeeeennn cccooonnnsssiiisssttteeennntttlllyyy aaappppppllliiieeeddd aaannnddd aaadddeeeqqquuuaaattteeelllyyy dddiiisssccclllooossseeeddd;;; ttthhheee rrreeeaaasssooonnnaaabbbllleeennneeessssss ooofff sssiiigggnnniiifffiiicccaaannnttt aaaccccccooouuunnntttiiinnnggg eeessstttiiimmmaaattteeesss mmmaaadddeee bbbyyy ttthhheee dddiiirrreeeccctttooorrrsss;;; aaannnddd ttthhheee ooovvveeerrraaallllll ppprrreeessseeennntttaaatttiiiooonnn ooofff ttthhheee fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss... IIInnn aaaddddddiiitttiiiooonnn,,, wwweee rrreeeaaaddd aaallllll ttthhheee fffiiinnnaaannnccciiiaaalll aaannnddd nnnooonnn---fffiiinnnaaannnccciiiaaalll iiinnnfffooorrrmmmaaatttiiiooonnn iiinnn ttthhheee aaannnnnnuuuaaalll rrreeepppooorrrttt tttooo iiidddeeennntttiiifffyyy mmmaaattteeerrriiiaaalll iiinnncccooonnnsssiiisssttteeennnccciiieeesss wwwiiittthhh ttthhheee aaauuudddiiittteeeddd fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss... IIIfff wwweee bbbeeecccooommmeee aaawwwaaarrreee ooofff aaannnyyy aaappppppaaarrreeennnttt mmmaaattteeerrriiiaaalll mmmiiisssssstttaaattteeemmmeeennntttsss ooorrr iiinnncccooonnnsssiiisssttteeennnccciiieeesss wwweee cccooonnnsssiiidddeeerrr ttthhheee iiimmmpppllliiicccaaatttiiiooonnnsss fffooorrr ooouuurrr rrreeepppooorrrttt...opInIon on fInancIal statementsIIInnn ooouuurrr ooopppiiinnniiiooonnn ttthhheee GGGrrrooouuuppp fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss:::• gggiiivvveee aaa tttrrruuueee aaannnddd fffaaaiiirrr vvviiieeewww ooofff ttthhheee ssstttaaattteee ooofff ttthhheee GGGrrrooouuuppp’’’sss aaaffffffaaaiiirrrsss aaasss aaattt 333111 DDDeeeccceeemmmbbbeeerrr 222000111222 aaannnddd ooofff iiitttsss ppprrrooofffiiittt fffooorrr ttthhheee yyyeeeaaarrr ttthhheeennn eeennndddeeeddd;;;• hhhaaavvveee bbbeeeeeennn ppprrrooopppeeerrrlllyyy ppprrreeepppaaarrreeeddd iiinnn aaaccccccooorrrdddaaannnccceee wwwiiittthhh IIIFFFRRRSSSsss aaasss aaadddooopppttteeeddd bbbyyy ttthhheee EEEuuurrrooopppeeeaaannn UUUnnniiiooonnn;;; aaannnddd• hhhaaavvveee bbbeeeeeennn ppprrreeepppaaarrreeeddd iiinnn aaaccccccooorrrdddaaannnccceee wwwiiittthhh ttthhheee rrreeeqqquuuiiirrreeemmmeeennntttsss ooofff ttthhheee CCCooommmpppaaannniiieeesss AAAcccttt 222000000666 aaannnddd AAArrrtttiiicccllleee 444 ooofff ttthhheee IIIAAASSS RRReeeggguuulllaaatttiiiooonnn...opInIon on other matter prescrIbed bY the companIes act 2006IIInnn ooouuurrr ooopppiiinnniiiooonnn ttthhheee iiinnnfffooorrrmmmaaatttiiiooonnn gggiiivvveeennn iiinnn ttthhheee DDDiiirrreeeccctttooorrrsss’’’ RRReeepppooorrrttt fffooorrr ttthhheee fffiiinnnaaannnccciiiaaalll yyyeeeaaarrr fffooorrr wwwhhhiiiccchhh ttthhheee GGGrrrooouuuppp fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss aaarrreee ppprrreeepppaaarrreeeddd iiisss cccooonnnsssiiisssttteeennnttt wwwiiittthhh ttthhheee GGGrrrooouuuppp fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss...matters on WhIch We are reQuIred to report bY eXceptIonWWWeee hhhaaavvveee nnnooottthhhiiinnnggg tttooo rrreeepppooorrrttt iiinnn rrreeessspppeeecccttt ooofff ttthhheee fffooollllllooowwwiiinnnggg:::UUUnnndddeeerrr ttthhheee CCCooommmpppaaannniiieeesss AAAcccttt 222000000666 wwweee aaarrreee rrreeeqqquuuiiirrreeeddd tttooo rrreeepppooorrrttt tttooo yyyooouuu iiifff,,, iiinnn ooouuurrr ooopppiiinnniiiooonnn:::• ccceeerrrtttaaaiiinnn dddiiisssccclllooosssuuurrreeesss ooofff dddiiirrreeeccctttooorrrsss’’’ rrreeemmmuuunnneeerrraaatttiiiooonnn ssspppeeeccciiifffiiieeeddd bbbyyy lllaaawww aaarrreee nnnooottt mmmaaadddeee;;; ooorrr• wwweee hhhaaavvveee nnnooottt rrreeeccceeeiiivvveeeddd aaallllll ttthhheee iiinnnfffooorrrmmmaaatttiiiooonnn aaannnddd eeexxxppplllaaannnaaatttiiiooonnnsss wwweee rrreeeqqquuuiiirrreee fffooorrr ooouuurrr aaauuudddiiittt...UUUnnndddeeerrr ttthhheee LLLiiissstttiiinnnggg RRRuuullleeesss wwweee aaarrreee rrreeeqqquuuiiirrreeeddd tttooo rrreeevvviiieeewww:::• ttthhheee dddiiirrreeeccctttooorrrsss’’’ ssstttaaattteeemmmeeennnttt cccooonnntttaaaiiinnneeeddd wwwiiittthhhiiinnn ttthhheee fffiiinnnaaannnccciiiaaalll rrreeevvviiieeewww ssseeeccctttiiiooonnn ooofff ttthhheee DDDiiirrreeeccctttooorrrsss’’’ RRReeepppooorrrttt iiinnn rrreeelllaaatttiiiooonnn tttooo gggoooiiinnnggg cccooonnnccceeerrrnnn;;; • ttthhheee pppaaarrrttt ooofff ttthhheee CCCooorrrpppooorrraaattteee GGGooovvveeerrrnnnaaannnccceee ssstttaaattteeemmmeeennnttt rrreeelllaaatttiiinnnggg tttooo ttthhheee CCCooommmpppaaannnyyy’’’sss cccooommmpppllliiiaaannnccceee wwwiiittthhh ttthhheee nnniiinnneee ppprrrooovvviiisssiiiooonnnsss ooofff ttthhheee UUUKKK CCCooorrrpppooorrraaattteee GGGooovvveeerrrnnnaaannnccceee CCCooodddeee ssspppeeeccciiifffiiieeeddd fffooorrr ooouuurrr rrreeevvviiieeewww;;; aaannnddd• ccceeerrrtttaaaiiinnn eeellleeemmmeeennntttsss ooofff ttthhheee rrreeepppooorrrttt tttooo ssshhhaaarrreeehhhooollldddeeerrrsss bbbyyy ttthhheee BBBoooaaarrrddd ooonnn dddiiirrreeeccctttooorrrsss’’’ rrreeemmmuuunnneeerrraaatttiiiooonnn...p70-117 MAC_RF65714_A_P07 tp.indd 7019/03/2013 17:26 ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee AAAnnnnnnuuuAAAlll rrreeepppooorrrttt 222000111222 FInAnCIAl stAteMents IIInnndddeeepppeeennndddeeennnttt AAAuuudddIIItttooorrr’’’sss rrreeepppooorrrttt tttooo ttthhheee MMMeeeMMMbbbeeerrrsss oooFFF IIInnnttteeerrrssseeerrrvvveee ppplllCCC 777111other MAtterWWWeee hhhaaavvveee rrreeepppooorrrttteeeddd ssseeepppaaarrraaattteeelllyyy ooonnn ttthhheee pppaaarrreeennnttt cccooommmpppaaannnyyy fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss ooofff IIInnnttteeerrrssseeerrrvvveee PPPlllccc fffooorrr ttthhheee yyyeeeaaarrr eeennndddeeeddd 333111 DDDeeeccceeemmmbbbeeerrr 222000111222 aaannnddd ooonnn ttthhheee iiinnnfffooorrrmmmaaatttiiiooonnn iiinnn ttthhheee DDDiiirrreeeccctttooorrrsss’’’ RRReeemmmuuunnneeerrraaatttiiiooonnn RRReeepppooorrrttt ttthhhaaattt iiisss dddeeessscccrrriiibbbeeeddd aaasss hhhaaavvviiinnnggg bbbeeeeeennn aaauuudddiiittteeeddd...sssttteeeppphhheeennn GGGrrriiiggggggsss (((ssseeennniiiooorrr ssstttaaatttuuutttooorrryyy AAAuuudddiiitttooorrr))) fffooorrr aaannnddd ooonnn bbbeeehhhaaalllfff ooofff dddeeellloooiiitttttteee llllllppp CCChhhaaarrrttteeerrreeeddd AAAccccccooouuunnntttaaannntttsss aaannnddd ssstttaaatttuuutttooorrryyy AAAuuudddiiitttooorrr lllooonnndddooonnn,,, uuunnniiittteeeddd KKKiiinnngggdddooommm 222777 FFFeeebbbrrruuuaaarrryyy 222000111333 cccooonnnsssooolllIIIdddaaattteeeddd IIInnncccooommmeee ssstttaaattteeemmmeeennntttfor the year ended 31 December 2012777222 IIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements cccooonnnsssooolllIIIdddaaattteeeddd IIInnncccooommmeee ssstttaaattteeemmmeeennntttYear ended 31 december 2012YYYeeeaaarrr eeennndddeeeddd 333111 DDDeeeccceeemmmbbbeeerrr 222000111111NNNooottteeesssbefore exceptional items and amortisation of acquired intangible assets £millionexceptional items and amortisation of acquired intangible assets £milliontotal £millionBBBeeefffooorrreee eeexxxccceeeppptttiooonnnaaalll iiittteeemmmsss aaannnddd aaammmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss £££mmmiiilllllliiiooonnnEEExxxccceeeppptttiiiooonnnaaalll iiittteeemmmsss aaannnddd aaammmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss £££mmmiiilllllliiiooonnnTTToootttaaalll £££mmmiiilllllliiiooonnncccooonnntttiiinnnuuuiiinnnggg ooopppeeerrraaatttiiiooonnnsssrrreeevvveeennnuuueee iiinnncccllluuudddiiinnnggg ssshhhaaarrreee ooofff aaassssssoooccciiiaaattteeesss aaannnddd jjjoooiiinnnttt vvveeennntttuuurrreeesss2,369.6 –2,369.6 222,,,333111999...666 – 222,,,333111999...666LLLeeessssss::: SSShhhaaarrreee ooofff aaassssssoooccciiiaaattteeesss aaannnddd jjjoooiiinnnttt vvveeennntttuuurrreeesss111666(411.2) –(411.2)(((444777222...111)))––– (((444777222...111)))cccooonnnsssooollliiidddaaattteeeddd rrreeevvveeennnuuueee2221,958.4–1,958.4111,,,888444777...555 ––– 111,,,888444777...555CCCooosssttt ooofff sssaaallleeesss(1,738.4)–(1,738.4)(((111,,,666444333...777)))––– (((111,,,666444333...777)))GGGrrrooossssss ppprrrooofififittt220.0–220.0222000333...888 – 222000333...888AAAdddmmmiiinnniiissstttrrraaatttiiiooonnn eeexxxpppeeennnssseeesss(165.0)– (165.0)(((111555777...999)))– (((111555777...999)))AAAmmmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss444– (6.0)(6.0)––– (((555...222)))(((555...222)))OOOttthhheeerrr eeexxxccceeeppptttiiiooonnnaaalll iiittteeemmmsss555– (4.0)(4.0)––– ––– –––TTToootttaaalll aaadddmmmiiinnniiissstttrrraaatttiiiooonnn eeexxxpppeeennnssseeesss(165.0)(10.0)(175.0)(((111555777...999)))(((555...222)))(((111666333...111)))PPPrrrooofififittt ooonnn dddiiissspppooosssaaalll ooofff ppprrrooopppeeerrrtttyyy aaannnddd iiinnnvvveeessstttmmmeeennntttsss555–114.9114.9– – –OOOpppeeerrraaatttiiinnnggg ppprrrooofififittt55.0104.9159.9 444555...999 (((555...222)))444000...777SSShhhaaarrreee ooofff rrreeesssuuulllttt 11166625.4–25.4222777...999 ––– 222777...999AAAmmmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss444–(0.4)(0.4)– (((000...555)))(((000...555)))SSShhhaaarrreee ooofff rrreeesssuuulllttt ooofff aaassssssoooccciiiaaattteeesss aaannnddd jjjoooiiinnnttt vvveeennntttuuurrreeesss25.4(0.4)25.0222777...999 (((000...555)))222777...444TTToootttaaalll ooopppeeerrraaatttiiinnnggg ppprrrooofififittt80.4104.5184.9777333...888 (((555...777)))666888...111IIInnnvvveeessstttmmmeeennnttt rrreeevvveeennnuuueee77740.4–40.4333999...777 – 333999...777FFFiiinnnaaannnccceee cccooossstttsss888(42.4)–(42.4)(((444000...777)))– (((444000...777)))PPPrrrooofififittt bbbeeefffooorrreee tttaaaxxx78.4104.5182.9777222...888 (((555...777)))666777...111TTTaaaxxx (((ccchhhaaarrrgggeee)))///cccrrreeedddiiittt999(13.9)2.7(11.2)(((777...999)))111...444 (((666...555)))PPPrrrooofififittt fffooorrr ttthhheee yyyeeeaaarrr64.5107.2171.7666444...999 (((444...333)))666000...666aaattttttrrriiibbbuuutttaaabbbllleee tttooo:::EEEqqquuuiiitttyyy hhhooollldddeeerrrsss ooofff ttthhheee pppaaarrreeennnttt59.8107.2167.0666222...000 (((444...333)))555777...777MMMiiinnnooorrriiitttyyy iiinnnttteeerrreeesssttt4.7–4.7222...999 – 222...99964.5107.2171.7666444...999 (((444...333)))666000...666 eeeaaarrrnnniiinnngggsss pppeeerrr ssshhhaaarrreee111111bbbaaasssiiiccc131.9p444555...999pppdddiiillluuuttteeeddd129.3p444444...777ppp cccooonnnsssooolllIIIdddaaattteeeddd ssstttaaattteeemmmeeennnttt ooofff cccooommmppprrreeehhheeennnsssIIIvvveee IIInnncccooommmeeefor the year ended 31 December 2012 ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements cccooonnnsssooolllIIIdddaaattteeeddd ssstttaaattteeemmmeeennnttt ooofff cccooommmppprrreeehhheeennnsssIIIvvveee IIInnncccooommmeee 777333NNNooottteeesssYear ended 31 december 2012 £millionYYYeeeaaarrr eeennndddeeeddd 333111 DDDeeeccceeemmmbbbeeerrr 222000111111 £££mmmiiilllllliiiooonnnPPPrrrooofififittt fffooorrr ttthhheee pppeeerrriiioooddd171.7666000...666 ooottthhheeerrr cccooommmppprrreeehhheeennnsssiiivvveee iiinnncccooommmeeeEEExxxccchhhaaannngggeee dddiiiffffffeeerrreeennnccceeesss ooonnn tttrrraaannnssslllaaatttiiiooonnn ooofff fffooorrreeeiiigggnnn ooopppeeerrraaatttiiiooonnnsss(8.4)888...000 GGGaaaiiinnnsss///(((lllooosssssseeesss))) ooonnn cccaaassshhh flflflooowww hhheeedddgggeeesss ooofff fififinnnaaannnccciiiaaalll aaasssssseeetttsss (((eeexxxcccllluuudddiiinnnggg jjjoooiiinnnttt vvveeennntttuuurrreeesss)))(0.1)111...111 AAAccctttuuuaaarrriiiaaalll gggaaaiiinnnsss///(((lllooosssssseeesss))) ooonnn dddeeefififinnneeeddd bbbeeennneeefififittt pppeeennnsssiiiooonnn sssccchhheeemmmeeesss333000(74.9)(((333222...999)))DDDeeefffeeerrrrrreeeddd tttaaaxxx ooonnn iiittteeemmmsss tttaaakkkeeennn dddiiirrreeeccctttlllyyy tttooo eeeqqquuuiiitttyyy99916.7777...555 NNNeeettt iiimmmpppaaacccttt ooofff iiittteeemmmsss rrreeelllaaatttiiinnnggg tttooo jjjoooiiinnnttt---vvveeennntttuuurrreee eeennntttiiitttiiieeesss(12.9)222333...111 ooottthhheeerrr cccooommmppprrreeehhheeennnsssiiivvveee iiinnncccooommmeee nnneeettt ooofff tttaaaxxx(79.6)666...888 tttoootttaaalll cccooommmppprrreeehhheeennnsssiiivvveee iiinnncccooommmeee92.1666777...444 aaattttttrrriiibbbuuutttaaabbbllleee tttooo:::EEEqqquuuiiitttyyy hhhooollldddeeerrrsss ooofff ttthhheee pppaaarrreeennnttt87.4666444...555 MMMiiinnnooorrriiitttyyy iiinnnttteeerrreeesssttt4.7222...999 92.1666777...444 CCCooonnnsssooollliiidddaaattteeeddd BBBaaalllaaannnCCCeee ssshhheeeeeetttat 31 December 2012777444 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MMMiiinnnooorrriiitttyyy iiinnnttteeerrreeesssttt6.3444...222 333...888 tttoootttaaalll eeeqqquuuiiitttyyy330.8333000000...888 222555777...666 TTThhheeessseee fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss wwweeerrreee aaapppppprrrooovvveeeddd bbbyyy ttthhheee BBBoooaaarrrddd ooofff DDDiiirrreeeccctttooorrrsss ooonnn 222777 FFFeeebbbrrruuuaaarrryyy 222000111333... SSSiiigggnnneeeddd ooonnn bbbeeehhhaaalllfff ooofff ttthhheee BBBoooaaarrrddd ooofff DDDiiirrreeeccctttooorrrsssAAA MMM RRRiiinnngggrrrooossseee TTT PPP HHHaaayyywwwooooooddd cccooonnnsssooolllIIIdddaaattteeeddd ssstttaaattteeemmmeeennnttt ooofff ccchhhaaannnGGGeeesss IIInnn eeeQQQuuuIIItttYYYfor the year ended 31 December 2012 ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements cccooonnnsssooolllIIIdddaaattteeeddd ssstttaaattteeemmmeeennnttt ooofff ccchhhaaannnGGGeeesss IIInnn eeeQQQuuuIIItttYYY 777555share capital £millionshare premium £millioncapital redemption reserve £millionmerger reserve £millionhedging and translation reserves £millionInvestment in own shares £millionretained earnings £millionattributable to equity holders of the parent £millionminority interest £milliontotal £millionbbbaaalllaaannnccceee 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pppaaayyymmmeeennntttsss––––––3.83.8–3.8bbbaaalllaaannnccceee aaattt 333111 dddeeeccceeemmmbbbeeerrr 22200011122212.7113.10.149.034.5(1.4)116.5324.56.3330.8TTThhheee £££444999...000 mmmiiilllllliiiooonnn mmmeeerrrgggeeerrr rrreeessseeerrrvvveee rrreeeppprrreeessseeennntttsss £££111666...444 mmmiiilllllliiiooonnn ppprrreeemmmiiiuuummm ooonnn ttthhheee ssshhhaaarrreeesss iiissssssuuueeeddd ooonnn ttthhheee aaacccqqquuuiiisssiiitttiiiooonnn ooofff RRRooobbbeeerrrttt MMM... DDDooouuuggglllaaasss HHHooollldddiiinnngggsss PPPlllccc iiinnn 111999999111 aaannnddd £££333222...666 mmmiiilllllliiiooonnn ppprrreeemmmiiiuuummm ooonnn ttthhheee ssshhhaaarrreeesss iiissssssuuueeeddd ooonnn ttthhheee aaacccqqquuuiiisssiiitttiiiooonnn ooofff MMMaaacccLLLeeellllllaaannn GGGrrrooouuuppp PPPlllccc iiinnn 222000000666...TTThhheee iiinnnvvveeessstttmmmeeennnttt iiinnn ooowwwnnn ssshhhaaarrreeesss rrreeessseeerrrvvveee rrreeeppprrreeessseeennntttsss ttthhheee cccooosssttt ooofff ssshhhaaarrreeesss iiinnn IIInnnttteeerrrssseeerrrvvveee PPPlllccc hhheeelllddd bbbyyy ttthhheee tttrrruuusssttteeeeeesss ooofff ttthhheee HHHooowww GGGrrrooouuuppp,,, BBBaaannndddttt aaannnddd IIInnnttteeerrrssseeerrrvvveee EEEmmmpppllloooyyyeeeeee BBBeeennneeefffiiittt TTTrrruuussstttsss... TTThhheee mmmaaarrrkkkeeettt vvvaaallluuueee ooofff ttthhheeessseee ssshhhaaarrreeesss aaattt 333111 DDDeeeccceeemmmbbbeeerrr 222000111222 wwwaaasss £££222...555 mmmiiilllllliiiooonnn (((222000111111::: £££444...222 mmmiiilllllliiiooonnn)))...TTThhheee aaaccccccuuummmuuulllaaattteeeddd bbbaaalllaaannnccceee ooofff tttrrraaannnssslllaaatttiiiooonnn dddiiiffffffeeerrreeennnccceeesss,,, iiinnncccooorrrpppooorrraaattteeeddd wwwiiittthhhiiinnn ttthhheee hhheeedddgggiiinnnggg aaannnddd tttrrraaannnssslllaaatttiiiooonnn rrreeessseeerrrvvveee aaabbbooovvveee,,, aaammmooouuunnntttsss tttooo £££333555...222 mmmiiilllllliiiooonnn (((222000111111::: £££444333...666 mmmiiilllllliiiooonnn)))... cccooonnnsssooolllIIIdddaaattteeeddd cccaaassshhh fffllloooWWW ssstttaaattteeemmmeeennntttfor the year ended 31 December 2012777666 IIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements cccooonnnsssooolllIIIdddaaattteeeddd cccaaassshhh fffllloooWWW 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cccooonnntttrrriiibbbuuutttiiiooonnnsss iiinnn eeexxxccceeessssss ooofff ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt ccchhhaaarrrgggeee(30.8)(((222777...000)))SSShhhaaarrreee ooofff rrreeesssuuullltttsss ooofff aaassssssoooccciiiaaattteeesss aaannnddd jjjoooiiinnnttt vvveeennntttuuurrreeesss(25.0)(((222777...444)))CCChhhaaarrrgggeee rrreeelllaaatttiiinnnggg tttooo ssshhhaaarrreee---bbbaaassseeeddd pppaaayyymmmeeennntttsss2229994.3222...333 GGGaaaiiinnn ooonnn dddiiissspppooosssaaalll ooofff ppplllaaannnttt aaannnddd eeeqqquuuiiipppmmmeeennnttt --- hhhiiirrreee flflfleeeeeettt(14.1)(((111555...444)))GGGaaaiiinnn ooonnn dddiiissspppooosssaaalll ooofff ppplllaaannnttt aaannnddd eeeqqquuuiiipppmmmeeennnttt --- ooottthhheeerrr(0.2)(((000...111)))OOOpppeeerrraaatttiiinnnggg cccaaassshhh flflflooowwwsss bbbeeefffooorrreee mmmooovvveeemmmeeennntttsss iiinnn wwwooorrrkkkiiinnnggg cccaaapppiiitttaaalll39.5333555...666 IIInnncccrrreeeaaassseee iiinnn 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iiinnnvvveeessstttmmmeeennntttsss555119.3---RRReeeccceeeiiipppttt ooofff llloooaaannn rrreeepppaaayyymmmeeennnttt --- IIInnnvvveeessstttmmmeeennntttsss111666bbb4.7000...222nnneeettt cccaaassshhh uuussseeeddd iiinnn iiinnnvvveeessstttiiinnnggg aaaccctttiiivvviiitttiiieeesss82.3(((222...888)))fffiiinnnaaannnccciiinnnggg aaaccctttiiivvviiitttiiieeesssIIInnnttteeerrreeesssttt pppaaaiiiddd(9.6)(((666...777)))DDDiiivvviiidddeeennndddsss pppaaaiiiddd tttooo eeeqqquuuiiitttyyy ssshhhaaarrreeehhhooollldddeeerrrsss111000(24.4)(((222333...000)))DDDiiivvviiidddeeennndddsss pppaaaiiiddd tttooo mmmiiinnnooorrriiitttyyy ssshhhaaarrreeehhhooollldddeeerrrsss(2.6)(((222...555)))PPPrrroooccceeeeeedddsss fffrrrooommm iiissssssuuueee ooofff ssshhhaaarrreeesss aaannnddd eeexxxeeerrrccciiissseee ooofff ssshhhaaarrreee oooppptttiiiooonnnsss1.5---RRReeepppaaayyymmmeeennnttt ooofff bbbaaannnkkk llloooaaannnsss(40.0)(((111555...000)))MMMooovvveeemmmeeennnttt iiinnn ooobbbllliiigggaaatttiiiooonnnsss uuunnndddeeerrr fififinnnaaannnccceee llleeeaaassseeesss0.2(((000...222)))NNNeeettt cccaaassshhh uuussseeeddd iiinnn fififinnnaaannnccciiinnnggg aaaccctttiiivvviiitttiiieeesss(74.9)(((444777...444)))nnneeettt iiinnncccrrreeeaaassseee///(((dddeeecccrrreeeaaassseee))) iiinnn cccaaassshhh aaannnddd cccaaassshhh eeeqqquuuiiivvvaaallleeennntttsss30.4(((555...333)))CCCaaassshhh aaannnddd cccaaassshhh eeeqqquuuiiivvvaaallleeennntttsss aaattt bbbeeegggiiinnnnnniiinnnggg ooofff pppeeerrriiioooddd26.8333222...444EEEffffffeeecccttt ooofff fffooorrreeeiiigggnnn eeexxxccchhhaaannngggeee rrraaattteee ccchhhaaannngggeeesss(0.2)(((000...333)))cccaaassshhh aaannnddd cccaaassshhh eeeqqquuuiiivvvaaallleeennntttsss aaattt eeennnddd ooofff pppeeerrriiioooddd57.0222666...888 ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements cccooonnnsssooolllIIIdddaaattteeeddd cccaaassshhh fffllloooWWW ssstttaaattteeemmmeeennnttt 777777notesYear ended 31 december 2012 £millionYear ended 31 December 2011 £millionoperating activitiesTotal operating profit184.968.1 Adjustments for:Amortisation of acquired intangible assets146.05.2 Amortisation of capitalised software development141.61.6 Depreciation of property, plant and equipment1527.728.3 Profit on disposal of property and investments5(114.9)- Pension contributions in excess of the income statement charge(30.8)(27.0)Share of results of associates and joint ventures(25.0)(27.4)Charge relating to share-based payments294.32.3 Gain on disposal of plant and equipment - hire fleet(14.1)(15.4)Gain on disposal of plant and equipment - other(0.2)(0.1)Operating cash flows before movements in working capital39.535.6 Increase in inventories(3.2)(2.7)(Increase)/decrease in receivables(47.1)5.6Increase in payables50.56.6Cash generated by operations before changes in hire fleet39.745.1Capital expenditure - hire fleet15(24.4)(21.6)Proceeds on disposal of plant and equipment - hire fleet18.424.6Cash generated by operations33.748.1Taxes paid(10.7)(3.2)net cash from operating activities23.044.9Investing activitiesInterest received8.44.4Dividends received from associates and joint ventures16a19.820.6Proceeds on disposal of plant and equipment - non-hire fleet1.80.5Capital expenditure - non-hire fleet14/15(10.7)(9.0)Purchase of businesses12(44.7)-Investment in joint-venture entities16b(15.7)(19.5)Investment in associated undertakings16c(0.6)-Proceeds on disposal of investments5119.3-Receipt of loan repayment - Investments16b4.70.2net cash used in investing activities82.3(2.8)financing activitiesInterest paid(9.6)(6.7)Dividends paid to equity shareholders10(24.4)(23.0)Dividends paid to minority shareholders(2.6)(2.5)Proceeds from issue of shares and exercise of share options1.5-Repayment of bank loans(40.0)(15.0)Movement in obligations under finance leases0.2(0.2)Net cash used in financing activities(74.9)(47.4)net increase/(decrease) in cash and cash equivalents30.4(5.3)Cash and cash equivalents at beginning of period26.832.4Effect of foreign exchange rate changes(0.2)(0.3)cash and cash equivalents at end of period57.026.8Year ended 31 december 2012 £millionYYYeeeaaarrr eeennndddeeeddd 333111 DDDeeeccceeemmmbbbeeerrr 222000111111 £££mmmiiilllllliiiooonnncccaaassshhh aaannnddd cccaaassshhh eeeqqquuuiiivvvaaallleeennntttsss cccooommmppprrriiissseeeCCCaaassshhh aaannnddd dddeeepppooosssiiitttsss76.8444666...111BBBaaannnkkk ooovvveeerrrdddrrraaaffftttsss(19.8)(((111999...333)))57.0222666...888RRReeecccooonnnccciiillliiiaaatttiiiooonnn ooofff nnneeettt cccaaassshhh flflflooowww tttooo mmmooovvveeemmmeeennnttt iiinnn nnneeettt dddeeebbbtttNNNeeettt iiinnncccrrreeeaaassseee///(((dddeeecccrrreeeaaassseee))) iiinnn cccaaassshhh aaannnddd cccaaassshhh eeeqqquuuiiivvvaaallleeennntttsss30.4(((555...333)))RRReeepppaaayyymmmeeennnttt ooofff bbbaaannnkkk llloooaaannnsss40.0111555...000 MMMooovvveeemmmeeennnttt iiinnn ooobbbllliiigggaaatttiiiooonnnsss uuunnndddeeerrr fififinnnaaannnccceee llleeeaaassseeesss(0.2)000...222 CCChhhaaannngggeee iiinnn nnneeettt dddeeebbbttt rrreeesssuuullltttiiinnnggg fffrrrooommm cccaaassshhh flflflooowwwsss70.2999...999 EEEffffffeeecccttt ooofff fffooorrreeeiiigggnnn eeexxxccchhhaaannngggeee rrraaattteee ccchhhaaannngggeeesss(0.2)(((000...333)))mmmooovvveeemmmeeennnttt iiinnn nnneeettt dddeeebbbttt ddduuurrriiinnnggg ttthhheee pppeeerrriiioooddd70.0999...666 nnneeettt cccaaassshhh///(((dddeeebbbttt))) --- ooopppeeennniiinnnggg(44.2)(((555333...888)))nnneeettt cccaaassshhh///(((dddeeebbbttt))) --- ccclllooosssiiinnnggg25.8(((444444...222))) nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsssfor the year ended 31 December 2012777888 IIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsssbasIs of preparatIon note TTThhheee IIInnnttteeerrrssseeerrrvvveee PPPlllccc cccooonnnsssooollliiidddaaattteeeddd fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss hhhaaavvveee bbbeeeeeennn ppprrreeepppaaarrreeeddd iiinnn aaaccccccooorrrdddaaannnccceee wwwiiittthhh IIInnnttteeerrrnnnaaatttiiiooonnnaaalll FFFiiinnnaaannnccciiiaaalll RRReeepppooorrrtttiiinnnggg SSStttaaannndddaaarrrdddsss (((“““IIIFFFRRRSSS”””))) aaannnddd cccooommmppplllyyy wwwiiittthhh ttthhheee IIIFFFRRRSSS aaannnddd rrreeelllaaattteeeddd IIInnnttteeerrrppprrreeetttaaatttiiiooonnnsss (((SSSIIICCC aaannnddd IIIFFFRRRIIICCC iiinnnttteeerrrppprrreeetttaaatttiiiooonnnsss))) aaasss aaadddooopppttteeeddd bbbyyy ttthhheee EEEuuurrrooopppeeeaaannn UUUnnniiiooonnn...adoption of new and revised standardsTTThhheeerrreee hhhaaavvveee bbbeeeeeennn nnnooo sssiiigggnnniiifffiiicccaaannnttt ssstttaaannndddaaarrrdddsss aaannnddd iiinnnttteeerrrppprrreeetttaaatttiiiooonnnsss iiinnntttrrroooddduuuccceeeddd iiinnn ttthhheee pppeeerrriiioooddd...AAAttt ttthhheee dddaaattteee ooofff aaauuuttthhhooorrriiisssaaatttiiiooonnn ooofff ttthhheeessseee GGGrrrooouuuppp fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss,,, ttthhheee fffooollllllooowwwiiinnnggg SSStttaaannndddaaarrrdddsss aaannnddd IIInnnttteeerrrppprrreeetttaaatttiiiooonnnsss wwweeerrreee iiinnn iiissssssuuueee bbbuuuttt nnnooottt yyyeeettt eeeffffffeeeccctttiiivvveee,,, aaannnddd ttthhheeerrreeefffooorrreee hhhaaavvveee nnnooottt bbbeeeeeennn aaappppppllliiieeeddd iiinnn ttthhheeessseee GGGrrrooouuuppp fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss:::IIIfffrrrsss 999 FFFiiinnnaaannnccciiiaaalll iiinnnssstttrrruuummmeeennntttsssIIIfffrrrsss 111000 (((aaammmeeennndddeeeddd))) CCCooonnnsssooollliiidddaaattteeeddd fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsssIIIfffrrrsss 111111 JJJoooiiinnnttt aaarrrrrraaannngggeeemmmeeennntttsssIIIfffrrrsss 111222 DDDiiisssccclllooosssuuurrreeesss ooofff iiinnnttteeerrreeessstttsss iiinnn ooottthhheeerrr eeennntttiiitttiiieeesssIIIfffrrrsss 111333 FFFaaaiiirrr vvvaaallluuueee mmmeeeaaasssuuurrreeemmmeeennntttIIIaaasss 111999 (((rrreeevvviiissseeeddd))) EEEmmmpppllloooyyyeeeeee bbbeeennneeefffiiitttsssIIIaaasss 222777 (((rrreeevvviiissseeeddd))) SSSeeepppaaarrraaattteee fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsssIIIaaasss 222888 (((rrreeevvviiissseeeddd))) IIInnnvvveeessstttmmmeeennntttsss iiinnn aaassssssoooccciiiaaattteeesss aaannnddd jjjoooiiinnnttt vvveeennntttuuurrreeesssIIIfffrrrsss 777 (((aaammmeeennndddeeeddd))) FFFiiinnnaaannnccciiiaaalll iiinnnssstttrrruuummmeeennntttsss::: dddiiisssccclllooosssuuurrreeesssIIIaaasss 111222 (((aaammmeeennndddeeeddd))) DDDeeefffeeerrrrrreeeddd tttaaaxxx::: rrreeecccooovvveeerrryyy ooofff uuunnndddeeerrrlllyyyiiinnnggg aaasssssseeetttsssIIIaaasss 333222 (((aaammmeeennndddeeeddd))) OOOffffffssseeettttttiiinnnggg fffiiinnnaaannnccciiiaaalll aaasssssseeetttsss aaannnddd fffiiinnnaaannnccciiiaaalll llliiiaaabbbiiillliiitttiiieeesss IIIfffrrrsss 111000,,, IIIfffrrrsss 111222 aaannnddd IIIaaasss 222777 (((aaammmeeennndddeeeddd))) IIInnnvvveeessstttmmmeeennnttt eeennntttiiitttiiieeesss IIIfffrrrsss 111 (((aaammmeeennndddeeeddd))) GGGooovvveeerrrnnnmmmeeennnttt llloooaaannnsssTTThhheee iiimmmpppaaacccttt ooofff ttthhheee ssseeeccctttiiiooonnnsss ooofff IIIFFFRRRSSS 999 cccuuurrrrrreeennntttlllyyy iiissssssuuueeeddd wwwiiillllll rrreeesssuuulllttt iiinnn ttthhheee GGGrrrooouuuppp’’’sss ppprrrooojjjeeecccttt fffiiinnnaaannnccceee iiinnnttteeerrreeessstttsss ttthhhaaattt aaarrreee cccuuurrrrrreeennntttlllyyy tttrrreeeaaattteeeddd bbbyyy ttthhheee jjjoooiiinnnttt---vvveeennntttuuurrreee cccooommmpppaaannniiieeesss aaasss bbbeeeiiinnnggg aaavvvaaaiiilllaaabbbllleee---fffooorrr---sssaaallleee,,, bbbeeeiiinnnggg tttrrreeeaaattteeeddd aaasss aaa dddeeebbbttt cccaaarrrrrriiieeeddd aaattt “““fffaaaiiirrr vvvaaallluuueee ttthhhrrrooouuuggghhh ppprrrooofffiiittt ooorrr lllooossssss””” ooorrr “““aaammmooorrrtttiiissseeeddd cccooosssttt”””... AAAsss aaa rrreeesssuuulllttt,,, mmmooovvveeemmmeeennntttsss iiinnn ttthhheee fffaaaiiirrr vvvaaallluuueee wwwiiillllll nnnooo lllooonnngggeeerrr bbbeee tttaaakkkeeennn tttooo “““OOOttthhheeerrr cccooommmppprrreeehhheeennnsssiiivvveee iiinnncccooommmeee”””...TTThhheee kkkeeeyyy iiimmmpppaaacccttt ooofff IIIAAASSS 111999 (((rrreeevvviiissseeeddd))) wwwiiillllll bbbeee tttooo rrreeemmmooovvveee ttthhheee ssseeepppaaarrraaattteee aaassssssuuummmppptttiiiooonnnsss fffooorrr eeexxxpppeeecccttteeeddd rrreeetttuuurrrnnn ooonnn ppplllaaannn aaasssssseeetttsss aaannnddd dddiiissscccooouuunnntttiiinnnggg ooofff sssccchhheeemmmeee llliiiaaabbbiiillliiitttiiieeesss,,, aaannnddd rrreeeppplllaaaccceee ttthhheeemmm wwwiiittthhh ooonnneee sssiiinnngggllleee dddiiissscccooouuunnnttt rrraaattteee fffooorrr ttthhheee nnneeettt dddeeefffiiiccciiittt... TTThhheee iiimmmpppaaacccttt ooonnn nnneeettt aaasssssseeetttsss iiisss nnnooottt eeexxxpppeeecccttteeeddd tttooo bbbeee mmmaaattteeerrriiiaaalll... TTThhheee iiimmmpppaaacccttt ooonnn ttthhheee 222000111222 iiinnncccooommmeee ssstttaaattteeemmmeeennnttt,,, iiifff iiittt hhhaaaddd bbbeeeeeennn ppprrreeessseeennnttteeeddd uuunnndddeeerrr ttthhheee nnneeewww IIIAAASSS 111999 (((rrreeevvviiissseeeddd))),,, wwwooouuulllddd hhhaaavvveee bbbeeeeeennn aaa rrreeeddduuuccctttiiiooonnn iiinnn ppprrrooofffiiittt bbbeeefffooorrreee tttaaaxxxaaatttiiiooonnn ooofff £££333...111 mmmiiilllllliiiooonnn...EEExxxccceeepppttt fffooorrr IIIFFFRRRSSS 999 aaannnddd IIIAAASSS 111999 (((rrreeevvviiissseeeddd))),,, llliiisssttteeeddd aaabbbooovvveee,,, ttthhheee dddiiirrreeeccctttooorrrsss aaannntttiiiccciiipppaaattteee ttthhhaaattt ttthhheee aaadddoooppptttiiiooonnn ooofff ttthhheeessseee ssstttaaannndddaaarrrdddsss aaannnddd iiinnnttteeerrrppprrreeetttaaatttiiiooonnnsss iiinnn fffuuutttuuurrreee pppeeerrriiiooodddsss wwwiiillllll hhhaaavvveee nnnooo mmmaaattteeerrriiiaaalll iiimmmpppaaacccttt ooonnn ttthhheee fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss ooofff ttthhheee GGGrrrooouuuppp... critical accounting judgements and key sources of estimation and uncertaintyIIInnn ttthhheee ppprrreeepppaaarrraaatttiiiooonnn ooofff ttthhheee cccooonnnsssooollliiidddaaattteeeddd fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss mmmaaannnaaagggeeemmmeeennnttt mmmaaakkkeeesss ccceeerrrtttaaaiiinnn jjjuuudddgggeeemmmeeennntttsss aaannnddd eeessstttiiimmmaaattteeesss ttthhhaaattt iiimmmpppaaacccttt ttthhheee fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss... WWWhhhiiillleee ttthhheeessseee jjjuuudddgggeeemmmeeennntttsss aaarrreee cccooonnntttiiinnnuuuaaallllllyyy rrreeevvviiieeewwweeeddd ttthhheee fffaaaccctttsss aaannnddd ccciiirrrcccuuummmssstttaaannnccceeesss uuunnndddeeerrrlllyyyiiinnnggg ttthhheeessseee jjjuuudddgggeeemmmeeennntttsss mmmaaayyy ccchhhaaannngggeee rrreeesssuuullltttiiinnnggg iiinnn aaa ccchhhaaannngggeee tttooo ttthhheee eeessstttiiimmmaaattteeesss ttthhhaaattt cccooouuulllddd iiimmmpppaaacccttt ttthhheee rrreeesssuuullltttsss ooofff ttthhheee GGGrrrooouuuppp... IIInnn pppaaarrrtttiiicccuuulllaaarrr:::RRReeevvveeennnuuueee aaannnddd mmmaaarrrgggiiinnn rrreeecccooogggnnniiitttiiiooonnnTTThhheee pppooollliiicccyyy fffooorrr rrreeevvveeennnuuueee rrreeecccooogggnnniiitttiiiooonnn ooonnn lllooonnnggg---ttteeerrrmmm aaannnddd ssseeerrrvvviiiccceee cccooonnntttrrraaaccctttsss iiisss ssseeettt ooouuuttt iiinnn nnnooottteeesss 111(((ddd))) aaannnddd (((eee)))... JJJuuudddgggeeemmmeeennntttsss aaarrreee mmmaaadddeee ooonnn aaannn ooonnngggoooiiinnnggg bbbaaasssiiisss wwwiiittthhh rrreeegggaaarrrddd tttooo ttthhheee rrreeecccooovvveeerrraaabbbiiillliiitttyyy ooofff aaammmooouuunnntttsss ddduuueee aaannnddd llliiiaaabbbiiillliiitttiiieeesss aaarrriiisssiiinnnggg... RRReeeggguuulllaaarrr fffooorrreeecccaaassstttsss aaarrreee cccooommmpppiiillleeeddd ooonnn ttthhheee ooouuutttcccooommmeeesss ooofff ttthhheeessseee tttyyypppeeesss ooofff cccooonnntttrrraaaccctttsss,,, wwwhhhiiiccchhh rrreeeqqquuuiiirrreee aaasssssseeessssssmmmeeennntttsss aaannnddd jjjuuudddgggeeemmmeeennntttsss rrreeelllaaatttiiinnnggg tttooo ttthhheee rrreeecccooovvveeerrryyy ooofff ppprrreee---cccooonnntttrrraaacccttt cccooossstttsss,,, ccchhhaaannngggeeesss iiinnn wwwooorrrkkk ssscccooopppeeesss,,, cccooonnntttrrraaacccttt ppprrrooogggrrraaammmmmmeeesss aaannnddd mmmaaaiiinnnttteeennnaaannnccceee llliiiaaabbbiiillliiitttiiieeesss...PPPFFFIII fffiiinnnaaannnccciiiaaalll aaasssssseeetttsss aaannnddd dddeeerrriiivvvaaatttiiivvveee fffiiinnnaaannnccciiiaaalll iiinnnssstttrrruuummmeeennntttsssTTThhheee GGGrrrooouuuppp’’’sss iiinnnttteeerrreeessstttsss iiinnn PPPFFFIII///PPPPPPPPP iiinnnvvveeessstttmmmeeennntttsss aaarrreee ccclllaaassssssiiifffiiieeeddd aaasss “““aaavvvaaaiiilllaaabbbllleee---fffooorrr---sssaaallleee””” fffiiinnnaaannnccciiiaaalll aaasssssseeetttsss bbbyyy ttthhheee jjjoooiiinnnttt---vvveeennntttuuurrreee eeennntttiiitttiiieeesss... TTThhheee fffaaaiiirrr vvvaaallluuueee ooofff ttthhheeessseee fffiiinnnaaannnccciiiaaalll aaasssssseeetttsss iiisss mmmeeeaaasssuuurrreeeddd aaattt eeeaaaccchhh bbbaaalllaaannnccceee ssshhheeeeeettt dddaaattteee bbbyyy dddiiissscccooouuunnntttiiinnnggg ttthhheee fffuuutttuuurrreee cccaaassshhh ffflllooowwwsss aaallllllooocccaaattteeeddd tttooo ttthhheee fffiiinnnaaannnccciiiaaalll aaasssssseeettt... TTThhheee dddiiissscccooouuunnnttt rrraaattteee uuussseeeddd iiisss bbbaaassseeeddd ooonnn lllooonnnggg---ttteeerrrmmm LLLIIIBBBOOORRR pppllluuusss aaa mmmaaarrrgggiiinnn tttooo rrreeefffllleeecccttt ttthhheee rrriiissskkk aaassssssoooccciiiaaattteeeddd wwwiiittthhh eeeaaaccchhh ppprrrooojjjeeecccttt...TTThhheee GGGrrrooouuuppp’’’sss PPPFFFIII///PPPPPPPPP jjjoooiiinnnttt---vvveeennntttuuurrreee aaannnddd aaassssssoooccciiiaaattteee cccooommmpppaaannniiieeesss uuussseee dddeeerrriiivvvaaatttiiivvveee fffiiinnnaaannnccciiiaaalll iiinnnssstttrrruuummmeeennntttsss tttooo mmmaaannnaaagggeee ttthhheee iiinnnttteeerrreeesssttt rrraaattteee aaannnddd iiinnnffflllaaatttiiiooonnn rrraaattteee rrriiissskkksss tttooo wwwhhhiiiccchhh ttthhheee cccooonnnccceeessssssiiiooonnnsss aaarrreee eeexxxpppooossseeeddd wwwiiittthhhiiinnn ttthhheeeiiirrr lllooonnnggg---ttteeerrrmmm cccooonnntttrrraaaccctttuuuaaalll aaagggrrreeeeeemmmeeennntttsss... TTThhheeessseee dddeeerrriiivvvaaatttiiivvveeesss aaarrreee iiinnniiitttiiiaaallllllyyy rrreeecccooogggnnniiissseeeddd aaasss aaasssssseeetttsss aaannnddd llliiiaaabbbiiillliiitttiiieeesss aaattt ttthhheeeiiirrr fffaaaiiirrr vvvaaallluuueee aaannnddd sssuuubbbssseeeqqquuueeennntttlllyyy rrreeemmmeeeaaasssuuurrreeeddd aaattt eeeaaaccchhh bbbaaalllaaannnccceee ssshhheeeeeettt dddaaattteee aaattt ttthhheeeiiirrr fffaaaiiirrr vvvaaallluuueee... 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IIInnn dddeeettteeerrrmmmiiinnniiinnnggg wwwhhheeettthhheeerrr gggoooooodddwwwiiillllll iiisss iiimmmpppaaaiiirrreeeddd aaannn eeessstttiiimmmaaatttiiiooonnn ooofff ttthhheee vvvaaallluuueee iiinnn uuussseee ooofff ttthhheee cccaaassshhh gggeeennneeerrraaatttiiinnnggg uuunnniiittt (((CCCGGGUUU))) tttooo wwwhhhiiiccchhh ttthhheee gggoooooodddwwwiiillllll hhhaaasss bbbeeeeeennn aaallllllooocccaaattteeeddd iiisss rrreeeqqquuuiiirrreeeddd... TTThhhiiisss cccaaalllcccuuulllaaatttiiiooonnn ooofff vvvaaallluuueee iiinnn uuussseee rrreeeqqquuuiiirrreeesss eeessstttiiimmmaaattteeesss tttooo bbbeee mmmaaadddeee rrreeelllaaatttiiinnnggg tttooo ttthhheee tttiiimmmiiinnnggg aaannnddd aaammmooouuunnnttt ooofff fffuuutttuuurrreee cccaaassshhh ffflllooowwwsss eeexxxpppeeecccttteeeddd fffrrrooommm ttthhheee CCCGGGUUU,,, aaannnddd sssuuuiiitttaaabbbllleee dddiiissscccooouuunnnttt rrraaattteeesss bbbaaassseeeddd ooonnn ttthhheee GGGrrrooouuuppp’’’sss wwweeeiiiggghhhttteeeddd aaavvveeerrraaagggeee cccooosssttt ooofff cccaaapppiiitttaaalll aaadddjjjuuusssttteeeddd tttooo rrreeefffllleeecccttt ttthhheee ssspppeeeccciiifffiiiccc eeecccooonnnooommmiiiccc eeennnvvviiirrrooonnnmmmeeennnttt ooofff ttthhheee rrreeellleeevvvaaannnttt CCCGGGUUU...RRReeetttiiirrreeemmmeeennnttt bbbeeennneeefffiiittt ooobbbllliiigggaaatttiiiooonnnsssIIInnn aaaccccccooorrrdddaaannnccceee wwwiiittthhh IIIAAASSS 111999 EEEmmmpppllloooyyyeeeeee bbbeeennneeefffiiitttsss,,, ttthhheee GGGrrrooouuuppp hhhaaasss dddiiisssccclllooossseeeddd iiinnn nnnooottteee 333000 ttthhheee aaassssssuuummmppptttiiiooonnnsss uuussseeeddd iiinnn cccaaalllcccuuulllaaatttiiinnnggg ttthhheee dddeeefffiiinnneeeddd bbbeeennneeefffiiittt ooobbbllliiigggaaatttiiiooonnnsss... 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TTThhheee gggrrreeeaaattt mmmaaajjjooorrriiitttyyy ooofff eeeqqquuuiiipppmmmeeennnttt iiinnn ttthhheee rrreeennntttaaalll fffllleeeeeettt iiisss dddeeeppprrreeeccciiiaaattteeeddd ooonnn aaa ssstttrrraaaiiiggghhhttt---llliiinnneee bbbaaasssiiisss tttooo aaa rrreeesssiiiddduuuaaalll vvvaaallluuueee ooofff zzzeeerrrooo ooovvveeerrr 111000 yyyeeeaaarrrsss... AAAsssssseeettt llliiivvveeesss aaarrreee rrreeevvviiieeewwweeeddd rrreeeggguuulllaaarrrlllyyy iiinnn llliiiggghhhttt ooofff ttteeeccchhhnnnooolllooogggiiicccaaalll ccchhhaaannngggeee,,, ppprrrooossspppeeeccctttiiivvveee uuutttiiillliiisssaaatttiiiooonnn aaannnddd ttthhheee ppphhhyyysssiiicccaaalll cccooonnndddiiitttiiiooonnn ooofff ttthhheee aaasssssseeetttsss... DDDuuueee tttooo ttthhheee tttrrraaannnssspppooorrrtttaaabbbllleee nnnaaatttuuurrreee ooofff ttthhheee rrreeennntttaaalll fffllleeeeeettt,,, ttthhheee rrreeevvviiieeewww fffooorrr pppooottteeennntttiiiaaalll iiimmmpppaaaiiirrrmmmeeennnttt iiisss pppeeerrrfffooorrrmmmeeeddd ooonnn aaa ggglllooobbbaaalll bbbaaasssiiisss...CCCaaarrrrrryyyiiinnnggg vvvaaallluuueee ooofff tttrrraaadddeee aaannnddd ooottthhheeerrr rrreeeccceeeiiivvvaaabbbllleeesss AAAllllllooowwwaaannnccceee fffooorrr dddooouuubbbtttfffuuulll dddeeebbbttt aaannnddd ppprrrooovvviiisssiiiooonnnsss aaagggaaaiiinnnsssttt ooottthhheeerrr rrreeeccceeeiiivvvaaabbbllleeesss,,, iiinnncccllluuudddiiinnnggg aaammmooouuunnntttsss ddduuueee ooonnn cccooonnnssstttrrruuuccctttiiiooonnn cccooonnntttrrraaaccctttsss aaannnddd cccaaarrrrrryyyiiinnnggg vvvaaallluuueee ooofff aaaccccccrrruuueeeddd iiinnncccooommmeee,,, aaarrreee mmmaaadddeee ooonnn aaa ssspppeeeccciiifffiiiccc bbbaaasssiiisss,,, bbbaaassseeeddd ooonnn eeessstttiiimmmaaattteeesss ooofff iiirrrrrreeecccooovvveeerrraaabbbiiillliiitttyyy dddeeettteeerrrmmmiiinnneeeddd bbbyyy mmmaaarrrkkkeeettt kkknnnooowwwllleeedddgggeee aaannnddd pppaaasssttt eeexxxpppeeerrriiieeennnccceee...1. accountInG polIcIes IIInnnttteeerrrssseeerrrvvveee PPPlllccc (((ttthhheee CCCooommmpppaaannnyyy))) iiisss aaa cccooommmpppaaannnyyy iiinnncccooorrrpppooorrraaattteeeddd iiinnn ttthhheee UUUnnniiittteeeddd KKKiiinnngggdddooommm aaannnddd bbbooouuunnnddd bbbyyy ttthhheee CCCooommmpppaaannniiieeesss AAAcccttt 222000000666... TTThhheee cccooonnnsssooollliiidddaaattteeeddd fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss cccooommmppprrriiissseee ttthhheee CCCooommmpppaaannnyyy aaannnddd iiitttsss sssuuubbbsssiiidddiiiaaarrriiieeesss (((tttooogggeeettthhheeerrr rrreeefffeeerrrrrreeeddd tttooo aaasss ttthhheee GGGrrrooouuuppp))) aaannnddd ttthhheee GGGrrrooouuuppp’’’sss iiinnnttteeerrreeesssttt iiinnn jjjoooiiinnnttt vvveeennntttuuurrreeesss aaannnddd aaassssssoooccciiiaaattteeesss... TTThhheeessseee fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss aaarrreee ppprrreeessseeennnttteeeddd iiinnn pppooouuunnndddsss sssttteeerrrllliiinnnggg wwwhhhiiiccchhh iiisss ttthhheee cccuuurrrrrreeennncccyyy ooofff ttthhheee ppprrriiimmmaaarrryyy eeecccooonnnooommmiiiccc eeennnvvviiirrrooonnnmmmeeennnttt iiinnn wwwhhhiiiccchhh ttthhheee GGGrrrooouuuppp ooopppeeerrraaattteeesss... FFFooorrreeeiiigggnnn ooopppeeerrraaatttiiiooonnnsss aaarrreee iiinnncccllluuudddeeeddd iiinnn aaaccccccooorrrdddaaannnccceee wwwiiittthhh ttthhheee pppooollliiiccciiieeesss ssseeettt ooouuuttt bbbeeelllooowww... TTThhheeessseee fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss hhhaaavvveee bbbeeeeeennn ppprrreeepppaaarrreeeddd ooonnn aaa hhhiiissstttooorrriiicccaaalll cccooosssttt bbbaaasssiiisss,,, eeexxxccceeepppttt fffooorrr ttthhheee rrreeevvvaaallluuuaaatttiiiooonnn ooofff ccceeerrrtttaaaiiinnn fffiiinnnaaannnccciiiaaalll iiinnnssstttrrruuummmeeennntttsss...TTThhheee fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss aaarrreee ppprrreeepppaaarrreeeddd ooonnn aaa gggoooiiinnnggg cccooonnnccceeerrrnnn bbbaaasssiiisss... 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TTThhheee rrreeesssuuullltttsss ooofff sssuuubbbsssiiidddiiiaaarrriiieeesss aaacccqqquuuiiirrreeeddd ooorrr dddiiissspppooossseeeddd ooofff ddduuurrriiinnnggg ttthhheee yyyeeeaaarrr aaarrreee iiinnncccllluuudddeeeddd fffrrrooommm ttthhheee eeeffffffeeeccctttiiivvveee dddaaattteee ooofff aaacccqqquuuiiisssiiitttiiiooonnn ooorrr uuunnntttiiilll ttthhheee eeeffffffeeeccctttiiivvveee dddaaattteee ooofff dddiiissspppooosssaaalll rrreeessspppeeeccctttiiivvveeelllyyy...MMMiiinnnooorrriiitttyyy iiinnnttteeerrreeessstttsss iiinnn ttthhheee nnneeettt aaasssssseeetttsss ooofff ttthhheee cccooonnnsssooollliiidddaaattteeeddd sssuuubbbsssiiidddiiiaaarrriiieeesss aaarrreee iiidddeeennntttiiifffiiieeeddd ssseeepppaaarrraaattteeelllyyy fffrrrooommm ttthhheee GGGrrrooouuuppp’’’sss eeeqqquuuiiitttyyy iiinnnttteeerrreeesssttt ttthhheeerrreeeiiinnn... MMMiiinnnooorrriiitttyyy iiinnnttteeerrreeessstttsss cccooonnnsssiiisssttt ooofff ttthhhooossseee iiinnnttteeerrreeessstttsss aaattt ttthhheee dddaaattteee ooofff ttthhheee ooorrriiigggiiinnnaaalll bbbuuusssiiinnneeessssss cccooommmbbbiiinnnaaatttiiiooonnn aaannnddd ttthhheee mmmiiinnnooorrriiitttyyy’’’sss ssshhhaaarrreee ooofff ttthhheee ccchhhaaannngggeeesss iiinnn eeeqqquuuiiitttyyy sssiiinnnccceee ttthhheee dddaaattteee ooofff ttthhheee cccooommmbbbiiinnnaaatttiiiooonnn...AAAllllll iiinnntttrrraaa---gggrrrooouuuppp tttrrraaannnsssaaaccctttiiiooonnnsss,,, bbbaaalllaaannnccceeesss,,, iiinnncccooommmeee aaannnddd eeexxxpppeeennnssseeesss aaarrreee eeellliiimmmiiinnnaaattteeeddd ooonnn cccooonnnsssooollliiidddaaatttiiiooonnn...WWWhhheeerrreee nnneeeccceeessssssaaarrryyy,,, aaadddjjjuuussstttmmmeeennntttsss aaarrreee mmmaaadddeee tttooo ttthhheee fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss ooofff ttthhheee aaassssssoooccciiiaaattteeesss,,, jjjoooiiinnnttt vvveeennntttuuurrreeesss aaannnddd aaannnyyy nnneeewwwlllyyy aaacccqqquuuiiirrreeeddd sssuuubbbsssiiidddiiiaaarrriiieeesss tttooo bbbrrriiinnnggg ttthhheeeiiirrr aaaccccccooouuunnntttiiinnnggg pppooollliiiccciiieeesss iiinnntttooo llliiinnneee wwwiiittthhh ttthhhooossseee uuussseeeddd bbbyyy ttthhheee GGGrrrooouuuppp... WWWhhheeennn aaannn eeennntttiiitttyyy hhhaaasss aaannn aaaccccccooouuunnntttiiinnnggg rrreeefffeeerrreeennnccceee dddaaattteee ooottthhheeerrr ttthhhaaannn 333111 DDDeeeccceeemmmbbbeeerrr,,, ddduuueee tttooo ttthhheee iiinnnfffllluuueeennnccceee ooofff aaa cccooo---ssshhhaaarrreeehhhooollldddeeerrr ooorrr cccuuussstttooommmeeerrr rrreeeqqquuuiiirrreeemmmeeennntttsss,,, ttthhheee cccooonnnsssooollliiidddaaatttiiiooonnn iiinnncccllluuudddeeesss mmmaaannnaaagggeeemmmeeennnttt aaaccccccooouuunnntttsss,,, ppprrreeepppaaarrreeeddd uuusssiiinnnggg ttthhheeessseee GGGrrrooouuuppp aaaccccccooouuunnntttiiinnnggg pppooollliiiccciiieeesss,,, dddrrraaawwwnnn uuuppp fffooorrr ttthhheee yyyeeeaaarrr eeennndddeeeddd 333111 DDDeeeccceeemmmbbbeeerrr...WWWhhheeerrreee aaa GGGrrrooouuuppp cccooommmpppaaannnyyy iiisss pppaaarrrtttyyy tttooo aaa jjjoooiiinnntttlllyyy cccooonnntttrrrooolllllleeeddd ooopppeeerrraaatttiiiooonnn,,, ttthhhaaattt cccooommmpppaaannnyyy ppprrrooopppooorrrtttiiiooonnnaaattteeelllyyy aaaccccccooouuunnntttsss fffooorrr iiitttsss ssshhhaaarrreee ooofff ttthhheee iiinnncccooommmeee aaannnddd eeexxxpppeeennndddiiitttuuurrreee,,, aaasssssseeetttsss,,, llliiiaaabbbiiillliiitttiiieeesss aaannnddd cccaaassshhh ffflllooowwwsss ooonnn aaa llliiinnneee---bbbyyy---llliiinnneee bbbaaasssiiisss... SSSuuuccchhh aaarrrrrraaannngggeeemmmeeennntttsss aaarrreee rrreeepppooorrrttteeeddd iiinnn ttthhheee cccooonnnsssooollliiidddaaattteeeddd fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss ooonnn ttthhheee sssaaammmeee bbbaaasssiiisss... nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss888000 IIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss1. accountInG polIcIes (CONTINUED) (b) business combinationsBBBuuusssiiinnneeessssss cccooommmbbbiiinnnaaatttiiiooonnnsss aaarrreee aaaccccccooouuunnnttteeeddd fffooorrr uuusssiiinnnggg ttthhheee aaacccqqquuuiiisssiiitttiiiooonnn aaaccccccooouuunnntttiiinnnggg mmmeeettthhhoooddd... TTThhheee cccooosssttt ooofff ttthhheee aaacccqqquuuiiisssiiitttiiiooonnn iiisss mmmeeeaaasssuuurrreeeddd aaattt ttthhheee aaaggggggrrreeegggaaattteee ooofff ttthhheee fffaaaiiirrr vvvaaallluuueeesss,,, aaattt ttthhheee dddaaattteee ooofff aaacccqqquuuiiisssiiitttiiiooonnn,,, ooofff aaasssssseeetttsss gggiiivvveeennn,,, llliiiaaabbbiiillliiitttiiieeesss iiinnncccuuurrrrrreeeddd ooorrr aaassssssuuummmeeeddd aaannnddd eeeqqquuuiiitttyyy iiinnnssstttrrruuummmeeennntttsss iiissssssuuueeeddd bbbyyy ttthhheee GGGrrrooouuuppp iiinnn eeexxxccchhhaaannngggeee fffooorrr cccooonnntttrrrooolll ooofff ttthhheee aaacccqqquuuiiirrreeeddd cccooommmpppaaannnyyy... TTThhheee aaacccqqquuuiiirrreeeddd cccooommmpppaaannnyyy’’’sss iiidddeeennntttiiifffiiiaaabbbllleee aaasssssseeetttsss,,, llliiiaaabbbiiillliiitttiiieeesss aaannnddd cccooonnntttiiinnngggeeennnttt llliiiaaabbbiiillliiitttiiieeesss aaarrreee rrreeecccooogggnnniiissseeeddd aaattt ttthhheeeiiirrr fffaaaiiirrr vvvaaallluuueee aaasss aaattt ttthhheee aaacccqqquuuiiisssiiitttiiiooonnn dddaaattteee... BBBeeefffooorrreee ttthhheee aaadddoooppptttiiiooonnn ooofff IIIFFFRRRSSS 333 (((rrreeevvviiissseeeddd))),,, ttthhheee cccooosssttt ooofff aaacccqqquuuiiisssiiitttiiiooonnn iiinnncccllluuudddeeeddd aaannnyyy cccooossstttsss dddiiirrreeeccctttlllyyy aaattttttrrriiibbbuuutttaaabbbllleee tttooo ttthhheee bbbuuusssiiinnneeessssss cccooommmbbbiiinnnaaatttiiiooonnn... CCCooossstttsss iiinnncccuuurrrrrreeeddd ooonnn aaacccqqquuuiiisssiiitttiiiooonnnsss cccooommmpppllleeettteeeddd sssiiinnnccceee 111 JJJaaannnuuuaaarrryyy 222000111000,,, ttthhheee dddaaattteee ooofff aaadddoooppptttiiiooonnn ooofff ttthhheee rrreeevvviiisssiiiooonnn tttooo IIIFFFRRRSSS 333,,, aaarrreee eeexxxpppeeennnssseeeddd...GGGoooooodddwwwiiillllll aaarrriiisssiiinnnggg ooonnn cccooonnnsssooollliiidddaaatttiiiooonnn rrreeeppprrreeessseeennntttsss ttthhheee eeexxxccceeessssss ooofff ttthhheee cccooosssttt ooofff aaacccqqquuuiiisssiiitttiiiooonnn ooovvveeerrr ttthhheee GGGrrrooouuuppp’’’sss iiinnnttteeerrreeesssttt iiinnn ttthhheee fffaaaiiirrr vvvaaallluuueee ooofff ttthhheee iiidddeeennntttiiifffiiiaaabbbllleee aaasssssseeetttsss aaannnddd llliiiaaabbbiiillliiitttiiieeesss ooofff aaa sssuuubbbsssiiidddiiiaaarrryyy aaattt ttthhheee dddaaattteee ooofff aaacccqqquuuiiisssiiitttiiiooonnn... GGGoooooodddwwwiiillllll iiisss rrreeecccooogggnnniiissseeeddd aaasss aaannn aaasssssseeettt aaannnddd rrreeevvviiieeewwweeeddd fffooorrr iiimmmpppaaaiiirrrmmmeeennnttt aaattt llleeeaaasssttt aaannnnnnuuuaaallllllyyy... AAAnnnyyy iiimmmpppaaaiiirrrmmmeeennnttt iiisss rrreeecccooogggnnniiissseeeddd iiimmmmmmeeedddiiiaaattteeelllyyy iiinnn ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt aaannnddd iiisss nnnooottt sssuuubbbssseeeqqquuueeennntttlllyyy rrreeevvveeerrrssseeeddd...OOOnnn dddiiissspppooosssaaalll ooofff aaa sssuuubbbsssiiidddiiiaaarrryyy,,, aaassssssoooccciiiaaattteee ooorrr jjjoooiiinnntttlllyyy---cccooonnntttrrrooolllllleeeddd eeennntttiiitttyyy,,, ttthhheee aaattttttrrriiibbbuuutttaaabbbllleee aaammmooouuunnnttt ooofff gggoooooodddwwwiiillllll iiisss iiinnncccllluuudddeeeddd iiinnn ttthhheee dddeeettteeerrrmmmiiinnnaaatttiiiooonnn ooofff ttthhheee ppprrrooofffiiittt ooorrr lllooossssss ooonnn dddiiissspppooosssaaalll...GGGoooooodddwwwiiillllll aaarrriiisssiiinnnggg ooonnn aaacccqqquuuiiisssiiitttiiiooonnnsss bbbeeefffooorrreee ttthhheee dddaaattteee ooofff tttrrraaannnsssiiitttiiiooonnn tttooo IIIFFFRRRSSS hhhaaasss bbbeeeeeennn rrreeetttaaaiiinnneeeddd aaattt ttthhheee ppprrreeevvviiiooouuusss UUUKKK GGGAAAAAAPPP vvvaaallluuueee aaattt ttthhhaaattt dddaaattteee,,, sssuuubbbjjjeeecccttt tttooo bbbeeeiiinnnggg sssuuubbbssseeeqqquuueeennntttlllyyy ttteeesssttteeeddd fffooorrr iiimmmpppaaaiiirrrmmmeeennnttt... GGGoooooodddwwwiiillllll wwwrrriiitttttteeennn oooffffff tttooo rrreeessseeerrrvvveeesss uuunnndddeeerrr UUUKKK GGGAAAAAAPPP ppprrriiiooorrr tttooo 111999999888 hhhaaasss nnnooottt bbbeeeeeennn rrreeeiiinnnssstttaaattteeeddd aaannnddd iiisss nnnooottt iiinnncccllluuudddeeeddd iiinnn dddeeettteeerrrmmmiiinnniiinnnggg aaannnyyy sssuuubbbssseeeqqquuueeennnttt ppprrrooofffiiittt ooorrr lllooossssss ooonnn dddiiissspppooosssaaalll... GGGoooooodddwwwiiillllll aaarrriiisssiiinnnggg ooonnn ttthhheee aaacccqqquuuiiisssiiitttiiiooonnn ooofff ssshhhaaarrreeesss iiinnn aaassssssoooccciiiaaattteeeddd uuunnndddeeerrrtttaaakkkiiinnngggsss iiisss iiinnncccllluuudddeeeddd wwwiiittthhhiiinnn iiinnnvvveeessstttmmmeeennntttsss iiinnn aaassssssoooccciiiaaattteeeddd uuunnndddeeerrrtttaaakkkiiinnngggsss...TTThhheee iiinnnttteeerrreeesssttt ooofff mmmiiinnnooorrriiitttyyy ssshhhaaarrreeehhhooollldddeeerrrsss iiinnn ttthhheee aaacccqqquuuiiirrreeeddd cccooommmpppaaannnyyy iiisss iiinnniiitttiiiaaallllllyyy mmmeeeaaasssuuurrreeeddd aaattt ttthhheee mmmiiinnnooorrriiitttiiieeesss’’’ ppprrrooopppooorrrtttiiiooonnn ooofff ttthhheee nnneeettt fffaaaiiirrr vvvaaallluuueee ooofff ttthhheee aaasssssseeetttsss,,, llliiiaaabbbiiillliiitttiiieeesss aaannnddd cccooonnntttiiinnngggeeennnttt llliiiaaabbbiiillliiitttiiieeesss rrreeecccooogggnnniiissseeeddd... (c) foreign currencyTTTrrraaannnsssaaaccctttiiiooonnnsss dddeeennnooommmiiinnnaaattteeeddd iiinnn fffooorrreeeiiigggnnn cccuuurrrrrreeennncccyyy aaarrreee tttrrraaannnssslllaaattteeeddd aaattt ttthhheee rrraaattteeesss rrruuullliiinnnggg aaattt ttthhheee dddaaattteeesss ooofff ttthhheee tttrrraaannnsssaaaccctttiiiooonnnsss...MMMooonnneeetttaaarrryyy aaasssssseeetttsss aaannnddd llliiiaaabbbiiillliiitttiiieeesss dddeeennnooommmiiinnnaaattteeeddd iiinnn fffooorrreeeiiigggnnn cccuuurrrrrreeennnccciiieeesss aaattt ttthhheee bbbaaalllaaannnccceee ssshhheeeeeettt dddaaattteee aaarrreee tttrrraaannnssslllaaattteeeddd aaattt ttthhheee rrraaattteeesss rrruuullliiinnnggg aaattt ttthhhaaattt dddaaattteee... TTThhheeessseee tttrrraaannnssslllaaatttiiiooonnn dddiiiffffffeeerrreeennnccceeesss aaarrreee dddeeeaaalllttt wwwiiittthhh iiinnn ttthhheee ppprrrooofffiiittt fffooorrr ttthhheee yyyeeeaaarrr...TTThhheee fffiiinnnaaannnccciiiaaalll rrreeesssuuullltttsss aaannnddd cccaaassshhh ffflllooowwwsss ooofff fffooorrreeeiiigggnnn sssuuubbbsssiiidddiiiaaarrriiieeesss,,, aaassssssoooccciiiaaattteeeddd uuunnndddeeerrrtttaaakkkiiinnngggsss aaannnddd jjjoooiiinnnttt vvveeennntttuuurrreeesss aaarrreee tttrrraaannnssslllaaattteeeddd iiinnntttooo sssttteeerrrllliiinnnggg aaattt ttthhheee aaavvveeerrraaagggeee rrraaattteee ooofff eeexxxccchhhaaannngggeee fffooorrr ttthhheee yyyeeeaaarrr... TTThhheee bbbaaalllaaannnccceee ssshhheeeeeetttsss aaarrreee tttrrraaannnssslllaaattteeeddd iiinnntttooo sssttteeerrrllliiinnnggg aaattt ttthhheee ccclllooosssiiinnnggg rrraaattteee ooofff eeexxxccchhhaaannngggeee,,, aaannnddd ttthhheee dddiiiffffffeeerrreeennnccceee aaarrriiisssiiinnnggg fffrrrooommm ttthhheee tttrrraaannnssslllaaatttiiiooonnn ooofff ttthhheee ooopppeeennniiinnnggg nnneeettt aaasssssseeetttsss aaannnddd fffiiinnnaaannnccciiiaaalll rrreeesssuuullltttsss fffooorrr ttthhheee yyyeeeaaarrr aaattt ttthhheee ccclllooosssiiinnnggg rrraaattteee iiisss tttaaakkkeeennn dddiiirrreeeccctttlllyyy tttooo rrreeessseeerrrvvveeesss... (d) revenueRRReeevvveeennnuuueee cccooommmppprrriiissseeesss ttthhheee fffaaaiiirrr vvvaaallluuueee ooofff gggoooooodddsss aaannnddd ssseeerrrvvviiiccceeesss sssuuuppppppllliiieeeddd tttooo eeexxxttteeerrrnnnaaalll cccuuussstttooommmeeerrrsss,,, ttthhheee vvvaaallluuueee ooofff wwwooorrrkkk eeexxxeeecccuuuttteeeddd iiinnn rrreeessspppeeecccttt ooofff ppprrrooovvviiisssiiiooonnn ooofff ssseeerrrvvviiiccceeesss aaannnddd cccooonnnssstttrrruuuccctttiiiooonnn cccooonnntttrrraaaccctttsss aaannnddd ttthhheee rrreeennntttaaalll aaannnddd sssaaallleee ooofff eeeqqquuuiiipppmmmeeennnttt,,, eeexxxcccllluuudddiiinnnggg VVVAAATTT... RRReeevvveeennnuuueee fffrrrooommm cccooonnnssstttrrruuuccctttiiiooonnn cccooonnntttrrraaaccctttsss iiisss rrreeecccooogggnnniiissseeeddd iiinnn aaaccccccooorrrdddaaannnccceee wwwiiittthhh ttthhheee GGGrrrooouuuppp’’’sss aaaccccccooouuunnntttiiinnnggg pppooollliiicccyyy ooonnn cccooonnnssstttrrruuuccctttiiiooonnn cccooonnntttrrraaaccctttsss (((ssseeeeee bbbeeelllooowww)))...NNNooonnn---cccooonnnssstttrrruuuccctttiiiooonnn rrreeevvveeennnuuueee aaannnddd iiinnnvvveeessstttmmmeeennnttt rrreeevvveeennnuuueee iiisss rrreeecccooogggnnniiissseeeddd ooonnn aaannn aaaccccccrrruuuaaalllsss bbbaaasssiiisss... (e) contract accountingWWWhhheeerrreee ttthhheee ooouuutttcccooommmeee ooofff aaa cccooonnntttrrraaacccttt cccaaannn bbbeee eeessstttiiimmmaaattteeeddd rrreeellliiiaaabbblllyyy,,, rrreeevvveeennnuuueee aaannnddd cccooossstttsss aaarrreee rrreeecccooogggnnniiissseeeddd bbbyyy rrreeefffeeerrreeennnccceee tttooo ttthhheee ssstttaaagggeee ooofff cccooommmpppllleeetttiiiooonnn ooofff ttthhheee cccooonnntttrrraaacccttt aaaccctttiiivvviiitttyyy aaattt ttthhheee bbbaaalllaaannnccceee ssshhheeeeeettt dddaaattteee... WWWhhheeerrreee ttthhheee ooouuutttcccooommmeee ooofff aaa cccooonnntttrrraaacccttt cccaaannnnnnooottt bbbeee eeessstttiiimmmaaattteeeddd rrreeellliiiaaabbblllyyy,,, rrreeevvveeennnuuueee iiisss ooonnnlllyyy rrreeecccooogggnnniiissseeeddd tttooo ttthhheee eeexxxttteeennnttt ttthhhaaattt iiittt iiisss ppprrrooobbbaaabbbllleee ttthhhaaattt iiittt wwwiiillllll bbbeee rrreeecccooovvveeerrraaabbbllleee... PPPrrrooofffiiittt iiisss ooonnnlllyyy rrreeecccooogggnnniiissseeeddd ooonnn aaa cccooonnnssstttrrruuuccctttiiiooonnn cccooonnntttrrraaacccttt wwwhhheeennn ttthhheee fffiiinnnaaalll ooouuutttcccooommmeee cccaaannn bbbeee aaasssssseeesssssseeeddd wwwiiittthhh rrreeeaaasssooonnnaaabbbllleee ccceeerrrtttaaaiiinnntttyyy... EEExxxpppeeecccttteeeddd lllooosssssseeesss aaarrreee rrreeecccooogggnnniiissseeeddd iiimmmmmmeeedddiiiaaattteeelllyyy... SSStttaaagggeee ooofff cccooommmpppllleeetttiiiooonnn iiisss dddeeettteeerrrmmmiiinnneeeddd bbbyyy sssuuurrrvvveeeyyysss ooofff wwwooorrrkkk pppeeerrrfffooorrrmmmeeeddd bbbyyy qqquuuaaannntttiiitttyyy sssuuurrrvvveeeyyyooorrrsss iiinnn cccooonnnjjjuuunnnccctttiiiooonnn wwwiiittthhh cccllliiieeennntttsss... (f) other intangible assetsIIInnntttaaannngggiiibbbllleee aaasssssseeetttsss aaacccqqquuuiiirrreeeddd aaasss pppaaarrrttt ooofff aaannn aaacccqqquuuiiisssiiitttiiiooonnn ooofff aaa bbbuuusssiiinnneeessssss aaarrreee ssstttaaattteeeddd aaattt fffaaaiiirrr vvvaaallluuueee llleeessssss aaaccccccuuummmuuulllaaattteeeddd aaammmooorrrtttiiisssaaatttiiiooonnn aaannnddd aaannnyyy iiimmmpppaaaiiirrrmmmeeennnttt lllooosssssseeesss,,, ppprrrooovvviiidddeeeddd ttthhhaaattt ttthhheee fffaaaiiirrr vvvaaallluuueee cccaaannn bbbeee mmmeeeaaasssuuurrreeeddd rrreeellliiiaaabbblllyyy ooonnn iiinnniiitttiiiaaalll rrreeecccooogggnnniiitttiiiooonnn...OOOpppeeerrraaatttiiinnnggg sssoooffftttwwwaaarrreee aaacccqqquuuiiirrreeeddd aaasss pppaaarrrttt ooofff aaa rrreeelllaaattteeeddd iiittteeemmm ooofff hhhaaarrrdddwwwaaarrreee iiisss cccaaapppiiitttaaallliiissseeeddd wwwiiittthhhiiinnn ppprrrooopppeeerrrtttyyy,,, ppplllaaannnttt aaannnddd eeeqqquuuiiipppmmmeeennnttt aaalllooonnnggg wwwiiittthhh ttthhheee hhhaaarrrdddwwwaaarrreee aaacccqqquuuiiirrreeeddd... OOOttthhheeerrr sssoooffftttwwwaaarrreee llliiiccceeennnccceeesss aaacccqqquuuiiirrreeeddd aaarrreee cccaaapppiiitttaaallliiissseeeddd,,, aaalllooonnnggg wwwiiittthhh ttthhheee cccooosssttt tttooo bbbrrriiinnnggg ttthhheee sssoooffftttwwwaaarrreee iiinnntttooo uuussseee,,, wwwiiittthhhiiinnn iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss... OOOttthhheeerrr iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss aaarrreee aaammmooorrrtttiiissseeeddd ooovvveeerrr ttthhheeeiiirrr uuussseeefffuuulll eeecccooonnnooommmiiiccc llliiivvveeesss ooonnn aaa ssstttrrraaaiiiggghhhttt---llliiinnneee bbbaaasssiiisss,,, tttyyypppiiicccaaallllllyyy bbbeeetttwwweeeeeennn ttthhhrrreeeeee aaannnddd ttteeennn yyyeeeaaarrrsss... ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss 888111 (g) property, plant and equipment(((iii))) OOOwwwnnneeeddd ppprrrooopppeeerrrtttyyy,,, ppplllaaannnttt aaannnddd eeeqqquuuiiipppmmmeeennnttt ––– tttaaannngggiiibbbllleee fffiiixxxeeeddd aaasssssseeetttsss aaarrreee cccaaarrrrrriiieeeddd aaattt hhhiiissstttooorrriiicccaaalll cccooosssttt llleeessssss aaannnyyy aaaccccccuuummmuuulllaaattteeeddd dddeeeppprrreeeccciiiaaatttiiiooonnn aaannnddd aaannnyyy iiimmmpppaaaiiirrrmmmeeennnttt lllooosssssseeesss... PPPrrrooopppeeerrrtttiiieeesss iiinnn ttthhheee cccooouuurrrssseee ooofff cccooonnnssstttrrruuuccctttiiiooonnn aaarrreee cccaaarrrrrriiieeeddd aaattt cccooosssttt llleeessssss aaannnyyy rrreeecccooogggnnniiissseeeddd iiimmmpppaaaiiirrrmmmeeennnttt lllooossssss... DDDeeeppprrreeeccciiiaaatttiiiooonnn iiisss ccchhhaaarrrgggeeeddd sssooo aaasss tttooo wwwrrriiittteee oooffffff ttthhheee cccooosssttt ooofff aaasssssseeetttsss ooovvveeerrr ttthhheeeiiirrr eeexxxpppeeecccttteeeddd uuussseeefffuuulll llliiivvveeesss... DDDeeeppprrreeeccciiiaaatttiiiooonnn iiisss ppprrrooovvviiidddeeeddd ooonnn aaa ssstttrrraaaiiiggghhhttt---llliiinnneee ooorrr rrreeeddduuuccciiinnnggg---bbbaaalllaaannnccceee bbbaaasssiiisss aaattt rrraaattteeesss rrraaannngggiiinnnggg bbbeeetttwwweeeeeennn::: SSStttrrraaaiiiggghhhttt llliiinnneee RRReeeddduuuccciiinnnggg bbbaaalllaaannnccceee FFFrrreeeeeehhhooolllddd lllaaannnddd NNNiiilll ––– FFFrrreeeeeehhhooolllddd bbbuuuiiillldddiiinnngggsss 222%%% tttooo 555%%% --- LLLeeeaaassseeehhhooolllddd ppprrrooopppeeerrrtttyyy ooovvveeerrr ttthhheee pppeeerrriiioooddd ooofff ttthhheee llleeeaaassseee ––– PPPlllaaannnttt aaannnddd eeeqqquuuiiipppmmmeeennnttt 111000%%% tttooo 555000%%% 111111...555%%% tttooo 333888%%%(((iiiiii))) PPPrrrooopppeeerrrtttyyy,,, ppplllaaannnttt aaannnddd eeeqqquuuiiipppmmmeeennnttt hhheeelllddd uuunnndddeeerrr fffiiinnnaaannnccceee llleeeaaassseeesss aaarrreee cccaaapppiiitttaaallliiissseeeddd aaannnddd dddeeeppprrreeeccciiiaaattteeeddd ooovvveeerrr ttthhheeeiiirrr eeexxxpppeeecccttteeeddd uuussseeefffuuulll llliiivvveeesss... TTThhheee fffiiinnnaaannnccceee ccchhhaaarrrgggeeesss aaarrreee aaallllllooocccaaattteeeddd ooovvveeerrr ttthhheee ppprrriiimmmaaarrryyy pppeeerrriiioooddd ooofff ttthhheee llleeeaaassseee iiinnn ppprrrooopppooorrrtttiiiooonnn tttooo ttthhheee cccaaapppiiitttaaalll eeellleeemmmeeennnttt ooouuutttssstttaaannndddiiinnnggg... (h) Impairment of tangible and other intangible assetsTTThhheee GGGrrrooouuuppp rrreeevvviiieeewwwsss,,, aaattt llleeeaaasssttt aaannnnnnuuuaaallllllyyy,,, ttthhheee cccaaarrrrrryyyiiinnnggg aaammmooouuunnntttsss ooofff iiitttsss tttaaannngggiiibbbllleee aaannnddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss cccooommmpppaaarrreeeddd tttooo ttthhheeeiiirrr rrreeecccooovvveeerrraaabbbllleee aaammmooouuunnntttsss tttooo dddeeettteeerrrmmmiiinnneee wwwhhheeettthhheeerrr ttthhhooossseee aaasssssseeetttsss hhhaaavvveee sssuuuffffffeeerrreeeddd aaannn iiimmmpppaaaiiirrrmmmeeennnttt lllooossssss (((ssseeeeee nnnooottteee 111333)))... WWWhhheeerrreee aaannn iiimmmpppaaaiiirrrmmmeeennnttt lllooossssss sssuuubbbssseeeqqquuueeennntttlllyyy rrreeevvveeerrrssseeesss,,, ttthhheee cccaaarrrrrryyyiiinnnggg aaammmooouuunnnttt ooofff ttthhheee aaasssssseeettt iiisss iiinnncccrrreeeaaassseeeddd tttooo ttthhheee rrreeevvviiissseeeddd eeessstttiiimmmaaattteee ooofff iiitttsss rrreeecccooovvveeerrraaabbbllleee aaammmooouuunnnttt,,, bbbuuuttt sssooo ttthhhaaattt ttthhheee iiinnncccrrreeeaaassseeeddd cccaaarrrrrryyyiiinnnggg aaammmooouuunnnttt dddoooeeesss nnnooottt eeexxxccceeeeeeddd ttthhheee cccaaarrrrrryyyiiinnnggg aaammmooouuunnnttt ttthhhaaattt wwwooouuulllddd hhhaaavvveee bbbeeeeeennn dddeeettteeerrrmmmiiinnneeeddd hhhaaaddd nnnooo iiimmmpppaaaiiirrrmmmeeennnttt lllooossssss bbbeeeeeennn rrreeecccooogggnnniiissseeeddd fffooorrr ttthhheee aaasssssseeettt iiinnn ppprrriiiooorrr yyyeeeaaarrrsss... (i) InvestmentsIIInnnvvveeessstttmmmeeennntttsss aaarrreee hhheeelllddd aaattt fffaaaiiirrr vvvaaallluuueee aaattt ttthhheee bbbaaalllaaannnccceee ssshhheeeeeettt dddaaattteee... IIInnnvvveeessstttmmmeeennntttsss aaarrreee fffiiinnnaaannnccciiiaaalll aaasssssseeetttsss aaannnddd aaarrreee ccclllaaassssssiiifffiiieeeddd aaasss fffaaaiiirrr vvvaaallluuueee ttthhhrrrooouuuggghhh ttthhheee ppprrrooofffiiittt ooorrr lllooossssss... GGGaaaiiinnnsss ooorrr lllooosssssseeesss aaarrriiisssiiinnnggg fffrrrooommm ttthhheee ccchhhaaannngggeeesss iiinnn fffaaaiiirrr vvvaaallluuueee aaarrreee iiinnncccllluuudddeeeddd iiinnn ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt iiinnn ttthhheee pppeeerrriiioooddd iiinnn wwwhhhiiiccchhh ttthhheeeyyy aaarrriiissseee... (j) InventoriesIIInnnvvveeennntttooorrriiieeesss aaarrreee ssstttaaattteeeddd aaattt ttthhheee lllooowwweeerrr ooofff cccooosssttt aaannnddd nnneeettt rrreeeaaallliiisssaaabbbllleee vvvaaallluuueee... TTThhheee cccooosssttt ooofff iiinnnvvveeennntttooorrriiieeesss iiisss cccaaalllcccuuulllaaattteeeddd uuusssiiinnnggg ttthhheee wwweeeiiiggghhhttteeeddd aaavvveeerrraaagggeee mmmeeettthhhoooddd... NNNeeettt rrreeeaaallliiisssaaabbbllleee vvvaaallluuueee rrreeeppprrreeessseeennntttsss ttthhheee eeessstttiiimmmaaattteeeddd ssseeelllllliiinnnggg ppprrriiiccceee llleeessssss aaallllll eeessstttiiimmmaaattteeeddd cccooossstttsss ooofff cccooommmpppllleeetttiiiooonnn aaannnddd cccooossstttsss tttooo bbbeee iiinnncccuuurrrrrreeeddd iiinnn mmmaaarrrkkkeeetttiiinnnggg,,, ssseeelllllliiinnnggg aaannnddd dddiiissstttrrriiibbbuuutttiiiooonnn... (k) borrowing costsPPPrrrooojjjeeecccttt---ssspppeeeccciiifffiiiccc fffiiinnnaaannnccceee cccooossstttsss aaarrreee cccaaapppiiitttaaallliiissseeeddd uuunnntttiiilll ttthhheee aaasssssseeettt bbbeeecccooommmeeesss ooopppeeerrraaatttiiiooonnnaaalll... AAAllllll ooottthhheeerrr bbbooorrrrrrooowwwiiinnnggg cccooossstttsss aaarrreee rrreeecccooogggnnniiissseeeddd iiinnn ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt uuusssiiinnnggg ttthhheee eeeffffffeeeccctttiiivvveee iiinnnttteeerrreeesssttt mmmeeettthhhoooddd... (l) pfI bid costs and other pre-contract costsIIInnn ttthhheee cccaaassseee ooofff PPPFFFIII bbbiiiddd cccooossstttsss,,, ooonnn fffiiinnnaaannnccciiiaaalll ccclllooossseee ooofff ttthhheee ppprrrooojjjeeecccttt ttthhheee GGGrrrooouuuppp rrreeecccooovvveeerrrsss bbbiiiddd cccooossstttsss bbbyyy ccchhhaaarrrgggiiinnnggg aaa fffeeeeee tttooo ttthhheee rrreeellleeevvvaaannnttt ppprrrooojjjeeecccttt cccooommmpppaaannnyyy... IIIfff ttthhheee fffeeeeee eeexxxccceeeeeedddsss ttthhheee aaammmooouuunnnttt hhheeelllddd bbbyyy ttthhheee GGGrrrooouuuppp aaasss aaannn aaasssssseeettt,,, ttthhheee eeexxxccceeessssss iiisss cccrrreeedddiiittteeeddd tttooo ttthhheee bbbaaalllaaannnccceee ssshhheeeeeettt aaasss dddeeefffeeerrrrrreeeddd iiinnncccooommmeee aaannnddd iiisss rrreeellleeeaaassseeeddd tttooo ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt ooovvveeerrr ttthhheee cccooonnnssstttrrruuuccctttiiiooonnn aaannnddd eeeaaarrrlllyyy ssstttaaarrrttt---uuuppp pppeeerrriiioooddd... IIIfff ttthhheee aaagggrrreeeeeeddd fffeeeeee iiisss llleeessssss ttthhhaaannn ttthhheee aaammmooouuunnnttt hhheeelllddd bbbyyy ttthhheee GGGrrrooouuuppp aaasss aaannn aaasssssseeettt,,, ttthhheee lllooossssss iiisss rrreeecccooogggnnniiissseeeddd aaasss sssoooooonnn aaasss iiittt iiisss aaannntttiiiccciiipppaaattteeeddd...OOOttthhheeerrr ppprrreee---cccooonnntttrrraaacccttt cccooossstttsss aaarrreee rrreeecccooogggnnniiissseeeddd aaasss eeexxxpppeeennnssseeesss aaasss iiinnncccuuurrrrrreeeddd,,, eeexxxccceeepppttt ttthhhaaattt dddiiirrreeeccctttlllyyy aaattttttrrriiibbbuuutttaaabbbllleee cccooossstttsss aaarrreee rrreeecccooogggnnniiissseeeddd aaasss aaannn aaasssssseeettt wwwhhheeennn iiittt iiisss vvviiirrrtttuuuaaallllllyyy ccceeerrrtttaaaiiinnn ttthhhaaattt aaa cccooonnntttrrraaacccttt wwwiiillllll bbbeee ooobbbtttaaaiiinnneeeddd aaannnddd ttthhheee cccooonnntttrrraaacccttt iiisss eeexxxpppeeecccttteeeddd tttooo rrreeesssuuulllttt iiinnn fffuuutttuuurrreee nnneeettt cccaaassshhh iiinnnffflllooowwwsss... VVViiirrrtttuuuaaalll ccceeerrrtttaaaiiinnntttyyy ooofff aaa cccooonnntttrrraaacccttt aaawwwaaarrrddd iiisss aaa sssuuubbbjjjeeeccctttiiivvveee aaasssssseeessssssmmmeeennnttt,,, bbbuuuttt nnnooorrrmmmaaallllllyyy aaarrriiissseeesss ooonnn aaappppppoooiiinnntttmmmeeennnttt aaasss ppprrreeefffeeerrrrrreeeddd bbbiiiddddddeeerrr ooorrr nnnoootttiiifffiiicccaaatttiiiooonnn fffrrrooommm ttthhheee ppprrrooossspppeeeccctttiiivvveee cccuuussstttooommmeeerrr ooofff ttthhheeeiiirrr iiinnnttteeennnttt tttooo aaappppppoooiiinnnttt IIInnnttteeerrrssseeerrrvvveee... (m) leasesLLLeeeaaassseeesss aaarrreee ccclllaaassssssiiifffiiieeeddd aaasss fffiiinnnaaannnccceee llleeeaaassseeesss wwwhhheeennneeevvveeerrr ttthhheee ttteeerrrmmmsss ooofff ttthhheee llleeeaaassseee tttrrraaannnsssfffeeerrr sssuuubbbssstttaaannntttiiiaaallllllyyy aaallllll rrriiissskkksss aaannnddd rrreeewwwaaarrrdddsss ooofff ooowwwnnneeerrrssshhhiiippp tttooo ttthhheee llleeesssssseeeeee... AAAllllll ooottthhheeerrr llleeeaaassseeesss aaarrreee ccclllaaassssssiiifffiiieeeddd aaasss ooopppeeerrraaatttiiinnnggg llleeeaaassseeesss...FFFiiinnnaaannnccceee llleeeaaassseeesss aaarrreee cccaaapppiiitttaaallliiissseeeddd aaattt ttthhheee iiinnnccceeeppptttiiiooonnn ooofff ttthhheee llleeeaaassseee aaattt ttthhheee fffaaaiiirrr vvvaaallluuueee ooofff ttthhheee llleeeaaassseeeddd ppprrrooopppeeerrrtttyyy ooorrr,,, iiifff lllooowwweeerrr,,, aaattt ttthhheee ppprrreeessseeennnttt vvvaaallluuueee ooofff ttthhheee mmmiiinnniiimmmuuummm llleeeaaassseee pppaaayyymmmeeennntttsss... LLLeeeaaassseee pppaaayyymmmeeennntttsss aaarrreee aaappppppooorrrtttiiiooonnneeeddd bbbeeetttwwweeeeeennn ttthhheee fffiiinnnaaannnccceee ccchhhaaarrrgggeeesss aaannnddd ttthhheee rrreeeddduuuccctttiiiooonnn ooofff ttthhheee llleeeaaassseee llliiiaaabbbiiillliiitttyyy sssooo aaasss tttooo aaaccchhhiiieeevvveee aaa cccooonnnssstttaaannnttt rrraaattteee ooofff iiinnnttteeerrreeesssttt ooonnn ttthhheee rrreeemmmaaaiiinnniiinnnggg bbbaaalllaaannnccceee ooofff ttthhheee llliiiaaabbbiiillliiitttyyy... FFFiiinnnaaannnccceee ccchhhaaarrrgggeeesss aaarrreee rrreeefffllleeecccttteeeddd iiinnn ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt...OOOpppeeerrraaatttiiinnnggg llleeeaaassseee pppaaayyymmmeeennntttsss aaarrreee rrreeecccooogggnnniiissseeeddd aaasss aaannn eeexxxpppeeennnssseee iiinnn ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt ooonnn aaa ssstttrrraaaiiiggghhhttt---llliiinnneee bbbaaasssiiisss ooovvveeerrr ttthhheee llleeeaaassseee ttteeerrrmmm... nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss888222 IIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss1. accountInG polIcIes (CONTINUED) (n) provisionsPPPrrrooovvviiisssiiiooonnnsss aaarrreee rrreeecccooogggnnniiissseeeddd wwwhhheeennn ttthhheee GGGrrrooouuuppp hhhaaasss aaa ppprrreeessseeennnttt ooobbbllliiigggaaatttiiiooonnn (((llleeegggaaalll ooorrr cccooonnnssstttrrruuuccctttiiivvveee))) aaasss aaa rrreeesssuuulllttt ooofff aaa pppaaasssttt eeevvveeennnttt,,, iiittt iiisss ppprrrooobbbaaabbbllleee ttthhhaaattt aaannn ooouuutttffflllooowww ooofff rrreeesssooouuurrrccceeesss eeemmmbbbooodddyyyiiinnnggg eeecccooonnnooommmiiiccc bbbeeennneeefffiiitttsss wwwiiillllll bbbeee rrreeeqqquuuiiirrreeeddd tttooo ssseeettttttllleee ttthhheee ooobbbllliiigggaaatttiiiooonnn aaannnddd aaa rrreeellliiiaaabbbllleee eeessstttiiimmmaaattteee cccaaannn bbbeee mmmaaadddeee ooofff ttthhheee aaammmooouuunnnttt ooofff ttthhheee ooobbbllliiigggaaatttiiiooonnn... WWWhhheeerrreee ttthhheee GGGrrrooouuuppp eeexxxpppeeeccctttsss sssooommmeee ooorrr aaallllll ooofff aaa ppprrrooovvviiisssiiiooonnn tttooo bbbeee rrreeeiiimmmbbbuuurrrssseeeddd,,, ttthhheee rrreeeiiimmmbbbuuurrrssseeemmmeeennnttt iiisss rrreeecccooogggnnniiissseeeddd aaasss aaa ssseeepppaaarrraaattteee aaasssssseeettt bbbuuuttt ooonnnlllyyy wwwhhheeennn ttthhheee rrreeeiiimmmbbbuuurrrssseeemmmeeennnttt iiisss vvviiirrrtttuuuaaallllllyyy ccceeerrrtttaaaiiinnn... TTThhheee eeexxxpppeeennnssseee rrreeelllaaatttiiinnnggg tttooo aaannnyyy ppprrrooovvviiisssiiiooonnn iiisss ppprrreeessseeennnttteeeddd iiinnn ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt nnneeettt ooofff aaannnyyy rrreeeiiimmmbbbuuurrrssseeemmmeeennnttt... IIIfff ttthhheee eeeffffffeeecccttt ooofff ttthhheee tttiiimmmeee vvvaaallluuueee ooofff mmmooonnneeeyyy iiisss mmmaaattteeerrriiiaaalll,,, ppprrrooovvviiisssiiiooonnnsss aaarrreee dddiiissscccooouuunnnttteeeddd uuusssiiinnnggg aaannn aaapppppprrroooppprrriiiaaattteee rrraaattteee ttthhhaaattt tttaaakkkeeesss iiinnntttooo aaaccccccooouuunnnttt ttthhheee rrriiissskkksss ssspppeeeccciiifffiiiccc tttooo ttthhheee llliiiaaabbbiiillliiitttyyy... WWWhhheeerrreee dddiiissscccooouuunnntttiiinnnggg iiisss uuussseeeddd,,, ttthhheee iiinnncccrrreeeaaassseee iiinnn ttthhheee ppprrrooovvviiisssiiiooonnn ddduuueee tttooo ttthhheee pppaaassssssaaagggeee ooofff tttiiimmmeee iiisss rrreeecccooogggnnniiissseeeddd aaasss aaa fffiiinnnaaannnccceee cccooosssttt... (o) financial instruments tttrrraaadddeee rrreeeccceeeiiivvvaaabbbllleeesssTTTrrraaadddeee rrreeeccceeeiiivvvaaabbbllleeesss aaarrreee iiinnniiitttiiiaaallllllyyy mmmeeeaaasssuuurrreeeddd aaattt fffaaaiiirrr vvvaaallluuueee... AAApppppprrroooppprrriiiaaattteee aaallllllooowwwaaannnccceeesss fffooorrr eeessstttiiimmmaaattteeeddd iiirrrrrreeecccooovvveeerrraaabbbllleee aaammmooouuunnntttsss aaarrreee rrreeecccooogggnnniiissseeeddd iiinnn ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt wwwhhheeerrreee ttthhheeerrreee iiisss ooobbbjjjeeeccctttiiivvveee eeevvviiidddeeennnccceee ttthhhaaattt ttthhheee aaasssssseeettt iiisss iiimmmpppaaaiiirrreeeddd... TTTrrraaadddeee rrreeeccceeeiiivvvaaabbbllleeesss aaarrreee fffiiinnnaaannnccciiiaaalll aaasssssseeetttsss aaannnddd ccclllaaassssssiiifffiiieeeddd aaasss llloooaaannnsss aaannnddd rrreeeccceeeiiivvvaaabbbllleeesss... cccaaassshhh aaannnddd dddeeepppooosssiiitttsssCCCaaassshhh aaannnddd dddeeepppooosssiiitttsss cccooommmppprrriiissseee cccaaassshhh ooonnn hhhaaannnddd aaannnddd dddeeemmmaaannnddd dddeeepppooosssiiitttsss aaannnddd ooottthhheeerrr ssshhhooorrrttt---ttteeerrrmmm,,, hhhiiiggghhhlllyyy llliiiqqquuuiiiddd iiinnnvvveeessstttmmmeeennntttsss ttthhhaaattt aaarrreee rrreeeaaadddiiilllyyy cccooonnnvvveeerrrtttiiibbbllleee tttooo aaa kkknnnooowwwnnn aaammmooouuunnnttt ooofff cccaaassshhh aaannnddd aaarrreee sssuuubbbjjjeeecccttt tttooo aaannn iiinnnsssiiigggnnniiifffiiicccaaannnttt rrriiissskkk ooofff ccchhhaaannngggeeesss iiinnn vvvaaallluuueee... CCCaaassshhh aaannnddd dddeeepppooosssiiitttsss aaarrreee fffiiinnnaaannnccciiiaaalll aaasssssseeetttsss aaannnddd aaarrreee ccclllaaassssssiiifffiiieeeddd aaasss llloooaaannnsss aaannnddd rrreeeccceeeiiivvvaaabbbllleeesss... bbbaaannnkkk bbbooorrrrrrooowwwiiinnngggsssIIInnnttteeerrreeesssttt---bbbeeeaaarrriiinnnggg bbbaaannnkkk llloooaaannnsss aaannnddd ooovvveeerrrdddrrraaaffftttsss aaarrreee rrreeecccooorrrdddeeeddd aaattt ttthhheee ppprrroooccceeeeeedddsss rrreeeccceeeiiivvveeeddd,,, nnneeettt ooofff dddiiirrreeecccttt iiissssssuuueee cccooossstttsss... FFFiiinnnaaannnccceee ccchhhaaarrrgggeeesss,,, iiinnncccllluuudddiiinnnggg ppprrreeemmmiiiuuummmsss pppaaayyyaaabbbllleee ooonnn ssseeettttttllleeemmmeeennnttt ooorrr rrreeedddeeemmmppptttiiiooonnn aaannnddd dddiiirrreeecccttt iiissssssuuueee cccooossstttsss,,, aaarrreee aaaccccccooouuunnnttteeeddd fffooorrr ooonnn aaannn aaaccccccrrruuuaaalllsss bbbaaasssiiisss iiinnn ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt aaannnddd aaarrreee aaaddddddeeeddd tttooo ttthhheee cccaaarrrrrryyyiiinnnggg aaammmooouuunnnttt ooofff ttthhheee iiinnnssstttrrruuummmeeennnttt tttooo ttthhheee eeexxxttteeennnttt ttthhhaaattt ttthhheeeyyy aaarrreee nnnooottt ssseeettttttllleeeddd iiinnn ttthhheee pppeeerrriiioooddd iiinnn wwwhhhiiiccchhh ttthhheeeyyy aaarrriiissseee... BBBaaannnkkk bbbooorrrrrrooowwwiiinnngggsss aaarrreee ooottthhheeerrr fffiiinnnaaannnccciiiaaalll llliiiaaabbbiiillliiitttiiieeesss... tttrrraaadddeee pppaaayyyaaabbbllleeesssTTTrrraaadddeee pppaaayyyaaabbbllleeesss aaarrreee ooottthhheeerrr fffiiinnnaaannnccciiiaaalll llliiiaaabbbiiillliiitttiiieeesss iiinnniiitttiiiaaallllllyyy mmmeeeaaasssuuurrreeeddd aaattt fffaaaiiirrr vvvaaallluuueee aaannnddd sssuuubbbssseeeqqquuueeennntttlllyyy mmmeeeaaasssuuurrreeeddd aaattt aaammmooorrrtttiiissseeeddd cccooosssttt uuusssiiinnnggg ttthhheee eeeffffffeeeccctttiiivvveee iiinnnttteeerrreeesssttt rrraaattteee mmmeeettthhhoooddd... eeeqqquuuiiitttyyy iiinnnssstttrrruuummmeeennntttsssEEEqqquuuiiitttyyy iiinnnssstttrrruuummmeeennntttsss iiissssssuuueeeddd bbbyyy ttthhheee CCCooommmpppaaannnyyy aaarrreee rrreeecccooorrrdddeeeddd aaattt ttthhheee ppprrroooccceeeeeedddsss rrreeeccceeeiiivvveeeddd,,, nnneeettt ooofff dddiiirrreeecccttt iiissssssuuueee cccooossstttsss... dddeeerrriiivvvaaatttiiivvveee fffiiinnnaaannnccciiiaaalll iiinnnssstttrrruuummmeeennntttsss aaannnddd hhheeedddgggeee aaaccccccooouuunnntttiiinnnggg FFFiiinnnaaannnccciiiaaalll aaasssssseeetttsss aaannnddd fffiiinnnaaannnccciiiaaalll llliiiaaabbbiiillliiitttiiieeesss aaarrreee rrreeecccooogggnnniiissseeeddd ooonnn ttthhheee GGGrrrooouuuppp’’’sss bbbaaalllaaannnccceee ssshhheeeeeettt wwwhhheeennn ttthhheee GGGrrrooouuuppp bbbeeecccooommmeeesss aaa pppaaarrrtttyyy tttooo ttthhheee cccooonnntttrrraaaccctttuuuaaalll ppprrrooovvviiisssiiiooonnnsss ooofff ttthhheee iiinnnssstttrrruuummmeeennnttt...TTTrrraaannnsssaaaccctttiiiooonnnsss iiinnn dddeeerrriiivvvaaatttiiivvveee fffiiinnnaaannnccciiiaaalll iiinnnssstttrrruuummmeeennntttsss aaarrreee fffooorrr rrriiissskkk mmmaaannnaaagggeeemmmeeennnttt pppuuurrrpppooossseeesss ooonnnlllyyy... TTThhheee GGGrrrooouuuppp uuussseeesss dddeeerrriiivvvaaatttiiivvveee fffiiinnnaaannnccciiiaaalll iiinnnssstttrrruuummmeeennntttsss tttooo hhheeedddgggeee iiitttsss eeexxxpppooosssuuurrreee tttooo iiinnnttteeerrreeesssttt rrraaattteee aaannnddd fffooorrreeeiiigggnnn cccuuurrrrrreeennncccyyy rrriiissskkk... TTTooo ttthhheee eeexxxttteeennnttt ttthhhaaattt sssuuuccchhh iiinnnssstttrrruuummmeeennntttsss aaarrreee mmmaaatttccchhheeeddd tttooo uuunnndddeeerrrlllyyyiiinnnggg aaasssssseeetttsss ooorrr llliiiaaabbbiiillliiitttiiieeesss,,, ttthhheeeyyy aaarrreee aaaccccccooouuunnnttteeeddd fffooorrr uuusssiiinnnggg hhheeedddgggeee aaaccccccooouuunnntttiiinnnggg...DDDeeerrriiivvvaaatttiiivvveeesss aaarrreee iiinnniiitttiiiaaallllllyyy rrreeecccooogggnnniiissseeeddd aaattt fffaaaiiirrr vvvaaallluuueee aaattt ttthhheee dddaaattteee aaa dddeeerrriiivvvaaatttiiivvveee cccooonnntttrrraaacccttt iiisss tttaaakkkeeennn ooouuuttt aaannnddd sssuuubbbssseeeqqquuueeennntttlllyyy rrreeemmmeeeaaasssuuurrreeeddd aaattt fffaaaiiirrr vvvaaallluuueee aaattt eeeaaaccchhh bbbaaalllaaannnccceee ssshhheeeeeettt dddaaattteee... CCChhhaaannngggeeesss iiinnn fffaaaiiirrr vvvaaallluuueee ooofff dddeeerrriiivvvaaatttiiivvveee iiinnnssstttrrruuummmeeennntttsss ttthhhaaattt aaarrreee dddeeesssiiigggnnnaaattteeeddd aaasss,,, aaannnddd eeeffffffeeeccctttiiivvveee aaasss,,, hhheeedddgggeeesss ooofff fffuuutttuuurrreee cccaaassshhh ffflllooowwwsss aaannnddd nnneeettt iiinnnvvveeessstttmmmeeennntttsss aaarrreee rrreeecccooogggnnniiissseeeddd dddiiirrreeeccctttlllyyy iiinnn ttthhheee ooottthhheeerrr cccooommmppprrreeehhheeennnsssiiivvveee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt... AAAnnnyyy iiinnneeeffffffeeeccctttiiivvveee pppooorrrtttiiiooonnn iiisss rrreeecccooogggnnniiissseeeddd iiimmmmmmeeedddiiiaaattteeelllyyy iiinnn ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt...AAAmmmooouuunnntttsss dddeeefffeeerrrrrreeeddd iiinnn eeeqqquuuiiitttyyy aaarrreee rrreeecccyyycccllleeeddd ttthhhrrrooouuuggghhh ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt iiinnn ttthhheee sssaaammmeee pppeeerrriiioooddd iiinnn wwwhhhiiiccchhh ttthhheee uuunnndddeeerrrlllyyyiiinnnggg hhheeedddgggeeeddd iiittteeemmm iiisss rrreeecccooogggnnniiissseeeddd iiinnn ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt... HHHooowwweeevvveeerrr,,, wwwhhheeennn ttthhheee tttrrraaannnsssaaaccctttiiiooonnn ttthhhaaattt iiisss bbbeeeiiinnnggg hhheeedddgggeeeddd rrreeesssuuullltttsss iiinnn aaa nnnooonnn---fffiiinnnaaannnccciiiaaalll aaasssssseeettt ooorrr nnnooonnn---fffiiinnnaaannnccciiiaaalll llliiiaaabbbiiillliiitttyyy,,, ttthhheee gggaaaiiinnnsss aaannnddd lllooosssssseeesss ppprrreeevvviiiooouuussslllyyy aaaccccccuuummmuuulllaaattteeeddd iiinnn eeeqqquuuiiitttyyy aaarrreee tttrrraaannnsssfffeeerrrrrreeeddd fffrrrooommm eeeqqquuuiiitttyyy aaannnddd iiinnncccllluuudddeeeddd iiinnn ttthhheee iiinnniiitttiiiaaalll mmmeeeaaasssuuurrreeemmmeeennnttt ooofff ttthhheee cccooosssttt ooofff ttthhhaaattt aaasssssseeettt ooorrr llliiiaaabbbiiillliiitttyyy... HHHeeedddgggeee aaaccccccooouuunnntttiiinnnggg iiisss dddiiissscccooonnntttiiinnnuuueeeddd wwwhhheeennn ttthhheee hhheeedddgggiiinnnggg iiinnnssstttrrruuummmeeennnttt eeexxxpppiiirrreeesss ooorrr iiisss sssooolllddd,,, ttteeerrrmmmiiinnnaaattteeeddd,,, ooorrr eeexxxeeerrrccciiissseeeddd,,, ooorrr nnnooo lllooonnngggeeerrr qqquuuaaallliiifffiiieeesss fffooorrr hhheeedddgggeee aaaccccccooouuunnntttiiinnnggg... AAAnnnyyy cccuuummmuuulllaaatttiiivvveee gggaaaiiinnn ooorrr lllooossssss ooonnn ttthhheee hhheeedddgggiiinnnggg iiinnnssstttrrruuummmeeennnttt rrreeecccooogggnnniiissseeeddd iiinnn eeeqqquuuiiitttyyy aaattt ttthhhaaattt tttiiimmmeee iiisss rrreeetttaaaiiinnneeeddd iiinnn eeeqqquuuiiitttyyy uuunnntttiiilll ttthhheee fffooorrreeecccaaasssttt tttrrraaannnsssaaaccctttiiiooonnn oooccccccuuurrrsss... IIIfff aaa hhheeedddgggeeeddd tttrrraaannnsssaaaccctttiiiooonnn iiisss nnnooo lllooonnngggeeerrr eeexxxpppeeecccttteeeddd tttooo oooccccccuuurrr,,, aaannnyyy cccuuummmuuulllaaatttiiivvveee gggaaaiiinnn ooorrr lllooossssss rrreeecccooogggnnniiissseeeddd iiinnn eeeqqquuuiiitttyyy iiisss tttrrraaannnsssfffeeerrrrrreeeddd tttooo ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt fffooorrr ttthhheee pppeeerrriiioooddd...CCChhhaaannngggeeesss iiinnn fffaaaiiirrr vvvaaallluuueee ooofff dddeeerrriiivvvaaatttiiivvveee iiinnnssstttrrruuummmeeennntttsss ttthhhaaattt dddooo nnnooottt qqquuuaaallliiifffyyy fffooorrr hhheeedddgggeee aaaccccccooouuunnntttiiinnnggg,,, ooorrr hhhaaavvveee nnnooottt bbbeeeeeennn dddeeesssiiigggnnnaaattteeeddd aaasss hhheeedddgggeeesss,,, aaarrreee rrreeecccooogggnnniiissseeeddd iiinnn ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt aaasss ttthhheeeyyy aaarrriiissseee... TTThhheeessseee dddeeerrriiivvvaaatttiiivvveee iiinnnssstttrrruuummmeeennntttsss aaarrreee dddeeesssiiigggnnnaaattteeeddd aaasss fffaaaiiirrr vvvaaallluuueee ttthhhrrrooouuuggghhh ttthhheee ppprrrooofffiiittt ooorrr lllooossssss (((FFFVVVTTTPPPLLL)))...DDDeeerrriiivvvaaatttiiivvveeesss eeemmmbbbeeeddddddeeeddd iiinnn ooottthhheeerrr fffiiinnnaaannnccciiiaaalll iiinnnssstttrrruuummmeeennntttsss ooorrr ooottthhheeerrr hhhooosssttt cccooonnntttrrraaaccctttsss aaarrreee tttrrreeeaaattteeeddd aaasss ssseeepppaaarrraaattteee dddeeerrriiivvvaaatttiiivvveeesss wwwhhheeennn ttthhheeeiiirrr eeecccooonnnooommmiiiccc rrriiissskkksss aaannnddd ccchhhaaarrraaacccttteeerrriiissstttiiicccsss aaarrreee nnnooottt ccclllooossseeelllyyy rrreeelllaaattteeeddd tttooo ttthhhooossseee ooofff ttthhheee hhhooosssttt cccooonnntttrrraaaccctttsss aaannnddd ttthhheee hhhooosssttt cccooonnntttrrraaaccctttsss aaarrreee nnnooottt cccaaarrrrrriiieeeddd aaattt fffaaaiiirrr vvvaaallluuueee... ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss 888333 (p) share-based paymentsTTThhheee GGGrrrooouuuppp hhhaaasss aaappppppllliiieeeddd ttthhheee rrreeeqqquuuiiirrreeemmmeeennntttsss ooofff IIIFFFRRRSSS 222 SSShhhaaarrreee---bbbaaassseeeddd pppaaayyymmmeeennnttt... IIInnn aaaccccccooorrrdddaaannnccceee wwwiiittthhh ttthhheee tttrrraaannnsssiiitttiiiooonnnaaalll ppprrrooovvviiisssiiiooonnnsss,,, IIIFFFRRRSSS 222 hhhaaasss bbbeeeeeennn aaappppppllliiieeeddd tttooo aaallllll gggrrraaannntttsss ooofff eeeqqquuuiiitttyyy iiinnnssstttrrruuummmeeennntttsss aaafffttteeerrr 777 NNNooovvveeemmmbbbeeerrr 222000000222 ttthhhaaattt wwweeerrreee uuunnnvvveeesssttteeeddd aaasss aaattt 111 JJJaaannnuuuaaarrryyy 222000000444...TTThhheee GGGrrrooouuuppp iiissssssuuueeesss ssshhhaaarrreee---bbbaaassseeeddd pppaaayyymmmeeennntttsss tttooo ccceeerrrtttaaaiiinnn eeemmmpppllloooyyyeeeeeesss... TTThhheee fffaaaiiirrr vvvaaallluuueee dddeeettteeerrrmmmiiinnneeeddd aaattt ttthhheee gggrrraaannnttt dddaaattteee iiisss eeexxxpppeeennnssseeeddd ooonnn aaa ssstttrrraaaiiiggghhhttt---llliiinnneee bbbaaasssiiisss ooovvveeerrr ttthhheee vvveeessstttiiinnnggg pppeeerrriiioooddd,,, bbbaaassseeeddd ooonnn ttthhheee GGGrrrooouuuppp’’’sss eeessstttiiimmmaaattteee ooofff ssshhhaaarrreeesss ttthhhaaattt wwwiiillllll eeevvveeennntttuuuaaallllllyyy vvveeesssttt... FFFaaaiiirrr vvvaaallluuueee iiisss mmmeeeaaasssuuurrreeeddd bbbyyy uuussseee ooofff aaannn aaapppppprrroooppprrriiiaaattteee vvvaaallluuuaaatttiiiooonnn mmmooodddeeelll... TTThhheee BBBlllaaaccckkk---SSSccchhhooollleeesss oooppptttiiiooonnn ppprrriiiccciiinnnggg mmmooodddeeelll hhhaaasss bbbeeeeeennn uuussseeeddd tttooo vvvaaallluuueee ttthhheee ssshhhaaarrreee oooppptttiiiooonnn ppplllaaannnsss aaannnddd ttthhheee SSShhhaaarrreeesssaaavvveee SSSccchhheeemmmeee... AAA ssstttoooccchhhaaassstttiiiccc mmmooodddeeelll hhhaaasss bbbeeeeeennn uuussseeeddd tttooo vvvaaallluuueee ttthhheee PPPeeerrrfffooorrrmmmaaannnccceee SSShhhaaarrreee PPPlllaaannn... (q) pfI projects tttrrreeeaaatttmmmeeennnttt ooonnn cccooonnnsssooollliiidddaaatttiiiooonnnTTThhheee GGGrrrooouuuppp’’’sss iiinnnvvveeessstttmmmeeennntttsss iiinnn PPPFFFIII jjjoooiiinnntttlllyyy---cccooonnntttrrrooolllllleeeddd eeennntttiiitttiiieeesss (((“““JJJoooiiinnnttt vvveeennntttuuurrreeesss --- PPPFFFIII IIInnnvvveeessstttmmmeeennntttsss”””))) aaarrreee aaaccccccooouuunnnttteeeddd fffooorrr uuunnndddeeerrr ttthhheee eeeqqquuuiiitttyyy mmmeeettthhhoooddd... tttrrreeeaaatttmmmeeennnttt iiinnn ttthhheee uuunnndddeeerrrlllyyyiiinnnggg jjjoooiiinnnttt---vvveeennntttuuurrreee eeennntttiiitttyyyTTThhheee jjjoooiiinnnttt---vvveeennntttuuurrreee eeennntttiiitttiiieeesss hhhaaavvveee dddeeettteeerrrmmmiiinnneeeddd ttthhheee aaapppppprrroooppprrriiiaaattteee tttrrreeeaaatttmmmeeennnttt ooofff ttthhheee ppprrriiinnnccciiipppaaalll aaasssssseeetttsss ooofff,,, aaannnddd iiinnncccooommmeee ssstttrrreeeaaammmsss fffrrrooommm,,, PPPFFFIII aaannnddd sssiiimmmiiilllaaarrr cccooonnntttrrraaaccctttsss... TTThhheee bbbaaalllaaannnccceee ooofff rrriiissskkksss aaannnddd rrreeewwwaaarrrdddsss dddeeerrriiivvveeeddd fffrrrooommm ttthhheee uuunnndddeeerrrlllyyyiiinnnggg aaasssssseeetttsss iiisss nnnooottt bbbooorrrnnneee bbbyyy ttthhheee eeennntttiiitttiiieeesss,,, aaannnddd ttthhheeerrreeefffooorrreee ttthhheee aaasssssseeettt ppprrrooovvviiidddeeeddd iiisss aaaccccccooouuunnnttteeeddd fffooorrr aaasss aaa fffiiinnnaaannnccciiiaaalll aaasssssseeettt aaannnddd iiisss ccclllaaassssssiiifffiiieeeddd aaasss aaavvvaaaiiilllaaabbbllleee---fffooorrr---sssaaallleee...IIInnncccooommmeee iiisss rrreeecccooogggnnniiissseeeddd ooonnn PPPFFFIII ppprrrooojjjeeeccctttsss bbbooottthhh aaasss ooopppeeerrraaatttiiinnnggg rrreeevvveeennnuuueee aaannnddd iiinnnttteeerrreeesssttt iiinnncccooommmeee::: aaa ppprrrooopppooorrrtttiiiooonnn ooofff tttoootttaaalll cccaaassshhh rrreeeccceeeiiivvvaaabbbllleee iiisss aaallllllooocccaaattteeeddd tttooo ooopppeeerrraaatttiiinnnggg rrreeevvveeennnuuueee bbbyyy mmmeeeaaannnsss ooofff aaa mmmaaarrrgggiiinnn ooonnn ssseeerrrvvviiiccceee cccooossstttsss tttaaakkkiiinnnggg aaaccccccooouuunnnttt ooofff ooopppeeerrraaatttiiiooonnnaaalll rrriiissskkksss,,, aaannnddd iiinnnttteeerrreeesssttt iiinnncccooommmeee ooonnn ttthhheee fffiiinnnaaannnccciiiaaalll aaasssssseeettt iiisss rrreeecccooogggnnniiissseeeddd iiinnn ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt uuusssiiinnnggg ttthhheee eeeffffffeeeccctttiiivvveee iiinnnttteeerrreeesssttt mmmeeettthhhoooddd... TTThhheee rrreeesssiiiddduuuaaalll eeellleeemmmeeennnttt iiisss aaallllllooocccaaattteeeddd tttooo ttthhheee aaammmooorrrtttiiisssaaatttiiiooonnn ooofff ttthhheee fffiiinnnaaannnccciiiaaalll aaasssssseeettt...TTThhheee fffaaaiiirrr vvvaaallluuueee ooofff ttthhheee fffiiinnnaaannnccciiiaaalll aaasssssseeettt iiisss mmmeeeaaasssuuurrreeeddd aaattt eeeaaaccchhh bbbaaalllaaannnccceee ssshhheeeeeettt dddaaattteee bbbyyy cccooommmpppuuutttiiinnnggg ttthhheee dddiiissscccooouuunnnttteeeddd fffuuutttuuurrreee vvvaaallluuueee ooofff ttthhheee cccaaassshhh ffflllooowww aaallllllooocccaaattteeeddd tttooo ttthhheee fffiiinnnaaannnccciiiaaalll aaasssssseeettt... DDDiiissscccooouuunnnttt rrraaattteeesss aaarrreee dddeeettteeerrrmmmiiinnneeeddd uuusssiiinnnggg lllooonnnggg---ttteeerrrmmm iiinnnttteeerrreeesssttt rrraaattteeesss,,, sssuuubbbjjjeeecccttt tttooo aaa fffllloooooorrr,,, pppllluuusss rrriiissskkk fffaaaccctttooorrrsss ssspppeeeccciiifffiiiccc tttooo iiinnndddiiivvviiiddduuuaaalll ppprrrooojjjeeeccctttsss... GGGaaaiiinnnsss aaannnddd lllooosssssseeesss aaarrriiisssiiinnnggg fffrrrooommm ccchhhaaannngggeeesss iiinnn ttthhheee fffaaaiiirrr vvvaaallluuueee ooofff aaavvvaaaiiilllaaabbbllleee---fffooorrr---sssaaallleee fffiiinnnaaannnccciiiaaalll aaasssssseeetttsss aaarrreee rrreeecccooogggnnniiissseeeddd dddiiirrreeeccctttlllyyy iiinnn eeeqqquuuiiitttyyy uuunnntttiiilll ttthhheee aaasssssseeettt iiisss dddiiissspppooossseeeddd ooofff ooorrr iiisss dddeeettteeerrrmmmiiinnneeeddd tttooo bbbeee iiimmmpppaaaiiirrreeeddd,,, aaattt wwwhhhiiiccchhh tttiiimmmeee ttthhheee cccuuummmuuulllaaatttiiivvveee gggaaaiiinnn ooorrr lllooossssss ppprrreeevvviiiooouuussslllyyy rrreeecccooogggnnniiissseeeddd iiinnn eeeqqquuuiiitttyyy iiisss iiinnncccllluuudddeeeddd iiinnn ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt fffooorrr ttthhheee pppeeerrriiioooddd... (r) pensionsTTThhheee GGGrrrooouuuppp hhhaaasss bbbooottthhh dddeeefffiiinnneeeddd bbbeeennneeefffiiittt aaannnddd dddeeefffiiinnneeeddd cccooonnntttrrriiibbbuuutttiiiooonnn pppeeennnsssiiiooonnn sssccchhheeemmmeeesss fffooorrr ttthhheee bbbeeennneeefffiiittt ooofff pppeeerrrmmmaaannneeennnttt mmmeeemmmbbbeeerrrsss ooofff ssstttaaaffffff... FFFooorrr ttthhheee dddeeefffiiinnneeeddd bbbeeennneeefffiiittt sssccchhheeemmmeeesss ttthhheee cccooosssttt ooofff ppprrrooovvviiidddiiinnnggg bbbeeennneeefffiiitttsss iiisss dddeeettteeerrrmmmiiinnneeeddd uuusssiiinnnggg ttthhheee ppprrrooojjjeeecccttteeeddd uuunnniiittt cccrrreeedddiiittt mmmeeettthhhoooddd,,, wwwiiittthhh aaaccctttuuuaaarrriiiaaalll vvvaaallluuuaaatttiiiooonnnsss bbbeeeiiinnnggg cccaaarrrrrriiieeeddd ooouuuttt aaattt eeeaaaccchhh bbbaaalllaaannnccceee ssshhheeeeeettt dddaaattteee...AAAccctttuuuaaarrriiiaaalll gggaaaiiinnnsss aaannnddd lllooosssssseeesss aaarrreee rrreeecccooogggnnniiissseeeddd iiinnn fffuuullllll iiinnn ttthhheee pppeeerrriiioooddd iiinnn wwwhhhiiiccchhh ttthhheeeyyy oooccccccuuurrr... TTThhheeeyyy aaarrreee rrreeecccooogggnnniiissseeeddd dddiiirrreeeccctttlllyyy iiinnn eeeqqquuuiiitttyyy aaannnddd ppprrreeessseeennnttteeeddd iiinnn ttthhheee ssstttaaattteeemmmeeennnttt ooofff rrreeecccooogggnnniiissseeeddd iiinnncccooommmeee aaannnddd eeexxxpppeeennnssseee...FFFooorrr dddeeefffiiinnneeeddd cccooonnntttrrriiibbbuuutttiiiooonnn sssccchhheeemmmeeesss,,, ttthhheee aaammmooouuunnnttt rrreeecccooogggnnniiissseeeddd iiinnn ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt iiisss eeeqqquuuaaalll tttooo ttthhheee cccooonnntttrrriiibbbuuutttiiiooonnnsss pppaaayyyaaabbbllleee tttooo ttthhheee sssccchhheeemmmeeesss ddduuurrriiinnnggg ttthhheee yyyeeeaaarrr... (s) taxationCCCuuurrrrrreeennnttt tttaaaxxx iiisss ppprrrooovvviiidddeeeddd aaattt aaammmooouuunnntttsss eeexxxpppeeecccttteeeddd tttooo bbbeee pppaaaiiiddd (((ooorrr rrreeecccooovvveeerrreeeddd))) uuusssiiinnnggg ttthhheee tttaaaxxx rrraaattteeesss aaannnddd lllaaawwwsss ttthhhaaattt hhhaaavvveee bbbeeeeeennn eeennnaaacccttteeeddd ooorrr sssuuubbbssstttaaannntttiiivvveeelllyyy eeennnaaacccttteeeddd bbbyyy ttthhheee bbbaaalllaaannnccceee ssshhheeeeeettt dddaaattteee... DDDeeefffeeerrrrrreeeddd tttaaaxxx aaasssssseeetttsss aaannnddd llliiiaaabbbiiillliiitttiiieeesss aaarrreee cccaaalllcccuuulllaaattteeeddd aaattt ttthhheee rrraaattteeesss aaattt wwwhhhiiiccchhh ttthhheeeyyy aaarrreee llliiikkkeeelllyyy tttooo rrreeevvveeerrrssseee iiinnn ttthhheee tttaaaxxx jjjuuurrriiisssdddiiiccctttiiiooonnn tttooo wwwhhhiiiccchhh ttthhheeeyyy rrreeelllaaattteee...DDDeeefffeeerrrrrreeeddd tttaaaxxx iiisss ppprrrooovvviiidddeeeddd iiinnn fffuuullllll ooonnn ttteeemmmpppooorrraaarrryyy dddiiiffffffeeerrreeennnccceeesss wwwhhhiiiccchhh aaarrriiissseee bbbeeetttwwweeeeeennn ttthhheee cccaaarrrrrryyyiiinnnggg vvvaaallluuueee ooofff aaannn aaasssssseeettt ooorrr llliiiaaabbbiiillliiitttyyy aaannnddd iiitttsss tttaaaxxx bbbaaassseee... DDDeeefffeeerrrrrreeeddd tttaaaxxx aaasssssseeetttsss aaarrreee rrreeecccooogggnnniiissseeeddd tttooo ttthhheee eeexxxttteeennnttt ttthhhaaattt iiittt iiisss ppprrrooobbbaaabbbllleee ttthhhaaattt ttthhheeerrreee wwwiiillllll bbbeee sssuuuffffffiiiccciiieeennnttt ppprrrooofffiiitttsss iiinnn ttthhheee fffuuutttuuurrreee tttooo eeennnaaabbbllleee ttthhheee aaasssssseeetttsss tttooo bbbeee uuutttiiillliiissseeeddd aaannnddd rrreeevvviiieeewwweeeddd aaattt llleeeaaasssttt aaannnnnnuuuaaallllllyyy... DDDeeefffeeerrrrrreeeddd tttaaaxxx llliiiaaabbbiiillliiitttiiieeesss aaarrreee nnnooorrrmmmaaallllllyyy rrreeecccooogggnnniiissseeeddd fffooorrr aaallllll tttaaaxxxaaabbbllleee ttteeemmmpppooorrraaarrryyy dddiiiffffffeeerrreeennnccceeesss... DDDeeefffeeerrrrrreeeddd tttaaaxxx aaasssssseeetttsss aaannnddd llliiiaaabbbiiillliiitttiiieeesss aaarrreee nnnooottt dddiiissscccooouuunnnttteeeddd...DDDeeefffeeerrrrrreeeddd tttaaaxxx iiisss ccchhhaaarrrgggeeeddd///cccrrreeedddiiittteeeddd tttooo ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt eeexxxccceeepppttt tttooo ttthhheee eeexxxttteeennnttt ttthhhaaattt ttthhheee uuunnndddeeerrrlllyyyiiinnnggg aaasssssseeettt ooorrr llliiiaaabbbiiillliiitttyyy iiisss cccrrreeedddiiittteeeddd///ccchhhaaarrrgggeeeddd tttooo eeeqqquuuiiitttyyy iiinnn wwwhhhiiiccchhh cccaaassseee ttthhheee dddeeefffeeerrrrrreeeddd tttaaaxxx fffooollllllooowwwsss ttthhhaaattt tttrrreeeaaatttmmmeeennnttt tttooo eeeqqquuuiiitttyyy...DDDeeefffeeerrrrrreeeddd tttaaaxxx aaasssssseeetttsss aaannnddd llliiiaaabbbiiillliiitttiiieeesss aaarrreee oooffffffssseeettt wwwhhheeennn ttthhheeerrreee iiisss aaa llleeegggaaallllllyyy eeennnfffooorrrccceeeaaabbbllleee rrriiiggghhhttt tttooo ssseeettt oooffffff cccuuurrrrrreeennnttt tttaaaxxx aaasssssseeetttsss aaagggaaaiiinnnsssttt cccuuurrrrrreeennnttt tttaaaxxx llliiiaaabbbiiillliiitttiiieeesss aaannnddd wwwhhheeennn ttthhheeeyyy rrreeelllaaattteee tttooo iiinnncccooommmeee tttaaaxxxeeesss llleeevvviiieeeddd bbbyyy ttthhheee sssaaammmeee tttaaaxxxaaatttiiiooonnn aaauuuttthhhooorrriiitttyyy aaannnddd ttthhheee GGGrrrooouuuppp iiinnnttteeennndddsss tttooo ssseeettttttllleee iiitttsss cccuuurrrrrreeennnttt tttaaaxxx aaasssssseeetttsss aaannnddd llliiiaaabbbiiillliiitttiiieeesss ooonnn aaa nnneeettt bbbaaasssiiisss... (t) exceptional itemsEEExxxccceeeppptttiiiooonnnaaalll iiittteeemmmsss aaarrreee ttthhhooossseee ttthhhaaattt ttthhheee GGGrrrooouuuppp cccooonnnsssiiidddeeerrr tttooo bbbeee nnnooonnn-rrreeecccuuurrrrrriiinnnggg aaannnddd sssiiigggnnniiifffiiicccaaannnttt iiinnn sssiiizzzeee ooorrr iiinnn nnnaaatttuuurrreee... EEExxxccceeeppptttiiiooonnnaaalll iiittteeemmmsss iiinnncccllluuudddeeesss ppprrrooofffiiittt ooonnn dddiiissspppooosssaaalllsss ooofff PPPFFFIII iiinnnvvveeessstttmmmeeennntttsss aaannnddd rrreeelllaaattteeeddd cccooossstttsss... nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss888444 IIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss1. accountInG polIcIes (CONTINUED) (u) assets classified as held for saleAAAsssssseeetttsss (((aaannnddd dddiiissspppooosssaaalll gggrrrooouuupppsss))) ccclllaaassssssiiifffiiieeeddd aaasss hhheeelllddd fffooorrr sssaaallleee aaarrreee mmmeeeaaasssuuurrreeeddd aaattt ttthhheee lllooowwweeerrr ooofff cccaaarrrrrryyyiiinnnggg aaammmooouuunnnttt aaannnddd fffaaaiiirrr vvvaaallluuueee llleeessssss cccooossstttsss tttooo ssseeellllll...AAAsssssseeetttsss aaannnddd dddiiissspppooosssaaalll gggrrrooouuupppsss aaarrreee ccclllaaassssssiiifffiiieeeddd aaasss hhheeelllddd fffooorrr sssaaallleee iiifff ttthhheeeiiirrr cccaaarrrrrryyyiiinnnggg aaammmooouuunnnttt wwwiiillllll bbbeee rrreeecccooovvveeerrreeeddd ttthhhrrrooouuuggghhh aaa sssaaallleee tttrrraaannnsssaaaccctttiiiooonnn rrraaattthhheeerrr ttthhhaaannn cccooonnntttiiinnnuuuiiinnnggg fffooorrr uuussseee... TTThhhiiisss cccooonnndddiiitttiiiooonnn iiisss rrreeegggaaarrrdddeeeddd aaasss mmmeeettt ooonnnlllyyy wwwhhheeennn ttthhheee sssaaallleee iiisss hhhiiiggghhhlllyyy ppprrrooobbbaaabbbllleee aaannnddd ttthhheee aaasssssseeettt (((ooorrr dddiiissspppooosssaaalll gggrrrooouuuppp))) iiisss aaavvvaaaiiilllaaabbbllleee fffooorrr iiimmmmmmeeedddiiiaaattteee sssaaallleee iiinnn iiitttsss ppprrreeessseeennnttt cccooonnndddiiitttiiiooonnn... MMMaaannnaaagggeeemmmeeennnttt mmmuuusssttt bbbeee cccooommmmmmiiitttttteeeddd tttooo ttthhheee sssaaallleee wwwhhhiiiccchhh ssshhhooouuulllddd bbbeee eeexxxpppeeecccttteeeddd tttooo qqquuuaaallliiifffyyy fffooorrr rrreeecccooogggnnniiitttiiiooonnn aaasss aaa cccooommmpppllleeettteeeddd sssaaallleee wwwiiittthhhiiinnn ooonnneee yyyeeeaaarrr fffrrrooommm ttthhheee dddaaattteee ooofff ccclllaaassssssiiifffiiicccaaatttiiiooonnn...2. revenue AAAnnn aaannnaaalllyyysssiiisss ooofff ttthhheee GGGrrrooouuuppp’’’sss rrreeevvveeennnuuueee fffooorrr ttthhheee yyyeeeaaarrr iiisss aaasss fffooollllllooowwwsss:::revenue including share of associates and joint venturesconsolidated revenue2012 £million222000111111 £££mmmiiilllliiiooonnn2012 £million222000111111 £££mmmiiilllliiiooonnnCCCooonnntttiiinnnuuuiiinnnggg ooopppeeerrraaatttiiiooonnnsssPPPrrrooovvviiisssiiiooonnn ooofff ssseeerrrvvviiiccceeesss1,292.2 111,,,111222444...111 1,109.1 999777111...777 RRReeevvveeennnuuueee fffrrrooommm cccooonnnssstttrrruuuccctttiiiooonnn cccooonnntttrrraaaccctttsss895.7 111,,,000222666...555 667.6 777000666...888 EEEqqquuuiiipppmmmeeennnttt sssaaallleeesss aaannnddd llleeeaaasssiiinnnggg iiinnncccooommmeee181.7 111666999...000 181.7 111666999...000 2,369.6 222,,,333111999...666 1,958.4 111,,,888444777...555 3. busIness and GeoGraphIcal seGments (a) business segments TTThhheee GGGrrrooouuuppp iiisss ooorrrgggaaannniiissseeeddd iiinnntttooo fffooouuurrr ooopppeeerrraaatttiiinnnggg dddiiivvviiisssiiiooonnnsss,,, aaasss ssseeettt ooouuuttt bbbeeelllooowww... IIInnnfffooorrrmmmaaatttiiiooonnn rrreeepppooorrrttteeeddd tttooo ttthhheee EEExxxeeecccuuutttiiivvveee BBBoooaaarrrddd fffooorrr ttthhheee pppuuurrrpppooossseeesss ooofff rrreeesssooouuurrrccceee aaallllllooocccaaatttiiiooonnn aaannnddd aaasssssseeessssssmmmeeennnttt ooofff ssseeegggmmmeeennnttt pppeeerrrfffooorrrmmmaaannnccceee iiisss bbbaaassseeeddd ooonnn ttthhheee ppprrroooddduuuccctttsss aaannnddd ssseeerrrvvviiiccceeesss ppprrrooovvviiidddeeeddd...– SSSuuuppppppooorrrttt SSSeeerrrvvviiiccceeesss::: ppprrrooovvviiisssiiiooonnn ooofff ooouuutttsssooouuurrrccceeeddd sssuuuppppppooorrrttt ssseeerrrvvviiiccceeesss tttooo pppuuubbbllliiiccc--- aaannnddd ppprrriiivvvaaattteee---ssseeeccctttooorrr cccllliiieeennntttsss,,, bbbooottthhh iiinnn ttthhheee UUUKKK aaannnddd ttthhhrrrooouuuggghhh MMMiiiddddddllleee EEEaaasssttt aaassssssoooccciiiaaattteeesss...––– CCCooonnnssstttrrruuuccctttiiiooonnn::: dddeeesssiiigggnnn,,, cccooonnnssstttrrruuuccctttiiiooonnn aaannnddd mmmaaaiiinnnttteeennnaaannnccceee ooofff bbbuuuiiillldddiiinnngggsss aaannnddd iiinnnfffrrraaassstttrrruuuccctttuuurrreee,,, bbbooottthhh iiinnn ttthhheee UUUKKK aaannnddd ttthhhrrrooouuuggghhh MMMiiiddddddllleee EEEaaasssttt aaassssssoooccciiiaaattteeesss...––– EEEqqquuuiiipppmmmeeennnttt SSSeeerrrvvviiiccceeesss::: dddeeesssiiigggnnn,,, hhhiiirrreee aaannnddd sssaaallleee ooofff fffooorrrmmmwwwooorrrkkk,,, fffaaalllssseeewwwooorrrkkk aaannnddd aaassssssoooccciiiaaattteeeddd aaacccccceeessssss eeeqqquuuiiipppmmmeeennnttt...– IIInnnvvveeessstttmmmeeennntttsss::: tttrrraaannnsssaaaccctttiiiooonnn ssstttrrruuuccctttuuurrriiinnnggg,,, aaannnddd mmmaaannnaaagggeeemmmeeennnttt ooofff,,, ttthhheee GGGrrrooouuuppp’’’sss ppprrrooojjjeeecccttt fffiiinnnaaannnccceee aaaccctttiiivvviiitttiiieeesss... IIInnnvvveeessstttmmmeeennntttsss’’’ ssseeegggmmmeeennntttaaalll fffiiiggguuurrreeesss rrreeeppprrreeessseeennnttt ttthhheee GGGrrrooouuuppp’’’sss ssshhhaaarrreee ooofff ttthhheee aaassssssoooccciiiaaattteeeddd ssspppeeeccciiiaaalll pppuuurrrpppooossseee cccooommmpppaaannniiieeesss... CCCooossstttsss ooofff ccceeennntttrrraaalll ssseeerrrvvviiiccceeesss,,, iiinnncccllluuudddiiinnnggg ttthhhooossseee rrreeelllaaatttiiinnnggg tttooo mmmaaannnaaagggiiinnnggg ooouuurrr PPPFFFIII iiinnnvvveeessstttmmmeeennntttsss aaannnddd ccceeennntttrrraaalll bbbiiiddddddiiinnnggg aaaccctttiiivvviiitttiiieeesss,,, aaarrreee ssshhhooowwwnnn iiinnn “““GGGrrrooouuuppp SSSeeerrrvvviiiccceeesss”””...revenue including share of associates and joint venturesconsolidated revenueresult2012 £million2011 £million2012 £million2011 £million2012 £million2011 £millionSupport Services - UK1,215.4 1,069.6 1,118.1 1,007.3 44.3 36.4 Support Services - International31.3 25.9 – – 3.7 3.6 Support Services1,246.7 1,095.5 1,118.1 1,007.3 48.0 40.0 Construction - UK737.2 731.1 737.2 731.1 14.6 18.0 Construction - International201.6 223.7 - - 14.3 16.6 Construction938.8 954.8 737.2 731.1 28.9 34.6 Equipment Services167.5 154.3 167.5 154.3 16.0 13.6 Investments81.0 160.2 – – 6.6 6.0 Group Services– – – – (19.1)(20.4)Inter-segment elimination(64.4)(45.2)(64.4)(45.2)– – 2,369.6 2,319.6 1,958.4 1,847.5 80.4 73.8 Amortisation of acquired intangible assets(6.4)(5.7)Exceptional items (note 5)110.9 – Total operating profit184.9 68.1 Investment revenue40.4 39.7 Finance costs(42.4)(40.7)Profit before tax182.9 67.1 Tax(11.2)(6.5)Profit for the year171.7 60.6 segment assetssegment liabilitiesnet assets/ (liabilities)2012 £million2011 £million2012 £million2011 £million2012 £million2011 £millionSupport Services - UK255.8 217.1 (304.3)(228.5)(48.5)(11.4)Support Services - International25.0 21.5 - - 25.0 21.5 Support Services280.8 238.6 (304.3)(228.5)(23.5)10.1 Construction - UK165.9 162.0 (313.8)(291.7)(147.9)(129.7)Construction - International51.1 45.6 - - 51.1 45.6 Construction217.0 207.6 (313.8)(291.7)(96.8)(84.1)Equipment Services194.2 184.9 (38.7)(32.5)155.5 152.4 Investments58.8 103.3 – – 58.8 103.3 750.8 734.4 (656.8)(552.7)94.0 181.7 Group Services, goodwill and acquired intangible assets278.8 232.7 (74.1)(73.6)204.7 159.1 1,029.6 967.1 (730.9)(626.3)298.7 340.8 Net cash/(debt)25.8 (44.2)Net assets (excluding minority interest)324.5 296.6 ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss 888555revenue including share of associates and joint venturesconsolidated revenueresult2012 £million222000111111 £££mmmiiilllllliiiooonnn2012 £million222000111111 £££mmmiiilllllliiiooonnn2012 £million222000111111 £££mmmiiilllllliiiooonnnSSSuuuppppppooorrrttt SSSeeerrrvvviiiccceeesss --- UUUKKK1,215.4 111,,,000666999...666 1,118.1 111,,,000000777...333 44.3 333666...444 SSSuuuppppppooorrrttt SSSeeerrrvvviiiccceeesss --- IIInnnttteeerrrnnnaaatttiiiooonnnaaalll31.3 222555...999 – ––– 3.7 333...666 SSSuuuppppppooorrrttt SSSeeerrrvvviiiccceeesss1,246.7 111,,,000999555...555 1,118.1 111,,,000000777...333 48.0 444000...000 CCCooonnnssstttrrruuuccctttiiiooonnn --- UUUKKK737.2 777333111...111 737.2 777333111...111 14.6 111888...000 CCCooonnnssstttrrruuuccctttiiiooonnn --- IIInnnttteeerrrnnnaaatttiiiooonnnaaalll201.6 222222333...777 - --- 14.3 111666...666 CCCooonnnssstttrrruuuccctttiiiooonnn938.8 999555444...888 737.2 777333111...111 28.9 333444...666 EEEqqquuuiiipppmmmeeennnttt SSSeeerrrvvviiiccceeesss167.5 111555444...333 167.5 111555444...333 16.0 111333...666 IIInnnvvveeessstttmmmeeennntttsss81.0 111666000...222 – ––– 6.6 666...000 GGGrrrooouuuppp SSSeeerrrvvviiiccceeesss– ––– – ––– (19.1)(((222000...444)))IIInnnttteeerrr---ssseeegggmmmeeennnttt eeellliiimmmiiinnnaaatttiiiooonnn(64.4)(((444555...222)))(64.4)(((444555...222)))– – 2,369.6 222,,,333111999...666 1,958.4 111,,,888444777...555 80.4 777333...888 AAAmmmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss(6.4)(((555...777)))EEExxxccceeeppptttiiiooonnnaaalll iiittteeemmmsss (((nnnooottteee 555)))110.9 ––– TTToootttaaalll ooopppeeerrraaatttiiinnnggg ppprrrooofififittt184.9 666888...111 IIInnnvvveeessstttmmmeeennnttt rrreeevvveeennnuuueee40.4 333999...777 FFFiiinnnaaannnccceee cccooossstttsss(42.4)(((444000...777)))PPPrrrooofififittt bbbeeefffooorrreee tttaaaxxx182.9 666777...111 TTTaaaxxx(11.2)(((666...555)))PPPrrrooofififittt fffooorrr ttthhheee yyyeeeaaarrr171.7 666000...666 segment assetssegment liabilitiesnet assets/ (liabilities)2012 £million222000111111 £££mmmiiilllllliiiooonnn2012 £million222000111111 £££mmmiiilllllliiiooonnn2012 £million222000111111 £££mmmiiilllllliiiooonnnSSSuuuppppppooorrrttt SSSeeerrrvvviiiccceeesss --- UUUKKK255.8 222111777...111 (304.3)(((222222888...555)))(48.5)(((111111...444)))SSSuuuppppppooorrrttt SSSeeerrrvvviiiccceeesss --- IIInnnttteeerrrnnnaaatttiiiooonnnaaalll25.0 222111...555 - --- 25.0 222111...555 SSSuuuppppppooorrrttt SSSeeerrrvvviiiccceeesss280.8 222333888...666 (304.3)(((222222888...555)))(23.5)111000...111 CCCooonnnssstttrrruuuccctttiiiooonnn --- UUUKKK165.9 111666222...000 (313.8)(((222999111...777)))(147.9)(((111222999...777)))CCCooonnnssstttrrruuuccctttiiiooonnn --- IIInnnttteeerrrnnnaaatttiiiooonnnaaalll51.1 444555...666 - --- 51.1 444555...666 CCCooonnnssstttrrruuuccctttiiiooonnn217.0 222000777...666 (313.8)(((222999111...777)))(96.8)(((888444...111)))EEEqqquuuiiipppmmmeeennnttt SSSeeerrrvvviiiccceeesss194.2 111888444...999 (38.7)(((333222...555)))155.5 111555222...444 IIInnnvvveeessstttmmmeeennntttsss58.8 111000333...333 – – 58.8 111000333...333 750.8 777333444...444 (656.8)(((555555222...777)))94.0 111888111...777 GGGrrrooouuuppp SSSeeerrrvvviiiccceeesss,,, gggoooooodddwwwiiillllll aaannnddd aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss278.8 222333222...777 (74.1)(((777333...666)))204.7 111555999...111 1,029.6 999666777...111 (730.9)(((666222666...333)))298.7 333444000...888 NNNeeettt cccaaassshhh///(((dddeeebbbttt)))25.8 (((444444...222)))NNNeeettt aaasssssseeetttsss (((eeexxxcccllluuudddiiinnnggg mmmiiinnnooorrriiitttyyy iiinnnttteeerrreeesssttt)))324.5 222999666...666 nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss888666 IIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss3. busIness and GeoGraphIcal seGments (CONTINUED) (a) business segments (continued)depreciation and amortisationadditions to property, plant and equipment and intangible assets2012 £million222000111111 £££mmmiiilllllliiiooonnn2012 £million222000111111 £££mmmiiilllllliiiooonnnSSSuuuppppppooorrrttt SSSeeerrrvvviiiccceeesss --- UUUKKK7.7 777...999 7.5 666...333 SSSuuuppppppooorrrttt SSSeeerrrvvviiiccceeesss --- IIInnnttteeerrrnnnaaatttiiiooonnnaaalll0.3 000...444 – – SSSuuuppppppooorrrttt SSSeeerrrvvviiiccceeesss8.0 888...333 7.5 666...333 CCCooonnnssstttrrruuuccctttiiiooonnn --- UUUKKK2.4 222...444 2.7 222...999 CCCooonnnssstttrrruuuccctttiiiooonnn --- IIInnnttteeerrrnnnaaatttiiiooonnnaaalll0.1 000...111 – ––– CCCooonnnssstttrrruuuccctttiiiooonnn2.5 222...555 2.7 222...999 EEEqqquuuiiipppmmmeeennnttt SSSeeerrrvvviiiccceeesss18.8 111999...111 24.6 222000...888 IIInnnvvveeessstttmmmeeennntttsss– ––– – ––– 29.3 222999...999 34.8 333000...000 GGGrrrooouuuppp SSSeeerrrvvviiiccceeesss6.4 555...777 0.3 000...666 35.7 333555...666 35.1 333000...666 ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss 888777 (b) Geographical segmentsTTThhheee SSSuuuppppppooorrrttt SSSeeerrrvvviiiccceeesss aaannnddd CCCooonnnssstttrrruuuccctttiiiooonnn dddiiivvviiisssiiiooonnnsss aaarrreee lllooocccaaattteeeddd iiinnn ttthhheee UUUnnniiittteeeddd KKKiiinnngggdddooommm aaannnddd ttthhheee MMMiiiddddddllleee EEEaaasssttt... EEEqqquuuiiipppmmmeeennnttt SSSeeerrrvvviiiccceeesss hhhaaasss ooopppeeerrraaatttiiiooonnnsss iiinnn aaallllll ooofff ttthhheee gggeeeooogggrrraaappphhhiiiccc ssseeegggmmmeeennntttsss llliiisssttteeeddd bbbeeelllooowww... 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DDDuuurrriiinnnggg 222000111222,,, £££444000,,,000000000 wwwaaasss iiinnncccuuurrrrrreeeddd iiinnn rrreeelllaaatttiiiooonnn tttooo ttthhheee CCClllaaassssss 111 CCCiiirrrcccuuulllaaarrr ooonnn ttthhheee dddiiissspppooosssaaalll ooofff PPPFFFIII aaasssssseeetttsss tttooo ttthhheee IIInnnttteeerrrssseeerrrvvveee PPPeeennnsssiiiooonnn SSSccchhheeemmmeee...AAAnnn eeexxxppplllaaannnaaatttiiiooonnn ooofff hhhooowww aaauuudddiiitttooorrr ooobbbjjjeeeccctttiiivvviiitttyyy aaannnddd iiinnndddeeepppeeennndddeeennnccceee iiisss sssaaafffeeeggguuuaaarrrdddeeeddd wwwhhheeennn nnnooonnn---aaauuudddiiittt ssseeerrrvvviiiccceeesss aaarrreee ppprrrooovvviiidddeeeddd bbbyyy ttthhheee aaauuudddiiitttooorrrsss iiisss ssseeettt ooouuuttt iiinnn ttthhheee dddeeessscccrrriiippptttiiiooonnn ooofff ttthhheee wwwooorrrkkk ooofff ttthhheee AAAuuudddiiittt CCCooommmmmmiiitttttteeeeee wwwiiittthhhiiinnn ttthhheee CCCooorrrpppooorrraaattteee GGGooovvveeerrrnnnaaannnccceee rrreeepppooorrrttt ooonnn pppaaagggeee 555222... ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss 8889995. eXceptIonal Items2012 £million222000111111 £££mmmiiilllllliiiooonnnPPPrrrooofififittt ooonnn dddiiissspppooosssaaalll ooofff ppprrrooopppeeerrrtttyyy aaannnddd iiinnnvvveeessstttmmmeeennntttsss114.9 – OOOttthhheeerrr eeexxxccceeeppptttiiiooonnnaaalll iiittteeemmmsss(4.0)– 110.9 ––– PPPrrroooccceeeeeedddsss ooonnn dddiiissspppooosssaaalll ooofff ppprrrooopppeeerrrtttyyy aaannnddd iiinnnvvveeessstttmmmeeennntttsss119.3 – DDDiiissspppooosssaaalllsss (((nnnooottteee 111666)))(44.8)– AAAvvvaaaiiilllaaabbbllleee–––fffooorrr–––sssaaallleee fififinnnaaannnccciiiaaalll aaasssssseeetttsss (((jjjoooiiinnnttt vvveeennntttuuurrreeesss))) aaannnddd rrreeelllaaattteeeddd cccaaassshhh flflflooowww hhheeedddgggeeesss rrreeecccyyycccllleeeddd fffrrrooommm eeeqqquuuiiitttyyy40.4 ––– 114.9 ––– TTThhheee £££111111444...999 mmmiiilllllliiiooonnn eeexxxccceeeppptttiiiooonnnaaalll gggaaaiiinnn ooonnn dddiiissspppooosssaaalll ooofff ppprrrooopppeeerrrtttyyy aaannnddd iiinnnvvveeessstttmmmeeennntttsss iiinnncccllluuudddeeesss::: ttthhheee ppprrrooofffiiitttsss ooonnn dddiiissspppooosssaaalll ooofff pppaaarrrttt ooofff aaa hhhooollldddiiinnnggg iiinnn ttthhheee UUUnnniiivvveeerrrsssiiitttyyy CCCooolllllleeegggeee LLLooonnndddooonnn HHHooossspppiiitttaaalllsss PPPFFFIII ppprrrooojjjeeecccttt fffooorrr £££333333...000 mmmiiilllllliiiooonnn iiinnn JJJuuulllyyy 222000111222;;; ttthhheee ppprrrooofffiiitttsss ooonnn dddiiissspppooosssaaalll ooofff aaa pppooorrrtttfffooollliiiooo ooofff 111999 PPPFFFIII iiinnnvvveeessstttmmmeeennntttsss fffooorrr £££888555...555 mmmiiilllllliiiooonnn iiinnn OOOccctttooobbbeeerrr 222000111222;;; aaannnddd ttthhheee dddiiissspppooosssaaalll ooofff aaannn iiinnnvvveeessstttmmmeeennnttt fffooorrr £££000...888 mmmiiilllllliiiooonnn iiinnn NNNooovvveeemmmbbbeeerrr 222000111222... OOOttthhheeerrr eeexxxccceeeppptttiiiooonnnaaalll iiittteeemmmsss cccooommmppprrriiissseeesss £££444...000 mmmiiilllllliiiooonnn ooofff bbbooonnnuuusss aaannnddd ssshhhaaarrreee---bbbaaassseeeddd pppaaayyymmmeeennnttt cccooossstttsss tttrrriiiggggggeeerrreeeddd bbbyyy ttthhheee eeexxxccceeeppptttiiiooonnnaaalll ppprrrooofffiiitttsss ooonnn ttthhheee dddiiissspppooosssaaalll ooofff PPPFFFIII iiinnnvvveeessstttmmmeeennntttsss aaabbbooovvveee...6. staff costsTTThhheee aaavvveeerrraaagggeee nnnuuummmbbbeeerrr ooofff eeemmmpppllloooyyyeeeeeesss,,, bbbeeeiiinnnggg fffuuullllll---tttiiimmmeee eeeqqquuuiiivvvaaallleeennntttsss,,, wwwiiittthhhiiinnn eeeaaaccchhh dddiiivvviiisssiiiooonnn ddduuurrriiinnnggg ttthhheee yyyeeeaaarrr,,, iiinnncccllluuudddiiinnnggg eeexxxeeecccuuutttiiivvveee dddiiirrreeeccctttooorrrsss,,, wwwaaasss:::2012 number222000111111 NNNuuummmbbbeeerrrSSSuuuppppppooorrrttt SSSeeerrrvvviiiccceeesss18,244 111666,,,333777222 CCCooonnnssstttrrruuuccctttiiiooonnn2,528 222,,,666333222 EEEqqquuuiiipppmmmeeennnttt SSSeeerrrvvviiiccceeesss1,165 111,,,111777666 GGGrrrooouuuppp SSSeeerrrvvviiiccceeesss171 111222888 22,108 222000,,,333000888 TTThhheeeiiirrr aaaggggggrrreeegggaaattteee rrreeemmmuuunnneeerrraaatttiiiooonnn cccooommmppprrriiissseeeddd:::2012 £million222000111111 £££mmmiiilllllliiiooonnnWWWaaagggeeesss aaannnddd sssaaalllaaarrriiieeesss554.4 555333777...222 SSSoooccciiiaaalll ssseeecccuuurrriiitttyyy cccooossstttsss44.4 444333...444 SSShhhaaarrreee---bbbaaassseeeddd pppaaayyymmmeeennntttsss5.7 222...666 OOOttthhheeerrr pppeeennnsssiiiooonnn cccooossstttsss (((ssseeeeee bbbeeelllooowww))) 20.2 111888...999 624.7 666000222...111 DDDeeefififinnneeeddd bbbeeennneeefififittt sssccchhheeemmmeee cccuuurrrrrreeennnttt ssseeerrrvvviiiccceee cccooossstttsss (((nnnooottteee 333000)))5.8 555...666 OOOttthhheeerrr UUUKKK --- dddeeefififinnneeeddd cccooonnntttrrriiibbbuuutttiiiooonnn13.3 111222...333 OOOttthhheeerrr ooovvveeerrrssseeeaaasss --- dddeeefififinnneeeddd cccooonnntttrrriiibbbuuutttiiiooonnn1.1 111...000 PPPeeennnsssiiiooonnn cccooossstttsss20.2 111888...999 DDDeeetttaaaiiillleeeddd dddiiisssccclllooosssuuurrreeesss ooofff dddiiirrreeeccctttooorrrsss’’’ aaaggggggrrreeegggaaattteee aaannnddd iiinnndddiiivvviiiddduuuaaalll rrreeemmmuuunnneeerrraaatttiiiooonnn aaannnddd ssshhhaaarrreee---bbbaaassseeeddd pppaaayyymmmeeennntttsss aaarrreee gggiiivvveeennn iiinnn ttthhheee aaauuudddiiittteeeddd ssseeeccctttiiiooonnn ooofff ttthhheee DDDiiirrreeeccctttooorrrsss’’’ RRReeemmmuuunnneeerrraaatttiiiooonnn RRReeepppooorrrttt ooonnn pppaaagggeeesss 666444 tttooo 666888 aaannnddd ssshhhooouuulllddd bbbeee rrreeegggaaarrrdddeeeddd aaasss aaannn iiinnnttteeegggrrraaalll pppaaarrrttt ooofff ttthhhiiisss nnnooottteee...DDDuuurrriiinnnggg ttthhheee yyyeeeaaarrr ttthhheee GGGrrrooouuuppp ccceeennntttrrraaallliiissseeeddd ccceeerrrtttaaaiiinnn bbbiiiddddddiiinnnggg aaannnddd IIITTT sssuuuppppppooorrrttt aaaccctttiiivvviiitttiiieeesss fffrrrooommm ttthhheee dddiiivvviiisssiiiooonnnsss...7. 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TTTaaaxxxaaatttiiiooonnn fffooorrr ooottthhheeerrr jjjuuurrriiisssdddiiiccctttiiiooonnnsss iiisss cccaaalllcccuuulllaaattteeeddd aaattt ttthhheee rrraaattteeesss ppprrreeevvvaaaiiillliiinnnggg iiinnn ttthhheee rrreeellleeevvvaaannnttt jjjuuurrriiisssdddiiiccctttiiiooonnnsss...TTThhheee tttoootttaaalll ccchhhaaarrrgggeee fffooorrr ttthhheee yyyeeeaaarrr cccaaannn bbbeee rrreeecccooonnnccciiillleeeddd tttooo ttthhheee ppprrrooofffiiittt pppeeerrr ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt aaasss fffooollllllooowwwsss::: 2012222000111111£million%£££mmmiiilllliiiooonnn%%%PPPrrrooofififittt bbbeeefffooorrreee tttaaaxxx182.9 666777...111 TTTaaaxxx aaattt ttthhheee UUUKKK iiinnncccooommmeee tttaaaxxx rrraaattteee ooofff 222444...555%%% (((222000111111::: 222666...555%%%)))44.8 24.5% 111777...888 222666...555%%% TTTaaaxxx eeeffffffeeecccttt ooofff eeexxxpppeeennnssseeesss nnnooottt dddeeeddduuuccctttiiibbbllleee iiinnn dddeeettteeerrrmmmiiinnniiinnnggg tttaaaxxxaaabbbllleee ppprrrooofififittt1.7 0.9% 111...999 222...888%%% NNNooonnn---tttaaaxxxaaabbbllleee eeexxxccceeeppptttiiiooonnnaaalll iiittteeemmmsss(28.2)(15.4%)––– 000...000%%% TTTaaaxxx eeeffffffeeecccttt ooofff ssshhhaaarrreee ooofff rrreeesssuuullltttsss ooofff aaassssssoooccciiiaaattteeesss(6.2)(3.4%)(((777...888)))(((111111...666%%%)))EEEffffffeeecccttt ooofff ooovvveeerrrssseeeaaasss lllooosssssseeesss uuunnnrrreeellliiieeevvveeeddd1.4 0.8% 222...000 333...000%%% PPPrrriiiooorrr pppeeerrriiioooddd aaadddjjjuuussstttmmmeeennntttsss(2.3)(1.3%)(((777...444)))(((111111...000%%%)))TTTaaaxxx ccchhhaaarrrgggeee aaannnddd eeeffffffeeeccctttiiivvveee tttaaaxxx rrraaattteee fffooorrr ttthhheee yyyeeeaaarrr11.2 6.1% 666...555 999...777%%% IIInnn aaaddddddiiitttiiiooonnn tttooo ttthhheee iiinnncccooommmeee tttaaaxxx ccchhhaaarrrgggeeeddd tttooo ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt,,, ttthhheee fffooollllllooowwwiiinnnggg dddeeefffeeerrrrrreeeddd tttaaaxxx ccchhhaaarrrgggeeesss///(((cccrrreeedddiiitttsss))) hhhaaavvveee bbbeeeeeennn rrreeecccooorrrdddeeeddd dddiiirrreeeccctttlllyyy tttooo eeeqqquuuiiitttyyy iiinnn ttthhheee yyyeeeaaarrr:::2012 £million222000111111 £££mmmiiilllllliiiooonnnTTTaaaxxx ooonnn aaaccctttuuuaaarrriiiaaalll lllooosssssseeesss ooonnn pppeeennnsssiiiooonnn llliiiaaabbbiiillliiitttyyy(17.2)(((888...222)))IIImmmpppaaacccttt ooofff ccchhhaaannngggeee iiinnn cccooorrrpppooorrraaatttiiiooonnn tttaaaxxx rrraaattteee ooonnn pppeeennnsssiiiooonnn llliiiaaabbbiiillliiitttyyy1.1 111...000 TTTaaaxxx ooonnn fffaaaiiirrr vvvaaallluuueee aaadddjjjuuussstttmmmeeennnttt ooonnn aaavvvaaaiiilllaaabbbllleee---fffooorrr---sssaaallleee fififinnnaaannnccciiiaaalll aaasssssseeetttsss0.1 000...222 TTTaaaxxx ooonnn ttthhheee iiinnntttrrriiinnnsssiiiccc vvvaaallluuueee ooofff ssshhhaaarrreee---bbbaaassseeeddd pppaaayyymmmeeennntttsss(0.7)(((000...555)))TTToootttaaalll(16.7)(((777...555))) ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss 99911110. dIvIdendsdividend per share pence2012 £million222000111111 £££mmmiiilllllliiiooonnnFFFiiinnnaaalll dddiiivvviiidddeeennnddd fffooorrr ttthhheee yyyeeeaaarrr eeennndddeeeddd 333111 DDDeeeccceeemmmbbbeeerrr 22200011100012.4–111555...555 IIInnnttteeerrriiimmm dddiiivvviiidddeeennnddd fffooorrr ttthhheee yyyeeeaaarrr eeennndddeeeddd 333111 DDDeeeccceeemmmbbbeeerrr 2220001111116.0–777...555 FFFiiinnnaaalll dddiiivvviiidddeeennnddd fffooorrr ttthhheee yyyeeeaaarrr eeennndddeeeddd 333111 DDDeeeccceeemmmbbbeeerrr 22200011111113.016.3––– IIInnnttteeerrriiimmm dddiiivvviiidddeeennnddd fffooorrr ttthhheee yyyeeeaaarrr eeennndddeeeddd 333111 DDDeeeccceeemmmbbbeeerrr 2220001112226.48.1– AAAmmmooouuunnnttt rrreeecccooogggnnniiissseeeddd aaasss dddiiissstttrrriiibbbuuutttiiiooonnn tttooo eeeqqquuuiiitttyyy hhhooollldddeeerrrsss iiinnn ttthhheee pppeeerrriiioooddd24.4222333...000 PPPrrrooopppooossseeeddd fififinnnaaalll dddiiivvviiidddeeennnddd fffooorrr ttthhheee yyyeeeaaarrr eeennndddeeeddd 333111 DDDeeeccceeemmmbbbeeerrr 22200011122214.117.9TTThhheee ppprrrooopppooossseeeddd fffiiinnnaaalll dddiiivvviiidddeeennnddd iiisss sssuuubbbjjjeeecccttt tttooo aaapppppprrrooovvvaaalll bbbyyy ssshhhaaarrreeehhhooollldddeeerrrsss aaattt ttthhheee AAAnnnnnnuuuaaalll GGGeeennneeerrraaalll MMMeeeeeetttiiinnnggg aaannnddd hhhaaasss nnnooottt bbbeeeeeennn iiinnncccllluuudddeeeddd aaasss aaa llliiiaaabbbiiillliiitttyyy iiinnn ttthhheeessseee fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss...11. earnInGs per shareCCCaaalllcccuuulllaaatttiiiooonnn ooofff eeeaaarrrnnniiinnngggsss pppeeerrr ssshhhaaarrreee iiisss bbbaaassseeeddd ooonnn ttthhheee fffooollllllooowwwiiinnnggg dddaaatttaaa:::eeeaaarrrnnniiinnngggsss2012 £million222000111111 £££mmmiiilllllliiiooonnnNNNeeettt ppprrrooofififittt aaattttttrrriiibbbuuutttaaabbbllleee tttooo eeeqqquuuiiitttyyy hhhooollldddeeerrrsss ooofff ttthhheee pppaaarrreeennnttt (((fffooorrr bbbaaasssiiiccc aaannnddd dddiiillluuuttteeeddd bbbaaasssiiiccc eeeaaarrrnnniiinnngggsss pppeeerrr ssshhhaaarrreee)))167.0 555777...777 AAAdddjjjuuussstttmmmeeennntttsss:::EEExxxccceeeppptttiiiooonnnaaalll iiittteeemmmsss(110.9)– AAAmmmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss6.4 555...777 TTTaaaxxx eeeffffffeeecccttt ooofff aaabbbooovvveee aaadddjjjuuussstttmmmeeennntttsss(2.7)(((111...444)))HHHeeeaaadddllliiinnneee eeeaaarrrnnniiinnngggsss (((fffooorrr hhheeeaaadddllliiinnneee aaannnddd dddiiillluuuttteeeddd hhheeeaaadddllliiinnneee eeeaaarrrnnniiinnngggsss pppeeerrr ssshhhaaarrreee)))59.8 666222...000 AAAdddjjjuuussstttmmmeeennnttt:::RRReeemmmooovvveee ooonnneee---oooffffff iiimmmpppaaacccttt ooofff MMMiiiddddddllleee EEEaaasssttt tttaaaxxx cccrrreeedddiiittt iiinnn 222000111111– (((777...000)))UUUnnndddeeerrrlllyyyiiinnnggg hhheeeaaadddllliiinnneee eeeaaarrrnnniiinnngggsss (((fffooorrr uuunnndddeeerrrlllyyyiiinnnggg hhheeeaaadddllliiinnneee aaannnddd dddiiillluuuttteeeddd uuunnndddeeerrrlllyyyiiinnnggg hhheeeaaadddllliiinnneee eeeaaarrrnnniiinnngggsss pppeeerrr ssshhhaaarrreee)))59.8 555555...000 nnnuuummmbbbeeerrr ooofff ssshhhaaarrreeesss2012 number222000111111 NNNuuummmbbbeeerrrWWWeeeiiiggghhhttteeeddd aaavvveeerrraaagggeee nnnuuummmbbbeeerrr ooofff ooorrrdddiiinnnaaarrryyy ssshhhaaarrreeesss fffooorrr ttthhheee pppuuurrrpppooossseeesss ooofff bbbaaasssiiiccc,,, hhheeeaaadddllliiinnneee aaannnddd uuunnndddeeerrrlllyyyiiinnnggg hhheeeaaadddllliiinnneee eeeaaarrrnnniiinnngggsss pppeeerrr ssshhhaaarrreee126,563,696111222555,,,888000444,,,333444666 EEEffffffeeecccttt ooofff dddiiillluuutttiiivvveee pppooottteeennntttiiiaaalll ooorrrdddiiinnnaaarrryyy ssshhhaaarrreeesss:::SSShhhaaarrreee oooppptttiiiooonnnsss aaannnddd aaawwwaaarrrdddsss2,607,511333,,,333999999,,,111666666WWWeeeiiiggghhhttteeeddd aaavvveeerrraaagggeee nnnuuummmbbbeeerrr ooofff ooorrrdddiiinnnaaarrryyy ssshhhaaarrreeesss fffooorrr ttthhheee pppuuurrrpppooossseeesss ooofff dddiiillluuuttteeeddd bbbaaasssiiiccc,,, dddiiillluuuttteeeddd hhheeeaaadddllliiinnneee aaannnddd dddiiillluuuttteeeddd uuunnndddeeerrrlllyyyiiinnnggg hhheeeaaadddllliiinnneee eeeaaarrrnnniiinnngggsss pppeeerrr ssshhhaaarrreee129,171,207111222999,,,222000333,,,555111222eeeaaarrrnnniiinnngggsss pppeeerrr ssshhhaaarrreee2012 pence222000111111 pppeeennnccceeeBBBaaasssiiiccc eeeaaarrrnnniiinnngggsss pppeeerrr ssshhhaaarrreee131.9444555...999DDDiiillluuuttteeeddd bbbaaasssiiiccc eeeaaarrrnnniiinnngggsss pppeeerrr ssshhhaaarrreee129.3444444...777HHHeeeaaadddllliiinnneee eeeaaarrrnnniiinnngggsss pppeeerrr ssshhhaaarrreee47.2444999...333DDDiiillluuuttteeeddd hhheeeaaadddllliiinnneee eeeaaarrrnnniiinnngggsss pppeeerrr ssshhhaaarrreee46.3444888...000UUUnnndddeeerrrlllyyyiiinnnggg hhheeeaaadddllliiinnneee eeeaaarrrnnniiinnngggsss pppeeerrr ssshhhaaarrreee47.2444333...777DDDiiillluuuttteeeddd uuunnndddeeerrrlllyyyiiinnnggg hhheeeaaadddllliiinnneee eeeaaarrrnnniiinnngggsss pppeeerrr ssshhhaaarrreee46.3444222...666 nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss999222 IIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss12. acQuIsItIonsTTThhheee GGGrrrooouuuppp mmmaaadddeee ttthhheee fffooollllllooowwwiiinnnggg aaacccqqquuuiiisssiiitttiiiooonnnsss iiinnn ttthhheee yyyeeeaaarrr,,, tttooo eeexxxpppaaannnddd ooouuurrr fffrrrooonnntttllliiinnneee ssseeerrrvvviiiccceeesss cccaaapppaaabbbiiillliiitttiiieeesss:::OOOnnn 333 MMMaaayyy 222000111222,,, ttthhheee GGGrrrooouuuppp aaacccqqquuuiiirrreeeddd 111000000%%% ooofff ttthhheee ssshhhaaarrreee cccaaapppiiitttaaalll ooofff BBBuuusssiiinnneeessssss EEEmmmpppllloooyyymmmeeennnttt SSSeeerrrvvviiiccceeesss TTTrrraaaiiinnniiinnnggg LLLiiimmmiiittteeeddd (((“““BBBEEESSSTTT”””))),,, aaa wwweeelllfffaaarrreee---tttooo---wwwooorrrkkk bbbuuusssiiinnneeessssss,,, nnnooowww rrreeennnaaammmeeeddd IIInnnttteeerrrssseeerrrvvveee WWWooorrrkkkiiinnnggg FFFuuutttuuurrreeesss LLLiiimmmiiittteeeddd... TTThhheee tttoootttaaalll cccooonnnsssiiidddeeerrraaatttiiiooonnn wwwaaasss £££111888...000 mmmiiilllllliiiooonnn...OOOnnn 111777 DDDeeeccceeemmmbbbeeerrr 222000111222,,, ttthhheee GGGrrrooouuuppp aaacccqqquuuiiirrreeeddd 111000000%%% ooofff ttthhheee ssshhhaaarrreee cccaaapppiiitttaaalll ooofff AAAdddvvvaaannntttaaagggeee HHHeeeaaalllttthhhcccaaarrreee HHHooollldddiiinnngggsss LLLiiimmmiiittteeeddd aaannnddd iiitttsss vvvaaarrriiiooouuusss sssuuubbbsssiiidddiiiaaarrriiieeesss (((tttooogggeeettthhheeerrr “““AAAdddvvvaaannntttaaagggeee”””))),,, aaa hhheeeaaalllttthhhcccaaarrreee bbbuuusssiiinnneeessssss... TTThhheee tttoootttaaalll cccooonnnsssiiidddeeerrraaatttiiiooonnn wwwaaasss £££222666...555 mmmiiilllllliiiooonnn...PPPrrreeellliiimmmiiinnnaaarrryyy fffaaaiiirrr vvvaaallluuueee eeexxxeeerrrccciiissseeesss hhhaaavvveee bbbeeeeeennn pppeeerrrfffooorrrmmmeeeddd,,, aaasss ssseeettt ooouuuttt bbbeeelllooowww:::aaasssssseeetttsss aaacccqqquuuiiirrreeedddbest £millionadvantage £milliontotal £millionPPPrrrooopppeeerrrtttyyy,,, ppplllaaannnttt aaannnddd eeeqqquuuiiipppmmmeeennnttt0.2 0.5 0.7 IIInnntttaaannngggiiibbbllleee aaasssssseeetttsss7.7 16.5 24.2 CCCaaassshhh bbbaaalllaaannnccceeesss0.2 (0.4)(0.2)TTTrrraaadddeee aaannnddd ooottthhheeerrr rrreeeccceeeiiivvvaaabbbllleeesss1.6 5.0 6.6 TTTrrraaadddeee aaannnddd ooottthhheeerrr pppaaayyyaaabbbllleeesss(4.5)(4.4)(8.9)OOOttthhheeerrr llliiiaaabbbiiillliiitttiiieeesss(1.4)(3.8)(5.2)NNNeeettt aaasssssseeetttsss3.8 13.4 17.2 GGGoooooodddwwwiiillllll14.2 13.1 27.3 CCCooonnnsssiiidddeeerrraaatttiiiooonnn pppaaaiiiddd18.0 26.5 44.5 NNNeeettt cccaaassshhh ooouuutttflflflooowww ooonnn aaacccqqquuuiiisssiiitttiiiooonnnsss17.8 26.9 44.7 TTThhheee fffaaaiiirrr vvvaaallluuueee aaadddjjjuuussstttmmmeeennntttsss rrreeelllaaattteee tttooo ccceeerrrtttaaaiiinnn iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss aaannnddd ttthhheeeiiirrr aaassssssoooccciiiaaattteeeddd dddeeefffeeerrrrrreeeddd tttaaaxxx ccchhhaaarrrgggeee... TTThhheeessseee hhhaaavvveee bbbeeeeeennn ssseeepppaaarrraaattteeelllyyy iiidddeeennntttiiifffiiieeeddd aaannnddd rrreeecccooogggnnniiissseeeddd uuusssiiinnnggg aaapppppprrroooppprrriiiaaattteee vvvaaallluuuaaatttiiiooonnn ttteeeccchhhnnniiiqqquuueeesss bbbaaassseeeddd ooonnn ttthhheee fffaaaiiirrr vvvaaallluuueee ooofff fffooorrreeecccaaasssttt fffuuutttuuurrreee cccaaassshhh ffflllooowwwsss... TTThhheee rrreeesssuuullltttaaannnttt gggoooooodddwwwiiillllll fffrrrooommm ttthhheee aaacccqqquuuiiisssiiitttiiiooonnn rrreeeppprrreeessseeennntttsss ttthhheee fffuuutttuuurrreee eeecccooonnnooommmiiiccc bbbeeennneeefffiiitttsss aaarrriiisssiiinnnggg fffrrrooommm aaasssssseeetttsss ttthhhaaattt aaarrreee nnnooottt cccaaapppaaabbbllleee ooofff bbbeeeiiinnnggg iiinnndddiiivvviiiddduuuaaallllllyyy iiidddeeennntttiiifffiiieeeddd aaannnddd ssseeepppaaarrraaattteeelllyyy rrreeecccooogggnnniiissseeeddd... NNNooonnneee ooofff ttthhheee gggoooooodddwwwiiillllll iiisss eeexxxpppeeecccttteeeddd tttooo bbbeee dddeeeddduuuccctttiiibbbllleee fffooorrr iiinnncccooommmeee tttaaaxxx pppuuurrrpppooossseeesss...AAAcccqqquuuiiisssiiitttiiiooonnn---rrreeelllaaattteeeddd cccooossstttsss,,, iiinnncccllluuudddeeeddd iiinnn aaadddmmmiiinnniiissstttrrraaatttiiiooonnn eeexxxpppeeennnssseeesss,,, aaammmooouuunnnttteeeddd tttooo £££000...444 mmmiiilllllliiiooonnn...SSSiiinnnccceee aaacccqqquuuiiisssiiitttiiiooonnn BBBEEESSSTTT hhhaaasss cccooonnntttrrriiibbbuuuttteeeddd tttooo ttthhheee GGGrrrooouuuppp £££111000...000 mmmiiilllllliiiooonnn iiinnn rrreeevvveeennnuuueee aaannnddd £££111...444 mmmiiilllllliiiooonnn iiinnn ooopppeeerrraaatttiiinnnggg ppprrrooofffiiittt,,, bbbeeefffooorrreee aaammmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss... IIInnn ttthhheee 111222 mmmooonnnttthhhsss tttooo 333111 DDDeeeccceeemmmbbbeeerrr 222000111222,,, ttthhheee cccooommmpppaaannnyyy’’’sss rrreeevvveeennnuuueeesss wwweeerrreee £££111333...777 mmmiiilllllliiiooonnn aaannnddd iiitttsss ooopppeeerrraaatttiiinnnggg ppprrrooofffiiittt wwwaaasss £££111...666 mmmiiilllllliiiooonnn...SSSiiinnnccceee aaacccqqquuuiiisssiiitttiiiooonnn AAAdddvvvaaannntttaaagggeee hhhaaasss cccooonnntttrrriiibbbuuuttteeeddd tttooo ttthhheee GGGrrrooouuuppp £££111...666 mmmiiilllllliiiooonnn iiinnn rrreeevvveeennnuuueee aaannnddd £££000...111 mmmiiilllllliiiooonnn iiinnn ooopppeeerrraaatttiiinnnggg ppprrrooofffiiittt,,, bbbeeefffooorrreee aaammmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss... IIInnn ttthhheee 111222 mmmooonnnttthhhsss tttooo 333111 DDDeeeccceeemmmbbbeeerrr 222000111222,,, ttthhheee cccooommmpppaaannnyyy’’’sss rrreeevvveeennnuuueeesss wwweeerrreee £££444111...333 mmmiiilllllliiiooonnn aaannnddd iiitttsss ooopppeeerrraaatttiiinnnggg ppprrrooofffiiittt wwwaaasss £££222...666 mmmiiilllllliiiooonnn...acquisition after the balance sheet date - Willbros middle east limited On 7 January 2013, the Group acquired 100% of the share capital of Willbros Middle East Limited, which owns 85% of two oil and gas services businesses. The total consideration was £26.0 million. The fair value exercise is in progress and provisional numbers are shown below. See note 34 “Events after the balance sheet date”.assets acquired £millionProperty, plant and equipment0.5 Cash balances2.7 Trade and other receivables10.9 Trade and other payables(6.0)Other liabilities(1.1)Net assets7.0 Goodwill and intangible assets19.0 Less minority interest(3.9)Consideration paid22.1 We are currently awaiting receipt of certain information necessary for a full calculation of the valuation of intangible assets.13. GoodWIll 2012 £million2011 £millioncostAt 1 January 259.0 259.6 Additions (note 12)27.3 - Change in deferred contingent consideration for subsidiaries acquired in prior years- (0.6)At 31 December 286.3 259.0 accumulated impairmentAt 1 January and 31 December 60.0 60.0 carrying amountAt 31 December 226.3 199.0 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 (2011 comparatives have been restated in line with the reorganisation outlined in the 2011 Annual Report):construction £millionsupport services £millionequipment services £milliontotal £millionAt 1 January 201111.5 187.2 0.9 199.6 Change in deferred contingent consideration for subsidiaries acquired in prior years- (0.6)- (0.6)At 31 December 201111.5 186.6 0.9 199.0 Additions- 27.3 - 27.3 At 31 December 201211.5 213.9 0.9 226.3 The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss 999333aaacccqqquuuiiisssiiitttiiiooonnn aaafffttteeerrr ttthhheee bbbaaalllaaannnccceee ssshhheeeeeettt dddaaattteee --- WWWiiillllllbbbrrrooosss mmmiiiddddddllleee eeeaaasssttt llliiimmmiiittteeeddd OOOnnn 777 JJJaaannnuuuaaarrryyy 222000111333,,, ttthhheee GGGrrrooouuuppp aaacccqqquuuiiirrreeeddd 111000000%%% ooofff ttthhheee ssshhhaaarrreee cccaaapppiiitttaaalll ooofff WWWiiillllllbbbrrrooosss MMMiiiddddddllleee EEEaaasssttt LLLiiimmmiiittteeeddd,,, wwwhhhiiiccchhh ooowwwnnnsss 888555%%% ooofff tttwwwooo oooiiilll aaannnddd gggaaasss ssseeerrrvvviiiccceeesss bbbuuusssiiinnneeesssssseeesss... TTThhheee tttoootttaaalll cccooonnnsssiiidddeeerrraaatttiiiooonnn wwwaaasss £££222666...000 mmmiiilllllliiiooonnn... TTThhheee fffaaaiiirrr vvvaaallluuueee eeexxxeeerrrccciiissseee iiisss iiinnn ppprrrooogggrrreeessssss aaannnddd ppprrrooovvviiisssiiiooonnnaaalll nnnuuummmbbbeeerrrsss aaarrreee ssshhhooowwwnnn bbbeeelllooowww... SSSeeeeee nnnooottteee 333444 “““EEEvvveeennntttsss aaafffttteeerrr ttthhheee bbbaaalllaaannnccceee ssshhheeeeeettt dddaaattteee”””...assets acquired £millionPPPrrrooopppeeerrrtttyyy,,, ppplllaaannnttt aaannnddd eeeqqquuuiiipppmmmeeennnttt0.5 CCCaaassshhh bbbaaalllaaannnccceeesss2.7 TTTrrraaadddeee aaannnddd ooottthhheeerrr rrreeeccceeeiiivvvaaabbbllleeesss10.9 TTTrrraaadddeee aaannnddd ooottthhheeerrr pppaaayyyaaabbbllleeesss(6.0)OOOttthhheeerrr llliiiaaabbbiiillliiitttiiieeesss(1.1)NNNeeettt aaasssssseeetttsss7.0 GGGoooooodddwwwiiillllll aaannnddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss19.0 LLLeeessssss mmmiiinnnooorrriiitttyyy iiinnnttteeerrreeesssttt(3.9)CCCooonnnsssiiidddeeerrraaatttiiiooonnn pppaaaiiiddd22.1 WWWeee aaarrreee cccuuurrrrrreeennntttlllyyy aaawwwaaaiiitttiiinnnggg rrreeeccceeeiiipppttt ooofff ccceeerrrtttaaaiiinnn iiinnnfffooorrrmmmaaatttiiiooonnn nnneeeccceeessssssaaarrryyy fffooorrr aaa fffuuullllll cccaaalllcccuuulllaaatttiiiooonnn ooofff ttthhheee vvvaaallluuuaaatttiiiooonnn ooofff iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss...13. GoodWIll 2012 £million222000111111 £££mmmiiilllllliiiooonnncccooossstttAAAttt 111 JJJaaannnuuuaaarrryyy 259.0 222555999...666 AAAddddddiiitttiiiooonnnsss (((nnnooottteee 111222)))27.3 --- CCChhhaaannngggeee iiinnn dddeeefffeeerrrrrreeeddd cccooonnntttiiinnngggeeennnttt cccooonnnsssiiidddeeerrraaatttiiiooonnn fffooorrr sssuuubbbsssiiidddiiiaaarrriiieeesss aaacccqqquuuiiirrreeeddd iiinnn ppprrriiiooorrr yyyeeeaaarrrsss- (((000...666)))AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 286.3 222555999...000 aaaccccccuuummmuuulllaaattteeeddd iiimmmpppaaaiiirrrmmmeeennntttAAAttt 111 JJJaaannnuuuaaarrryyy aaannnddd 333111 DDDeeeccceeemmmbbbeeerrr 60.0 666000...000 cccaaarrrrrryyyiiinnnggg aaammmooouuunnntttAAAttt 333111 DDDeeeccceeemmmbbbeeerrr 226.3 111999999...000 GGGoooooodddwwwiiillllll aaacccqqquuuiiirrreeeddd iiinnn aaa bbbuuusssiiinnneeessssss cccooommmbbbiiinnnaaatttiiiooonnn iiisss aaallllllooocccaaattteeeddd,,, aaattt aaacccqqquuuiiisssiiitttiiiooonnn,,, tttooo ttthhheee cccaaassshhh gggeeennneeerrraaatttiiinnnggg uuunnniiitttsss (((CCCGGGUUUsss))) ttthhhaaattt aaarrreee eeexxxpppeeecccttteeeddd tttooo bbbeeennneeefffiiittt fffrrrooommm ttthhhaaattt bbbuuusssiiinnneeessssss cccooommmbbbiiinnnaaatttiiiooonnn aaasss fffooollllllooowwwsss (((222000111111 cccooommmpppaaarrraaatttiiivvveeesss hhhaaavvveee bbbeeeeeennn rrreeessstttaaattteeeddd iiinnn llliiinnneee wwwiiittthhh ttthhheee rrreeeooorrrgggaaannniiisssaaatttiiiooonnn ooouuutttllliiinnneeeddd iiinnn ttthhheee 222000111111 AAAnnnnnnuuuaaalll RRReeepppooorrrttt))):::construction £millionsupport services £millionequipment services £milliontotal £millionAAAttt 111 JJJaaannnuuuaaarrryyy 222000111111111111...555 111888777...222 000...999 111999999...666 CCChhhaaannngggeee iiinnn dddeeefffeeerrrrrreeeddd cccooonnntttiiinnngggeeennnttt cccooonnnsssiiidddeeerrraaatttiiiooonnn fffooorrr sssuuubbbsssiiidddiiiaaarrriiieeesss aaacccqqquuuiiirrreeeddd iiinnn ppprrriiiooorrr yyyeeeaaarrrsss--- (((000...666)))--- (((000...666)))AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 222000111111111111...555 111888666...666 000...999 111999999...000 AAAddddddiiitttiiiooonnnsss- 27.3 - 27.3 AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 22200011122211.5 213.9 0.9 226.3 TTThhheee GGGrrrooouuuppp ttteeessstttsss gggoooooodddwwwiiillllll aaannnnnnuuuaaallllllyyy fffooorrr iiimmmpppaaaiiirrrmmmeeennnttt,,, ooorrr mmmooorrreee fffrrreeeqqquuueeennntttlllyyy iiifff ttthhheeerrreee aaarrreee iiinnndddiiicccaaatttiiiooonnnsss ttthhhaaattt gggoooooodddwwwiiillllll mmmiiiggghhhttt bbbeee iiimmmpppaaaiiirrreeeddd... nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss999444 IIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss13. GoodWIll (CONTINUED)TTThhheee rrreeecccooovvveeerrraaabbbllleee aaammmooouuunnntttsss ooofff ttthhheee CCCGGGUUUsss aaarrreee dddeeettteeerrrmmmiiinnneeeddd fffrrrooommm vvvaaallluuueee iiinnn uuussseee cccaaalllcccuuulllaaatttiiiooonnnsss... TTThhheee kkkeeeyyy aaassssssuuummmppptttiiiooonnnsss fffooorrr ttthhheee vvvaaallluuueee iiinnn uuussseee cccaaalllcccuuulllaaatttiiiooonnnsss aaarrreee ttthhhooossseee rrreeegggaaarrrdddiiinnnggg ttthhheee dddiiissscccooouuunnnttt rrraaattteeesss,,, cccaaassshhh ffflllooowwwsss,,, gggrrrooowwwttthhh rrraaattteeesss aaannnddd mmmaaarrrgggiiinnnsss ddduuurrriiinnnggg ttthhheee pppeeerrriiioooddd... MMMaaannnaaagggeeemmmeeennnttt eeessstttiiimmmaaattteeesss dddiiissscccooouuunnnttt rrraaattteeesss uuusssiiinnnggg ppprrreee---tttaaaxxx rrraaattteeesss ttthhhaaattt rrreeefffllleeecccttt cccuuurrrrrreeennnttt mmmaaarrrkkkeeettt aaasssssseeessssssmmmeeennntttsss ooofff ttthhheee tttiiimmmeee vvvaaallluuueee ooofff mmmooonnneeeyyy aaannnddd ttthhheee rrriiissskkksss ssspppeeeccciiifffiiiccc tttooo ttthhheee CCCGGGUUUsss... TTThhheee rrreeevvveeennnuuueee gggrrrooowwwttthhh rrraaattteeesss aaarrreee bbbaaassseeeddd ooonnn cccuuurrrrrreeennnttt BBBoooaaarrrddd aaapppppprrrooovvveeeddd bbbuuudddgggeeetttsss aaannnddd fffooorrreeecccaaassstttsss aaannnddd aaarrreee eeexxxtttrrraaapppooolllaaattteeeddd bbbaaassseeeddd ooonnn eeexxxpppeeeccctttaaatttiiiooonnnsss ooofff ccchhhaaannngggeeesss iiinnn ttthhheee mmmaaarrrkkkeeettt... TTThhheee GGGrrrooouuuppp ppprrroooddduuuccceeesss ttthhhrrreeeeee---yyyeeeaaarrr ppplllaaannnsss aaannnddd ttthhheeennn ppprrrooojjjeeeccctttsss aaa fffuuurrrttthhheeerrr yyyeeeaaarrr bbbaaassseeeddd ooonnn gggrrrooowwwttthhh rrraaattteeesss ooofff 222...555%%%,,, fffooollllllooowwweeeddd bbbyyy aaa ttteeerrrmmmiiinnnaaalll vvvaaallluuueee bbbaaassseeeddd ooonnn aaa pppeeerrrpppeeetttuuuiiitttyyy cccaaalllcccuuulllaaattteeeddd aaattt aaa nnnooommmiiinnnaaalll 222...555%%% gggrrrooowwwttthhh wwwhhhiiiccchhh dddoooeeesss nnnooottt eeexxxccceeeeeeddd cccuuurrrrrreeennnttt mmmaaarrrkkkeeettt gggrrrooowwwttthhh rrraaattteeesss... TTThhheee rrraaattteee uuussseeeddd tttooo dddiiissscccooouuunnnttt ttthhheee fffuuutttuuurrreee cccaaassshhh ffflllooowwwsss iiisss 111111...333%%% (((222000111111::: 111333...000%%%))) aaannnddd iiisss bbbaaassseeeddd ooonnn ttthhheee GGGrrrooouuuppp’’’sss ppprrreee---tttaaaxxx wwweeeiiiggghhhttteeeddd aaavvveeerrraaagggeee cccooosssttt ooofff cccaaapppiiitttaaalll...AAAsss pppaaarrrttt ooofff ttthhhiiisss aaannnnnnuuuaaalll rrreeevvviiieeewww aaa ssseeennnsssiiitttiiivvviiitttyyy aaannnaaalllyyysssiiisss wwwaaasss pppeeerrrfffooorrrmmmeeeddd ooonnn ttthhheee iiimmmpppaaaiiirrrmmmeeennnttt ttteeesssttt ooofff eeeaaaccchhh CCCGGGUUU,,, iiinnncccllluuudddiiinnnggg aaannn iiinnncccrrreeeaaassseee iiinnn ttthhheee dddiiissscccooouuunnnttt rrraaattteee ooofff uuuppp tttooo 222...000%%% ooorrr ttthhheee llliiimmmiiitttiiinnnggg ooofff gggrrrooowwwttthhh ooovvveeerrr ttthhheee ppplllaaannn yyyeeeaaarrrsss tttooo 222...555%%%... NNNooo iiimmmpppaaaiiirrrmmmeeennnttt iiinnn ttthhheee cccaaarrrrrryyyiiinnnggg vvvaaallluuueee ooofff ttthhheee gggoooooodddwwwiiillllll iiinnn SSSuuuppppppooorrrttt SSSeeerrrvvviiiccceeesss,,, EEEqqquuuiiipppmmmeeennnttt SSSeeerrrvvviiiccceeesss ooorrr CCCooonnnssstttrrruuuccctttiiiooonnn wwwooouuulllddd oooccccccuuurrr aaasss aaa rrreeesssuuulllttt ooofff aaadddoooppptttiiinnnggg ttthhheeessseee ssseeennnsssiiitttiiivvviiitttiiieeesss...14. other IntanGIble assetsacquiredcomputer software £millioncustomer relationships £millionother £milliontotal £millioncccooossstttAAAttt 111 JJJaaannnuuuaaarrryyy 222000111111777...444 444333...000 111...444 555111...888 AAAddddddiiitttiiiooonnnsss000...333 ––– –––000...333 AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 222000111111777...777444333...000111...444555222...111 AAAcccqqquuuiiisssiiitttiiiooonnnsss (((nnnooottteee 111222)))–24.2 –24.2 AAAddddddiiitttiiiooonnnsss0.7 ––0.7 AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 2220001112228.4 67.2 1.4 77.0 aaaccccccuuummmuuulllaaattteeeddd aaammmooorrrtttiiisssaaatttiiiooonnnAAAttt 111 JJJaaannnuuuaaarrryyy 222000111111111...222 222000...888 111...111 222333...111 CCChhhaaarrrgggeee fffooorrr ttthhheee yyyeeeaaarrr111...666 555...000 000...222 666...888 AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 222000111111222...888 222555...888 111...333 222999...999 CCChhhaaarrrgggeee fffooorrr ttthhheee yyyeeeaaarrr1.6 6.0 –7.6 AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 2220001112224.4 31.8 1.3 37.5 cccaaarrrrrryyyiiinnnggg aaammmooouuunnntttAAAttt 333111 DDDeeeccceeemmmbbbeeerrr 2220001112224.0 35.4 0.1 39.5 AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 222000111111444...999 111777...222 000...111 222222...222 AAAttt 111 JJJaaannnuuuaaarrryyy 222000111111666...222 222222...222 000...333 222888...777 uuussseeefffuuulll llliiivvveeesss5 years5-10 years3-5 yearsTTThhheee uuussseeefffuuulll llliiifffeee aaannnddd aaammmooorrrtttiiisssaaatttiiiooonnn pppeeerrriiioooddd ooofff eeeaaaccchhh gggrrrooouuuppp ooofff iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss vvvaaarrriiieeesss aaaccccccooorrrdddiiinnnggg tttooo ttthhheee uuunnndddeeerrrlllyyyiiinnnggg llleeennngggttthhh ooofff bbbeeennneeefffiiittt eeexxxpppeeecccttteeeddd tttooo bbbeee rrreeeccceeeiiivvveeeddd... ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss 99955515. propertY, plant and eQuIpment (a) movementsland andbuildings£millionhirefleet£millionotherplant andequipment£milliontotal£millioncccooossstttAAAttt 111 JJJaaannnuuuaaarrryyy 222000111111111999...333 222111444...666 555888...666 222999222...555 AAAddddddiiitttiiiooonnnsss000...555 222111...666 888...222 333000...333 DDDiiissspppooosssaaalllsss(((000...444)))(((111777...999)))(((000...777)))(((111999...000)))EEExxxccchhhaaannngggeee dddiiiffffffeeerrreeennnccceeesss(((000...111)))(((222...444)))(((000...111)))(((222...666)))AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 222000111111111999...333 222111555...999 666666...000 333000111...222 AAAddddddiiitttiiiooonnnsss0.7 24.4 9.3 34.4 AAAcccqqquuuiiisssiiitttiiiooonnn ooofff sssuuubbbsssiiidddiiiaaarrriiieeesss––0.7 0.7 DDDiiissspppooosssaaalllsss(1.5)(11.0)(0.8)(13.3)EEExxxccchhhaaannngggeee dddiiiffffffeeerrreeennnccceeesss(0.2)(4.5)(0.2)(4.9)AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 22200011122218.3 224.8 75.0 318.1 aaaccccccuuummmuuulllaaattteeeddd dddeeeppprrreeeccciiiaaatttiiiooonnnAAAttt 111 JJJaaannnuuuaaarrryyy 222000111111888...111 999777...555 333777...999 111444333...555 CCChhhaaarrrgggeee fffooorrr ttthhheee yyyeeeaaarrr111...666 111888...111 888...666 222888...333 EEEllliiimmmiiinnnaaattteeeddd ooonnn dddiiissspppooosssaaalllsss(((000...222)))(((888...888)))(((000...444)))(((999...444)))EEExxxccchhhaaannngggeee dddiiiffffffeeerrreeennnccceeesss--- (((000...888)))(((000...111)))(((000...999)))AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 222000111111999...555 111000666...000 444666...000 111666111...555 CCChhhaaarrrgggeee fffooorrr ttthhheee yyyeeeaaarrr1.2 17.9 8.6 27.7 EEEllliiimmmiiinnnaaattteeeddd ooonnn dddiiissspppooosssaaalllsss(0.8)(6.5)- (7.3)EEExxxccchhhaaannngggeee dddiiiffffffeeerrreeennnccceeesss(0.1)(1.3)(0.2)(1.6)AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 2220001112229.8 116.1 54.4 180.3 cccaaarrrrrryyyiiinnnggg aaammmooouuunnntttAAAttt 333111 DDDeeeccceeemmmbbbeeerrr 2220001112228.5 108.7 20.6 137.8 AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 222000111111999...888 111000999...999 222000...000 111333999...777 AAAttt 111 JJJaaannnuuuaaarrryyy 222000111111111111...222 111111777...111 222000...777 111444999...000 TTThhheee cccaaarrrrrryyyiiinnnggg aaammmooouuunnnttt ooofff ttthhheee GGGrrrooouuuppp’’’sss ppplllaaannnttt aaannnddd eeeqqquuuiiipppmmmeeennnttt iiinnncccllluuudddeeesss aaannn aaammmooouuunnnttt ooofff £££111...444 mmmiiilllllliiiooonnn (((222000111111::: £££111...222 mmmiiilllllliiiooonnn))) iiinnn rrreeessspppeeecccttt ooofff aaasssssseeetttsss hhheeelllddd uuunnndddeeerrr fffiiinnnaaannnccceee llleeeaaassseeesss... DDDeeetttaaaiiilllsss ooofff ppprrrooopppeeerrrtttyyy,,, ppplllaaannnttt aaannnddd eeeqqquuuiiipppmmmeeennnttt hhheeelllddd uuunnndddeeerrr fffiiinnnaaannnccceee llleeeaaassseeesss aaarrreee ssshhhooowwwnnn iiinnn nnnooottteee 222555... nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss999666 IIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss15. propertY, plant and eQuIpment (CONTINUED) (b) carrying amount of land and buildings2012£million222000111111£££mmmiiilllllliiiooonnnFFFrrreeeeeehhhooolllddd:::LLLaaannnddd aaattt cccooosssttt2.3 222...333 BBBuuuiiillldddiiinnngggsss aaattt cccooosssttt llleeessssss dddeeeppprrreeeccciiiaaatttiiiooonnn2.7 333...555 5.0 555...888 LLLeeeaaassseeehhhooollldddsss uuunnndddeeerrr 555000 yyyeeeaaarrrsss aaattt cccooosssttt llleeessssss dddeeeppprrreeeccciiiaaatttiiiooonnn3.5 444...000 8.5 999...888 (c) future capital expenditure not provided for in the financial statements2012£million222000111111£££mmmiiilllllliiiooonnnCCCooommmmmmiiitttttteeeddd0.7 111...33316. Interests In assocIates and JoInt-venture entItIes (a) share of results and net assets of joint-venture entities and associated undertakingsTTThhheeerrreee aaarrreee nnnooo sssiiigggnnniiifffiiicccaaannnttt rrreeessstttrrriiiccctttiiiooonnnsss ooonnn ttthhheee aaabbbiiillliiitttyyy ooofff aaassssssoooccciiiaaattteeesss aaannnddd jjjoooiiinnnttt---vvveeennntttuuurrreee eeennntttiiitttiiieeesss tttooo pppaaayyy dddiiivvviiidddeeennndddsss ooorrr rrreeepppaaayyy llloooaaannnsss iiifff aaagggrrreeeeeeddd bbbyyy ttthhheee ssshhhaaarrreeehhhooollldddeeerrrsss...TTThhheee ssshhhaaarrreee ooofff rrreeesssuuullltttsss fffrrrooommm jjjoooiiinnnttt---vvveeennntttuuurrreee eeennntttiiitttiiieeesss aaannnddd aaassssssoooccciiiaaattteeeddd uuunnndddeeerrrtttaaakkkiiinnngggsss wwweeerrreee aaasss fffooollllllooowwwsss:::Year ended 31 december 2012YYYeeeaaarrr eeennndddeeeddd 333111 DDDeeeccceeemmmbbbeeerrr 222000111111construction£millionsupport services£millionInvestments£milliontotal£millionCCCooonnnssstttrrruuuccctttiiiooonnn£££mmmiiilllllliiiooonnnSSSuuuppppppooorrrttt SSSeeerrrvvviiiccceeesss£££mmmiiilllliiiooonnnIIInnnvvveeessstttmmmeeennntttsss£££mmmiiilllliiiooonnnTTToootttaaalll£££mmmiiilllllliiiooonnnRRReeevvveeennnuuueeesss201.6 128.6 81.0 411.2 222222333...777 888888...222 111666000...222 444777222...111 OOOpppeeerrraaatttiiinnnggg ppprrrooofififittt13.1 5.1 8.8 27.0 111888...888 444...777 111...999 222555...444 NNNeeettt iiinnnttteeerrreeesssttt rrreeeccceeeiiivvvaaabbbllleee0.5 0.1 0.9 1.5 000...555 000...111 777...555 888...111 TTTaaaxxxaaatttiiiooonnn0.7 (0.7)(3.1)(3.1)(((111...666)))(((000...666)))(((333...444)))(((555...666)))GGGrrrooouuuppp ssshhhaaarrreee ooofff ppprrrooofififittt14.3 4.5 6.6 25.4 111777...777 444...222 666...000 222777...999 AAAmmmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleeesss(0.1)(0.3)- (0.4)(((000...111)))(((000...444)))--- (((000...555)))TTToootttaaalll ooopppeeerrraaatttiiinnnggg ppprrrooofififittt14.2 4.2 6.6 25.0 111777...666 333...888 666...000 222777...444 DDDiiivvviiidddeeennndddsss(12.2)(3.1)(4.5)(19.8)(((111222...888)))(((222...666)))(((555...222)))(((222000...666)))RRReeetttaaaiiinnneeeddd ppprrrooofififitttsss2.0 1.1 2.1 5.2 444...888 111...222 000...888 666...888 ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss 999777SSShhhaaarrreee ooofff nnneeettt aaasssssseeetttsss ooofff jjjoooiiinnnttt---vvveeennntttuuurrreee eeennntttiiitttiiieeesss aaannnddd aaassssssoooccciiiaaattteeeddd uuunnndddeeerrrtttaaakkkiiinnngggsss wwweeerrreee aaasss fffooollllllooowwwsss::: Year ended 31 december 2012YYYeeeaaarrr eeennndddeeeddd 333111 DDDeeeccceeemmmbbbeeerrr 222000111111construction £millionsupport services £millionInvestments £milliontotal £millionCCCooonnnssstttrrruuuccctttiiiooonnn £££mmmilllllliiiooonnnSSSuuuppppppooorrrttt SSSeeerrrvvviiiccceeesss £££mmmiiilllllliiiooonnnIIInnnvvveeessstttmmmeeennntttsss £££mmmiiilllllliiiooonnnTTToootttaaalll £££mmmiiilllllliiiooonnnNNNooonnn---cccuuurrrrrreeennnttt aaasssssseeetttsss25.1 13.2 40.1 78.4 333000...000 111444...111 888444777...222 888999111...333 CCCuuurrrrrreeennnttt aaasssssseeetttsss146.5 23.0 15.1 184.6 111666888...999 222222...111 666111...666 222555222...666 CCCuuurrrrrreeennnttt llliiiaaabbbiiillliiitttiiieeesss(107.7)(13.4)(5.5)(126.6)(((111333222...777)))(((111333...777)))(((555444...555)))(((222000000...999)))NNNooonnn---cccuuurrrrrreeennnttt llliiiaaabbbiiillliiitttiiieeesss(17.6)(1.1)(42.1)(60.8)(((222000...666)))(((111...000)))(((777555111...000)))(((777777222...666)))46.3 21.7 7.6 75.6 444555...666 222111...555 111000333...333 111777000...444 GGGoooooodddwwwiiillllll4.3 3.5 - 7.8 444...333 333...555 --- 777...888 AAAcccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss0.6 0.2 - 0.8 000...888 111...555 --- 222...333 CCCaaarrrrrryyyiiinnnggg vvvaaallluuueee ooofff nnneeettt aaasssssseeetttsss aaannnddd gggoooooodddwwwiiillllll51.2 25.4 7.6 84.2 555000...777 222666...555 111000333...333 111888000...555 TTThhheee llliiiaaabbbiiillliiitttiiieeesss ooofff ttthhheee jjjoooiiinnnttt---vvveeennntttuuurrreee eeennntttiiitttiiieeesss ppprrriiinnnccciiipppaaallllllyyy rrreeelllaaattteee tttooo ttthhheee nnnooonnn---rrreeecccooouuurrrssseee dddeeebbbttt wwwiiittthhhiiinnn ttthhhooossseee bbbuuusssiiinnneeesssssseeesss aaasss pppaaarrrttt ooofff fffuuunnndddiiinnnggg ttthhheee cccooonnnssstttrrruuuccctttiiiooonnn ooofff ttthhheee uuunnndddeeerrrlllyyyiiinnnggg aaasssssseeettt...TTThhheee mmmooosssttt sssuuubbbssstttaaannntttiiiaaalll jjjoooiiinnnttt---vvveeennntttuuurrreee eeennntttiiitttyyy iiisss AAAddddddiiieeewwweeellllll PPPrrriiisssooonnn (((HHHooollldddiiinnngggsss))) LLLtttddd... TTThhheee GGGrrrooouuuppp’’’sss ssshhhaaarrreee ooofff gggrrrooossssss aaasssssseeetttsss iiisss £££333444...888 mmmiiilllllliiiooonnn,,, cccuuurrrrrreeennnttt llliiiaaabbbiiillliiitttiiieeesss £££222...000 mmmiiilllllliiiooonnn aaannnddd llliiiaaabbbiiillliiitttiiieeesss fffaaalllllliiinnnggg ddduuueee aaafffttteeerrr mmmooorrreee ttthhhaaannn ooonnneee yyyeeeaaarrr £££333222...999 mmmiiilllllliiiooonnn... TTThhheee mmmooosssttt sssuuubbbssstttaaannntttiiiaaalll jjjoooiiinnnttt---vvveeennntttuuurrreee eeennntttiiitttyyy aaattt 333111 DDDeeeccceeemmmbbbeeerrr 222000111111 wwwaaasss HHHeeeaaalllttthhh MMMaaannnaaagggeeemmmeeennnttt (((UUUCCCLLLHHH))) HHHooollldddiiinnngggsss LLLtttddd... TTThhheee GGGrrrooouuuppp’’’sss ssshhhaaarrreee ooofff gggrrrooossssss aaasssssseeetttsss wwwaaasss £££111111222...777 mmmiiilllllliiiooonnn,,, cccuuurrrrrreeennnttt llliiiaaabbbiiillliiitttiiieeesss £££222222...777 mmmiiilllllliiiooonnn aaannnddd llliiiaaabbbiiillliiitttiiieeesss ddduuueee aaafffttteeerrr mmmooorrreee ttthhhaaannn ooonnneee yyyeeeaaarrr £££888444...111 mmmiiilllllliiiooonnn...FFFuuurrrttthhheeerrr dddeeetttaaaiiilllsss ooofff ttthhheee GGGrrrooouuuppp’’’sss iiinnnvvveeessstttmmmeeennnttt iiinnn PPPPPPPPP///PPPFFFIII sssccchhheeemmmeeesss aaarrreee iiinnncccllluuudddeeeddd iiinnn nnnooottteee 333222...AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 222000111222 ttthhheee GGGrrrooouuuppp hhhaaaddd aaa cccooommmmmmiiitttmmmeeennnttt fffooorrr aaaddddddiiitttiiiooonnnaaalll iiinnnvvveeessstttmmmeeennnttt iiinnn jjjoooiiinnnttt---vvveeennntttuuurrreee eeennntttiiitttiiieeesss ooofff £££nnniiilll (((222000111111::: £££111333...000 mmmiiilllllliiiooonnn)))... (b) Joint ventures - pfI investmentsshares£millionloans£millionshare ofreserves£milliontotal£millionAAAttt 111 JJJaaannnuuuaaarrryyy 222000111111111...777 222444...111 333444...333 666000...111 AAAcccqqquuuiiisssiiitttiiiooonnnsss aaannnddd aaadddvvvaaannnccceeesss––– 111999...555 ––– 111999...555 RRReeepppaaayyymmmeeennntttsss tttooo ttthhheee GGGrrrooouuuppp––– (((000...222)))––– (((000...222)))FFFaaaiiirrr vvvaaallluuueee aaadddjjjuuussstttmmmeeennnttt tttooo fififinnnaaannnccciiiaaalll iiinnnssstttrrruuummmeeennntttsss aaannnddd dddeeerrriiivvvaaatttiiivvveeesss– – 222333...111 222333...111 SSShhhaaarrreee ooofff rrreeetttaaaiiinnneeeddd ppprrrooofififitttsss– – 000...888 000...888 AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 222000111111111...777 444333...444 555888...222 111000333...333 AAAcccqqquuuiiisssiiitttiiiooonnnsss aaannnddd aaadddvvvaaannnccceeesss– 15.7 – 15.7 RRReeepppaaayyymmmeeennntttsss tttooo ttthhheee GGGrrrooouuuppp– (4.7)– (4.7)DDDiiissspppooosssaaalllsss(1.7)4.1 (47.2)(44.8)RRReeeccclllaaassssssiiififificccaaatttiiiooonnn tttooo aaasssssseeetttsss hhheeelllddd fffooorrr sssaaallleee– (51.2)- (51.2)FFFaaaiiirrr vvvaaallluuueee aaadddjjjuuussstttmmmeeennnttt tttooo fififinnnaaannnccciiiaaalll iiinnnssstttrrruuummmeeennntttsss aaannnddd dddeeerrriiivvvaaatttiiivvveeesss– – (12.9)(12.9)SSShhhaaarrreee ooofff rrreeetttaaaiiinnneeeddd ppprrrooofififitttsss– – 2.2 2.2 AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 222000111222–7.3 0.3 7.6 aaasssssseeetttsss hhheeelllddd fffooorrr sssaaallleeeIIInnnvvveeessstttmmmeeennntttsss iiinnn jjjoooiiinnnttt---vvveeennntttuuurrreee eeennntttiiitttiiieeesss– 51.2 – 51.2 AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 222000111222– 51.2 – 51.2 nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss999888 IIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss16. Interests In assocIates and JoInt-venture entItIes (CONTINUED) (b) Joint ventures - pfI investments (continued)OOOnnn 111111 JJJuuulllyyy 222000111222,,, ttthhheee GGGrrrooouuuppp dddiiissspppooossseeeddd ooofff aaa nnneeettt 111666...666777%%% iiinnnttteeerrreeesssttt iiinnn ttthhheee UUUnnniiivvveeerrrsssiiitttyyy CCCooolllllleeegggeee LLLooonnndddooonnn HHHooossspppiiitttaaalll PPPFFFIII ppprrrooojjjeeecccttt (((“““UUUCCCLLLHHH”””))) tttooo CCCFFFIIIGGG UUUnnniiicccooorrrnnn HHHooollldddiiinnngggsss SSSPPPVVV LLLLLLCCC,,, rrreeeaaallliiisssiiinnnggg aaa nnneeettt cccaaassshhh iiinnnffflllooowww fffooorrr ttthhheee GGGrrrooouuuppp ooofff £££333333...000 mmmiiilllllliiiooonnn... OOOnnn 111222 OOOccctttooobbbeeerrr 222000111222,,, ttthhheee GGGrrrooouuuppp dddiiissspppooossseeeddd ooofff mmmiiinnnooorrriiitttyyy ssstttaaakkkeeesss iiinnn tttwwwooo GGGrrrooouuuppp sssuuubbbsssiiidddiiiaaarrriiieeesss ttthhhaaattt tttooogggeeettthhheeerrr hhheeelllddd iiinnnttteeerrreeessstttsss iiinnn 111999 PPPFFFIII iiinnnvvveeessstttmmmeeennntttsss,,, iiinnncccllluuudddiiinnnggg UUUCCCLLLHHH,,, tttooo ttthhheee DDDaaalllmmmooorrreee CCCaaapppiiitttaaalll FFFuuunnnddd fffooorrr aaa cccooonnnsssiiidddeeerrraaatttiiiooonnn ooofff £££888555...555 mmmiiilllllliiiooonnn... TTThhheee iiinnnttteeerrreeessstttsss rrreeeppprrreeessseeennnttteeeddd 444999...999%%% ooofff ttthhheee eeeqqquuuiiitttyyy aaannnddd 666222...000%%% ooofff ttthhheee dddeeebbbttt iiinnnssstttrrruuummmeeennntttsss ooofff ttthhheee 111999 PPPFFFIII IIInnnvvveeessstttmmmeeennntttsss... AAAsss aaa rrreeesssuuulllttt ooofff ttthhhiiisss tttrrraaannnsssaaaccctttiiiooonnn,,, ttthhheee GGGrrrooouuuppp hhhaaaddd tttooo rrreeessstttaaattteee iiitttsss rrreeemmmaaaiiinnniiinnnggg jjjoooiiinnnttt---cccooonnntttrrrooolllllliiinnnggg iiinnnttteeerrreeesssttt iiinnn ttthhheee tttwwwooo sssuuubbbsssiiidddiiiaaarrriiieeesss aaattt fffaaaiiirrr vvvaaallluuueee,,, wwwhhhiiiccchhh aaarrreee ccclllaaassssssiiifffiiieeeddd aaattt 333111 DDDeeeccceeemmmbbbeeerrr 222000111222 aaasss “““AAAsssssseeetttsss hhheeelllddd fffooorrr sssaaallleee”””...TTThhheee £££555111...222 mmmiiilllllliiiooonnn ooofff aaasssssseeetttsss hhheeelllddd fffooorrr sssaaallleee wwweeerrreee tttrrraaannnsssfffeeerrrrrreeeddd tttooo ttthhheee IIInnnttteeerrrssseeerrrvvveee PPPeeennnsssiiiooonnn SSSccchhheeemmmeee aaafffttteeerrr aaapppppprrrooovvvaaalll bbbyyy ssshhhaaarrreeehhhooollldddeeerrrsss aaattt aaa gggeeennneeerrraaalll mmmeeeeeetttiiinnnggg ooofff ttthhheee CCCooommmpppaaannnyyy hhheeelllddd ooonnn 777 JJJaaannnuuuaaarrryyy 222000111333 aaattt aaannn aaagggrrreeeeeeddd vvvaaallluuuaaatttiiiooonnn ooofff £££555555...000 mmmiiilllllliiiooonnn... SSSeeeeee nnnooottteee 333444 “““EEEvvveeennntttsss aaafffttteeerrr ttthhheee bbbaaalllaaannnccceee ssshhheeeeeettt dddaaattteee”””... (c) associated undertakingsshares£millionloans£millionshare ofreserves£milliontotal£millionAAAttt 111 JJJaaannnuuuaaarrryyy 222000111111111000...777 888...888 444222...222 666111...777 SSShhhaaarrreee ooofff rrreeetttaaaiiinnneeeddd ppprrrooofififitttsss nnneeettt ooofff aaammmooorrrtttiiisssaaatttiiiooonnn––– ––– 666...000 666...000 EEExxxccchhhaaannngggeee dddiiiffffffeeerrreeennnccceeesss––– ––– 999...555 999...555 AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 222000111111111000...777 888...888 555777...777 777777...222 AAAddddddiiitttiiiooonnnsss– 0.6–0.6 SSShhhaaarrreee ooofff rrreeetttaaaiiinnneeeddd ppprrrooofififitttsss nnneeettt ooofff aaammmooorrrtttiiisssaaatttiiiooonnn– – 3.0 3.0 EEExxxccchhhaaannngggeee dddiiiffffffeeerrreeennnccceeesss– – (4.2)(4.2)AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 22200011122210.7 9.4 56.5 76.6 17. deferred taXatIonTTThhheee fffooollllllooowwwiiinnnggg aaarrreee ttthhheee mmmaaajjjooorrr dddeeefffeeerrrrrreeeddd tttaaaxxx aaasssssseeetttsss aaannnddd (((llliiiaaabbbiiillliiitttiiieeesss))) rrreeecccooogggnnniiissseeeddd bbbyyy ttthhheee GGGrrrooouuuppp...retirement benefit obligations£millionacquired intangible assets£millionaccelerated capital allowances£milliontrading losses£millionother timing differences£milliontotal£millionAAAttt 111 JJJaaannnuuuaaarrryyy 222000111111222222...222 (((555...999)))(((555...444)))000...111 555...555 111666...555 (((CCChhhaaarrrgggeee)))///cccrrreeedddiiittt tttooo iiinnncccooommmeee(((111111...222)))111...888 777...888 000...333 000...555 (((000...888)))(((CCChhhaaarrrgggeee)))///cccrrreeedddiiittt tttooo eeeqqquuuiiitttyyy777...222 – – – 000...333 777...555 EEExxxccchhhaaannngggeee dddiiiffffffeeerrreeennnccceeesss– – – – 000...222 000...222 AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 222000111111111888...222 (((444...111)))222...444 000...444 666...555 222333...444 (((CCChhhaaarrrgggeee)))///cccrrreeedddiiittt tttooo iiinnncccooommmeee(10.7)1.7 0.9 5.6 1.0 (1.5)AAAcccqqquuuiiisssiiitttiiiooonnn ooofff sssuuubbbsssiiidddiiiaaarrriiieeesss– (5.6)(0.1)– 0.6 (5.1)(((CCChhhaaarrrgggeee)))///cccrrreeedddiiittt tttooo eeeqqquuuiiitttyyy16.1 – – – 0.6 16.7 EEExxxccchhhaaannngggeee dddiiiffffffeeerrreeennnccceeesss– – – – – – AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 22200011122223.6 (8.0)3.2 6.0 8.7 33.5 IIInnncccllluuudddeeeddd iiinnn ttthhheee mmmooovvveeemmmeeennntttsss iiinnn ttthhheee yyyeeeaaarrr eeennndddeeeddd 333111 DDDeeeccceeemmmbbbeeerrr 222000111111 aaarrreee aaammmooouuunnntttsss rrreeefffllleeeccctttiiinnnggg ttthhheee ccchhhaaannngggeee iiinnn cccooorrrpppooorrraaatttiiiooonnn tttaaaxxx ttthhhaaattt wwwaaasss eeennnaaacccttteeeddd ddduuurrriiinnnggg ttthhheee yyyeeeaaarrr,,, aaammmooouuunnntttiiinnnggg tttooo £££111...444 mmmiiilllllliiiooonnn ccchhhaaarrrgggeeeddd tttooo eeeqqquuuiiitttyyy aaannnddd £££000...888 mmmiiilllllliiiooonnn cccrrreeedddiiittteeeddd tttooo ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt...Certain deferred tax assets and liabilities, as shown below, have been offset on the consolidated balance sheet. 31 december 2012 £million31 December 2011 £millionDeferred tax liabilities(8.0)(4.1)Deferred tax assets41.5 27.533.5 23.4No 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 £8.1 million (2011: £6.3 million) on gross losses of £35.4 million (2011: £25.2 million).18. InventorIes31 december 2012£million31 December 2011£million31 December 2010£millionGoods held for resale24.0 21.4 19.2 Materials0.6 0.8 0.4 24.6 22.2 19.6 19. constructIon contractsBalances related to contracts in progress at the balance sheet date were:31 december 2012£million31 December 2011£million31 December 2010£millionAmounts due from contract customers included in trade and other receivables50.9 32.0 39.0 Amounts due to contract customers included in trade and other payables(20.6)(25.9)(31.7)30.3 6.1 7.3 Contract costs incurred plus recognised profits less recognised losses to date4,698.0 4,456.8 4,090.6 Less: progress billings(4,667.7)(4,450.7)(4,083.3)30.3 6.1 7.3 At 31 December 2012, retentions held by customers for contract work amounted to £26.0 million (2011: £23.3 million) of which £4.5 million (2011: £3.6 million) is receivable after one year. Advances received were £20.6 million (2011: £25.9 million) of which £nil is repayable after one year (2011: £nil). ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss 999999CCCeeerrrtttaaaiiinnn dddeeefffeeerrrrrreeeddd tttaaaxxx aaasssssseeetttsss aaannnddd llliiiaaabbbiiillliiitttiiieeesss,,, aaasss ssshhhooowwwnnn bbbeeelllooowww,,, hhhaaavvveee bbbeeeeeennn oooffffffssseeettt ooonnn ttthhheee cccooonnnsssooollliiidddaaattteeeddd bbbaaalllaaannnccceee ssshhheeeeeettt... 31 december 2012 £million333111 DDDeeeccceeemmmbbbeeerrr 222000111111 £££mmmiiilllllliiiooonnnDDDeeefffeeerrrrrreeeddd tttaaaxxx llliiiaaabbbiiillliiitttiiieeesss(8.0)(((444...111)))DDDeeefffeeerrrrrreeeddd tttaaaxxx aaasssssseeetttsss41.5 222777...55533.5 222333...444NNNooo dddeeefffeeerrrrrreeeddd tttaaaxxx aaasssssseeettt hhhaaasss bbbeeeeeennn rrreeecccooogggnnniiissseeeddd iiinnn rrreeessspppeeecccttt ooofff ccceeerrrtttaaaiiinnn uuunnnuuussseeeddd tttaaaxxx lllooosssssseeesss aaavvvaaaiiilllaaabbbllleee fffooorrr oooffffffssseeettt aaagggaaaiiinnnsssttt fffuuutttuuurrreee ppprrrooofffiiitttsss ddduuueee tttooo ttthhheee uuunnnppprrreeedddiiiccctttaaabbbiiillliiitttyyy ooofff fffuuutttuuurrreee ppprrrooofffiiittt ssstttrrreeeaaammmsss iiinnn ttthhhooossseee bbbuuusssiiinnneeesssssseeesss... TTThhheee aaaccccccuuummmuuulllaaattteeeddd tttaaaxxx vvvaaallluuueee ooofff ttthhheeessseee lllooosssssseeesss iiisss £££888...111 mmmiiilllllliiiooonnn (((222000111111::: £££666...333 mmmiiilllllliiiooonnn))) ooonnn gggrrrooossssss lllooosssssseeesss ooofff £££333555...444 mmmiiilllllliiiooonnn (((222000111111::: £££222555...222 mmmiiilllllliiiooonnn)))...18. InventorIes31 december 2012£million333111 DDDeeeccceeemmmbbbeeerrr 222000111111£££mmmiiilllllliiiooonnn333111 DDDeeeccceeemmmbbbeeerrr 222000111000£££mmmiiilllllliiiooonnnGGGoooooodddsss hhheeelllddd fffooorrr rrreeesssaaallleee24.0 222111...444 111999...222 MMMaaattteeerrriiiaaalllsss0.6 000...888 000...444 24.6 222222...222 111999...666 19. constructIon contractsBBBaaalllaaannnccceeesss rrreeelllaaattteeeddd tttooo cccooonnntttrrraaaccctttsss iiinnn ppprrrooogggrrreeessssss aaattt ttthhheee bbbaaalllaaannnccceee ssshhheeeeeettt dddaaattteee wwweeerrreee:::31 december 2012£million333111 DDDeeeccceeemmmbbbeeerrr 222000111111£££mmmiiilllllliiiooonnn333111 DDDeeeccceeemmmbbbeeerrr 222000111000£££mmmiiilllllliiiooonnnAAAmmmooouuunnntttsss ddduuueee fffrrrooommm cccooonnntttrrraaacccttt cccuuussstttooommmeeerrrsss iiinnncccllluuudddeeeddd iiinnn tttrrraaadddeee aaannnddd ooottthhheeerrr rrreeeccceeeiiivvvaaabbbllleeesss50.9 333222...000 333999...000 AAAmmmooouuunnntttsss ddduuueee tttooo cccooonnntttrrraaacccttt cccuuussstttooommmeeerrrsss iiinnncccllluuudddeeeddd iiinnn tttrrraaadddeee aaannnddd ooottthhheeerrr pppaaayyyaaabbbllleeesss(20.6)(((222555...999)))(((333111...777)))30.3 666...111 777...333 CCCooonnntttrrraaacccttt cccooossstttsss iiinnncccuuurrrrrreeeddd pppllluuusss rrreeecccooogggnnniiissseeeddd ppprrrooofififitttsss llleeessssss rrreeecccooogggnnniiissseeeddd lllooosssssseeesss tttooo dddaaattteee4,698.0 444,,,444555666...888 444,,,000999000...666 LLLeeessssss::: ppprrrooogggrrreeessssss bbbiiilllllliiinnngggsss(4,667.7)(((444,,,444555000...777)))(((444,,,000888333...333)))30.3 666...111 777...333 AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 222000111222,,, rrreeettteeennntttiiiooonnnsss hhheeelllddd bbbyyy cccuuussstttooommmeeerrrsss fffooorrr cccooonnntttrrraaacccttt wwwooorrrkkk aaammmooouuunnnttteeeddd tttooo £££222666...000 mmmiiilllllliiiooonnn (((222000111111::: £££222333...333 mmmiiilllllliiiooonnn))) ooofff wwwhhhiiiccchhh £££444...555 mmmiiilllllliiiooonnn (((222000111111::: £££333...666 mmmiiilllllliiiooonnn))) iiisss rrreeeccceeeiiivvvaaabbbllleee aaafffttteeerrr ooonnneee yyyeeeaaarrr... AAAdddvvvaaannnccceeesss rrreeeccceeeiiivvveeeddd wwweeerrreee £££222000...666 mmmiiilllllliiiooonnn (((222000111111::: £££222555...999 mmmiiilllllliiiooonnn))) ooofff wwwhhhiiiccchhh £££nnniiilll iiisss rrreeepppaaayyyaaabbbllleee aaafffttteeerrr ooonnneee yyyeeeaaarrr (((222000111111::: £££nnniiilll)))... nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss111000000 IIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss20. trade and other receIvables31 december 2012£million333111 DDDeeeccceeemmmbbbeeerrr 222000111111£££mmmiiilllllliiiooonnn333111 DDDeeeccceeemmmbbbeeerrr 222000111000£££mmmiiilllllliiiooonnnAAAmmmooouuunnntttsss rrreeecccooovvveeerrraaabbbllleee fffrrrooommm ttthhheee sssaaallleee ooofff gggoooooodddsss aaannnddd ssseeerrrvvviiiccceeesss270.1 222666111...333 222555222...111 AAAllllllooowwwaaannnccceeesss fffooorrr dddooouuubbbtttfffuuulll dddeeebbbtttsss(30.5)(((333333...888)))(((333333...111)))239.6 222222777...555 222111999...000 AAAmmmooouuunnntttsss ddduuueee fffrrrooommm cccooonnnssstttrrruuuccctttiiiooonnn cccooonnntttrrraaacccttt cccuuussstttooommmeeerrrsss50.9 333222...000 333999...000 RRReeettteeennntttiiiooonnnsss26.0 222333...333 222333...000 OOOttthhheeerrr rrreeeccceeeiiivvvaaabbbllleeesss12.4 888...222 777...888 PPPrrreeepppaaayyymmmeeennntttsss aaannnddd aaaccccccrrruuueeeddd iiinnncccooommmeee103.1 888999...111 999777...333 432.0 333888000...111 333888666...111 IIInnncccllluuudddeeeddd iiinnn ttthhheee aaabbbooovvveee aaarrreee ttthhheee fffooollllllooowwwiiinnnggg aaammmooouuunnntttsss rrreeecccooovvveeerrraaabbbllleee aaafffttteeerrr mmmooorrreee ttthhhaaannn ooonnneee yyyeeeaaarrr:::31 december 2012£million333111 DDDeeeccceeemmmbbbeeerrr 222000111111£££mmmiiilllllliiiooonnn333111 DDDeeeccceeemmmbbbeeerrr 222000111000£££mmmiiilllllliiiooonnnRRReeettteeennntttiiiooonnnsss4.5 333...666 999...888 TTThhheee dddiiirrreeeccctttooorrrsss cccooonnnsssiiidddeeerrr ttthhhaaattt ttthhheee cccaaarrrrrryyyiiinnnggg aaammmooouuunnnttt ooofff tttrrraaadddeee aaannnddd ooottthhheeerrr rrreeeccceeeiiivvvaaabbbllleeesss aaapppppprrroooxxxiiimmmaaattteeesss ttthhheeeiiirrr fffaaaiiirrr vvvaaallluuueee... TTTrrraaadddeee aaannnddd ooottthhheeerrr rrreeeccceeeiiivvvaaabbbllleeesss aaarrreee iiinnncccllluuudddeeeddd aaasss pppaaarrrttt ooofff ttthhheee fffiiinnnaaannnccciiiaaalll aaasssssseeetttsss...AAAvvveeerrraaagggeee cccrrreeedddiiittt pppeeerrriiioooddd tttaaakkkeeennn ooonnn ttthhheee sssaaallleee ooofff gggoooooodddsss aaannnddd ssseeerrrvvviiiccceeesss iiisss 333777 dddaaayyysss (((222000111111::: 444111 dddaaayyysss)))... AAAllllllooowwwaaannnccceeesss fffooorrr dddooouuubbbtttfffuuulll dddeeebbbttt aaarrreee ppprrrooovvviiidddeeeddd fffooorrr ooonnn aaa ssspppeeeccciiifffiiiccc bbbaaasssiiisss,,, bbbaaassseeeddd ooonnn eeessstttiiimmmaaattteeesss ooofff iiirrrrrreeecccooovvveeerrraaabbbiiillliiitttyyy dddeeettteeerrrmmmiiinnneeeddd bbbyyy mmmaaarrrkkkeeettt kkknnnooowwwllleeedddgggeee aaannnddd pppaaasssttt eeexxxpppeeerrriiieeennnccceee...AAAgggeeeiiinnnggg ooofff tttrrraaadddeee rrreeeccceeeiiivvvaaabbbllleeesss,,, nnnooottt iiimmmpppaaaiiirrreeeddd bbbuuuttt nnneeettt ooofff aaallllllooowwwaaannnccceeesss fffooorrr dddooouuubbbtttfffuuulll dddeeebbbttt,,, iiisss aaasss fffooollllllooowwwsss:::31 december 2012 £million333111 DDDeeeccceeemmmbbbeeerrr 222000111111£££mmmiiilllllliiiooonnn333111 DDDeeeccceeemmmbbbeeerrr 222000111000£££mmmiiilllllliiiooonnnNNNooottt mmmooorrreee ttthhhaaannn ooonnneee mmmooonnnttthhh pppaaasssttt ddduuueee36.0 222666...888 222222...888 BBBeeetttwwweeeeeennn ooonnneee aaannnddd ttthhhrrreeeeee mmmooonnnttthhhsss pppaaasssttt ddduuueee14.3 111444...777 111777...555 BBBeeetttwwweeeeeennn ttthhhrrreeeeee aaannnddd sssiiixxx mmmooonnnttthhhsss pppaaasssttt ddduuueee16.6 111444...000 111444...000 GGGrrreeeaaattteeerrr ttthhhaaannn sssiiixxx mmmooonnnttthhhsss10.4 999...777 777...555 TTToootttaaalll pppaaasssttt ddduuueee bbbuuuttt nnnooottt iiimmmpppaaaiiirrreeeddd77.3 666555...222 666111...888 NNNooottt pppaaasssttt ddduuueee162.3 111666222...333 111555777...222 TTToootttaaalll nnneeettt rrreeeccceeeiiivvvaaabbbllleeesss239.6 222222777...555 222111999...000 TTThhheee aaavvveeerrraaagggeee aaagggeee ooofff ttthhheee rrreeeccceeeiiivvvaaabbbllleeesss pppaaasssttt ddduuueee bbbuuuttt nnnooottt iiimmmpppaaaiiirrreeeddd iiisss 888333 dddaaayyysss (((222000111111::: 888999 dddaaayyysss)))...MMMooovvveeemmmeeennnttt iiinnn aaallllllooowwwaaannnccceee fffooorrr dddooouuubbbtttfffuuulll dddeeebbbttt iiisss aaasss fffooollllllooowwwsss:::2012£million222000111111£££mmmiiilllllliiiooonnnBBBaaalllaaannnccceee aaattt 111 JJJaaannnuuuaaarrryyy33.8 333333...111 AAAmmmooouuunnntttsss wwwrrriiitttttteeennn oooffffff aaasss uuunnncccooolllllleeeccctttaaabbbllleee(13.7)(((111111...111)))IIImmmpppaaaiiirrrmmmeeennnttt lllooosssssseeesss rrreeecccooogggnnniiissseeeddd iiinnn ttthhheee yyyeeeaaarrr19.3 111888...000 AAAmmmooouuunnntttsss rrreeecccooovvveeerrreeeddd ddduuurrriiinnnggg ttthhheee yyyeeeaaarrr(8.2)(((555...888)))EEExxxccchhhaaannngggeee dddiiiffffffeeerrreeennnccceeesss(0.7)(((000...444)))BBBaaalllaaannnccceee aaattt 333111 DDDeeeccceeemmmbbbeeerrr30.5 333333...888 ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss 11100011121. cash, deposIts and borroWInGsCCCaaassshhh aaannnddd dddeeepppooosssiiitttsss cccooommmppprrriiissseee cccaaassshhh hhheeelllddd bbbyyy ttthhheee GGGrrrooouuuppp aaannnddd ssshhhooorrrttt---ttteeerrrmmm bbbaaannnkkk dddeeepppooosssiiitttsss ttthhhaaattt hhhaaavvveee aaannn ooorrriiigggiiinnnaaalll mmmaaatttuuurrriiitttyyy ooofff ttthhhrrreeeeee mmmooonnnttthhhsss ooorrr llleeessssss... 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GGGaaaiiinnnsss aaannnddd lllooosssssseeesss aaarrriiisssiiinnnggg ooonnn rrreeetttrrraaannnssslllaaatttiiiooonnn ooofff mmmooonnneeetttaaarrryyy aaasssssseeetttsss aaannnddd llliiiaaabbbiiillliiitttiiieeesss ttthhhaaattt aaarrreee nnnooottt dddeeennnooommmiiinnnaaattteeeddd iiinnn ttthhheee fffuuunnnccctttiiiooonnnaaalll cccuuurrrrrreeennncccyyy ooofff iiinnndddiiivvviiiddduuuaaalll GGGrrrooouuuppp cccooommmpppaaannniiieeesss aaarrreee rrreeecccooogggnnniiissseeeddd iiinnn ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt... TTThhheee GGGrrrooouuuppp eeennnttteeerrrsss iiinnntttooo fffooorrrwwwaaarrrddd fffooorrreeeiiigggnnn eeexxxccchhhaaannngggeee cccooonnntttrrraaaccctttsss tttooo mmmaaannnaaagggeee mmmaaattteeerrriiiaaalll cccuuurrrrrreeennncccyyy eeexxxpppooosssuuurrreeesss ttthhhaaattt aaarrriiissseee ooonnn cccaaassshhhffflllooowwwsss fffrrrooommm sssaaallleeesss ooorrr pppuuurrrccchhhaaassseeesss nnnooottt dddeeennnooommmiiinnnaaattteeeddd iiinnn fffuuunnnccctttiiiooonnnaaalll cccuuurrrrrreeennnccciiieeesss iiimmmmmmeeedddiiiaaattteeelllyyy ttthhhooossseee sssaaallleeesss ooorrr pppuuurrrccchhhaaassseeesss aaarrreee cccooonnntttrrraaacccttteeeddd... TTTaaakkkiiinnnggg iiinnntttooo aaaccccccooouuunnnttt ttthhheee eeeffffffeeecccttt ooofff fffooorrrwwwaaarrrddd cccooonnntttrrraaaccctttsss,,, GGGrrrooouuuppp cccooommmpppaaannniiieeesss dddiiiddd nnnooottt hhhaaavvveee aaa mmmaaattteeerrriiiaaalll eeexxxpppooosssuuurrreee tttooo fffooorrreeeiiigggnnn eeexxxccchhhaaannngggeee gggaaaiiinnnsss ooorrr lllooosssssseeesss ooonnn mmmooonnneeetttaaarrryyy aaasssssseeetttsss aaannnddd mmmooonnneeetttaaarrryyy llliiiaaabbbiiillliiitttiiieeesss dddeeennnooommmiiinnnaaattteeeddd iiinnn fffooorrreeeiiigggnnn cccuuurrrrrreeennnccciiieeesss aaattt 333111 DDDeeeccceeemmmbbbeeerrr 222000111222...TTThhheee GGGrrrooouuuppp dddoooeeesss nnnooottt hhheeedddgggeee aaannntttiiiccciiipppaaattteeeddd fffuuutttuuurrreee sssaaallleeesss aaannnddd pppuuurrrccchhhaaassseeesss...GGGaaaiiinnnsss aaannnddd lllooosssssseeesss aaarrriiisssiiinnnggg ooonnn ttthhheee rrreeetttrrraaannnssslllaaatttiiiooonnn ooofff fffooorrreeeiiigggnnn ooopppeeerrraaatttiiiooonnnsss’’’ nnneeettt aaasssssseeetttsss iiinnntttooo ttthhheee cccooonnnsssooollliiidddaaatttiiiooonnn cccuuurrrrrreeennncccyyy aaarrreee rrreeecccooogggnnniiissseeeddd dddiiirrreeeccctttlllyyy iiinnn eeeqqquuuiiitttyyy... TTThhheee GGGrrrooouuuppp dddoooeeesss nnnooottt hhheeedddgggeee ttthhheeessseee tttrrraaannnssslllaaatttiiiooonnn dddiiiffffffeeerrreeennnccceeesss... nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss111000444 IIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss22. fInancIal rIsK manaGement (CONTINUED) (a) currency exposures (continued)TTThhheee GGGrrrooouuuppp’’’sss eeexxxpppooosssuuurrreee tttooo fffllluuuccctttuuuaaatttiiiooonnnsss iiinnn eeexxxccchhhaaannngggeee rrraaattteeesss iiisss ssshhhooowwwnnn bbbeeelllooowww wwwhhheeerrreee aaa ccchhhaaannngggeee iiinnn vvvaaallluuueee ooofff fffooorrreeeiiigggnnn cccuuurrrrrreeennnccciiieeesss aaagggaaaiiinnnsssttt sssttteeerrrllliiinnnggg wwwooouuulllddd hhhaaavvveee ttthhheee fffooollllllooowwwiiinnnggg iiimmmpppaaacccttt ooonnn ttthhheee rrreeesssuuullltttsss ooofff ttthhheee GGGrrrooouuuppp:::AAA 111%%% ccchhhaaannngggeee iiinnn eeexxxccchhhaaannngggeee rrraaattteeesss rrreeesssuuullltttsss iiinnn::: 31 december 2012£million333111 DDDeeeccceeemmmbbbeeerrr 222000111111£££mmmiiilllllliiiooonnnCCChhhaaannngggeee iiinnn ppprrrooofififittt0.2 000...222 CCChhhaaannngggeee iiinnn rrreeessseeerrrvvveeesss /// nnneeettt aaasssssseeetttsss1.5 111...555 AAA 111%%% ccchhhaaannngggeee iiinnn ttthhheee QQQaaatttaaarrriii rrriiiaaalll eeexxxccchhhaaannngggeee rrraaattteee wwwooouuulllddd rrreeesssuuulllttt iiinnn aaa £££000...111 mmmiiilllllliiiooonnn ccchhhaaannngggeee iiinnn ppprrrooofffiiittt aaannnddd aaa £££000...555 mmmiiilllllliiiooonnn ccchhhaaannngggeee iiinnn rrreeessseeerrrvvveeesss///nnneeettt aaasssssseeetttsss,,, aaannnddd aaa 111%%% ccchhhaaannngggeee iiinnn ttthhheee AAAuuussstttrrraaallliiiaaannn dddooollllllaaarrr eeexxxccchhhaaannngggeee rrraaattteee iiinnn aaa £££000...111 mmmiiilllllliiiooonnn ccchhhaaannngggeee iiinnn ppprrrooofffiiittt aaannnddd aaa £££000...444 mmmiiilllllliiiooonnn ccchhhaaannngggeee iiinnn rrreeessseeerrrvvveeesss///nnneeettt aaasssssseeetttsss... (b) market price risk - interest rate hedgesTTThhheee GGGrrrooouuuppp ssseeeeeekkksss tttooo cccooonnntttrrrooolll iiitttsss eeexxxpppooosssuuurrreee tttooo ccchhhaaannngggeeesss iiinnn iiinnnttteeerrreeesssttt rrraaattteeesss bbbyyy uuusssiiinnnggg iiinnnttteeerrreeesssttt rrraaattteee ssswwwaaapppsss tttooo llliiimmmiiittt ttthhheee iiimmmpppaaacccttt ooonnn ttthhheee iiinnnttteeerrreeesssttt ccchhhaaarrrgggeee iiinnn ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt... CCCooonnntttrrraaaccctttsss iiinnn ppplllaaaccceee aaattt ttthhheee yyyeeeaaarrr eeennnddd wwweeerrreee aaasss fffooollllllooowwwsss:::31 december 2012333111 DDDeeeccceeemmmbbbeeerrr 222000111111nominal value£millionmaturitystrike priceNNNooommmiiinnnaaalll vvvaaallluuueee£££mmmiiilllllliiiooonnnMMMaaatttuuurrriiitttyyySSStttrrriiikkkeee ppprrriiiccceeeIIInnnttteeerrreeesssttt rrraaattteee ssswwwaaapppssscurrent30.0 20133.56%CCCuuurrrrrreeennnttt222000...000 222000111222333...666222%%%deferred20.0 20151.50%CCCuuurrrrrreeennnttt333000...000 222000111333333...555666%%%deferred10.0 20151.58%TTThhheee fffaaaiiirrr vvvaaallluuueee ooofff iiinnnttteeerrreeesssttt rrraaattteee hhheeedddgggeeesss aaattt 333111 DDDeeeccceeemmmbbbeeerrr 222000111222 iiisss eeessstttiiimmmaaattteeeddd aaattt (((£££111...222))) mmmiiilllllliiiooonnn (((222000111111::: (((£££111...888))) mmmiiilllllliiiooonnn)))... TTThhheee cccooonnntttrrraaaccctttsss aaarrreee dddeeesssiiigggnnnaaattteeeddd aaasss cccaaassshhh ffflllooowww hhheeedddgggeeesss aaannnddd tttooo ttthhheee eeexxxttteeennnttt ttthhhaaattt ttthhheee hhheeedddgggeeesss aaarrreee eeeffffffeeeccctttiiivvveee hhheeedddgggeeesss,,, ccchhhaaannngggeeesss iiinnn ttthhheeeiiirrr fffaaaiiirrr vvvaaallluuueee aaarrreee rrreeecccooogggnnniiissseeeddd dddiiirrreeeccctttlllyyy iiinnn eeeqqquuuiiitttyyy... TTThhheee fffaaaiiirrr vvvaaallluuueeesss ooofff ttthhheee hhheeedddgggeee iiinnnssstttrrruuummmeeennntttsss aaarrreee cccaaalllcccuuulllaaattteeeddd uuusssiiinnnggg cccooommmpppuuuttteeerrr vvvaaallluuuaaatttiiiooonnn mmmooodddeeelllsss ooopppeeerrraaattteeeddd bbbyyy cccooouuunnnttteeerrrpppaaarrrtttyyy bbbaaannnkkksss... NNNooo ccchhhaaarrrgggeeesss hhhaaavvveee gggooonnneee ttthhhrrrooouuuggghhh ttthhheee iiinnncccooommmeee ssstttaaattteeemmmeeennnttt iiinnn ttthhheee yyyeeeaaarrr (((222000111111::: £££nnniiilll))) iiinnn rrreeessspppeeecccttt ooofff ccchhhaaannngggeeesss iiinnn ttthhheee fffaaaiiirrr vvvaaallluuueee ooofff ttthhheee hhheeedddgggeeesss... AAA lllooossssss ooofff £££000...111 mmmiiilllllliiiooonnn (((222000111111::: gggaaaiiinnn ooofff £££111...111 mmmiiilllllliiiooonnn))) wwwaaasss ccchhhaaarrrgggeeeddd ttthhhrrrooouuuggghhh ooottthhheeerrr cccooommmppprrreeehhheeennnsssiiivvveee iiinnncccooommmeee iiinnn rrreeessspppeeecccttt tttooo ccchhhaaannngggeeesss iiinnn fffaaaiiirrr vvvaaallluuueee ooofff ttthhheee hhheeedddgggeeesss...TTThhheee uuussseee ooofff iiinnnttteeerrreeesssttt rrraaattteee cccaaapppsss aaannnddd ssswwwaaapppsss,,, wwwhhheeerrreee aaapppppprrroooppprrriiiaaattteee,,, dddiiimmmiiinnniiissshhheeesss ttthhheee iiimmmpppaaacccttt ooofff aaannn iiinnnttteeerrreeesssttt rrraaattteee ccchhhaaannngggeee... TTThhheee iiimmmpppaaacccttt ooofff aaa 111%%% ccchhhaaannngggeee iiinnn iiinnnttteeerrreeesssttt rrraaattteee tttooo ttthhheee GGGrrrooouuuppp’’’sss rrreeesssuuullltttsss iiisss ssshhhooowwwnnn iiinnn ttthhheee tttaaabbbllleee bbbeeelllooowww:::31 december 2012£million333111 DDDeeeccceeemmmbbbeeerrr 222000111111£££mmmiiilllllliiiooonnnAAA 111%%% ccchhhaaannngggeee iiinnn iiinnnttteeerrreeesssttt rrraaattteee rrreeesssuuullltttsss iiinnn:::CCChhhaaannngggeee iiinnn ppprrrooofififittt0.2– (c) credit riskTTThhheee GGGrrrooouuuppp’’’sss ppprrriiinnnccciiipppaaalll fffiiinnnaaannnccciiiaaalll aaasssssseeetttsss aaarrreee bbbaaannnkkk bbbaaalllaaannnccceeesss aaannnddd cccaaassshhh,,, tttrrraaadddeee aaannnddd ooottthhheeerrr rrreeeccceeeiiivvvaaabbbllleeesss aaannnddd iiinnnvvveeessstttmmmeeennntttsss,,, wwwhhhiiiccchhh rrreeeppprrreeessseeennnttt ttthhheee GGGrrrooouuuppp’’’sss mmmaaaxxxiiimmmuuummm eeexxxpppooosssuuurrreee tttooo cccrrreeedddiiittt rrriiissskkk iiinnn rrreeelllaaatttiiiooonnn tttooo fffiiinnnaaannnccciiiaaalll aaasssssseeetttsss...TTThhheee GGGrrrooouuuppp’’’sss cccrrreeedddiiittt rrriiissskkk iiisss ppprrriiimmmaaarrriiilllyyy aaattttttrrriiibbbuuutttaaabbbllleee tttooo iiitttsss tttrrraaadddeee rrreeeccceeeiiivvvaaabbbllleeesss... TTThhheee aaammmooouuunnntttsss ppprrreeessseeennnttteeeddd iiinnn ttthhheee bbbaaalllaaannnccceee ssshhheeeeeettt aaarrreee nnneeettt ooofff aaallllllooowwwaaannnccceeesss fffooorrr dddooouuubbbtttfffuuulll rrreeeccceeeiiivvvaaabbbllleeesss,,, eeessstttiiimmmaaattteeeddd bbbyyy ttthhheee GGGrrrooouuuppp’’’sss mmmaaannnaaagggeeemmmeeennnttt bbbaaassseeeddd ooonnn ppprrriiiooorrr eeexxxpppeeerrriiieeennnccceee aaannnddd ttthhheeeiiirrr aaasssssseeessssssmmmeeennnttt ooofff ttthhheee cccuuurrrrrreeennnttt eeecccooonnnooommmiiiccc eeennnvvviiirrrooonnnmmmeeennnttt... TTTooo mmmaaannnaaagggeee ttthhhiiisss rrriiissskkk,,, cccrrreeedddiiittt rrreeefffeeerrreeennnccceeesss aaarrreee tttaaakkkeeennn aaannnddd wwwhhheeerrreee aaapppppprrroooppprrriiiaaattteee pppaaarrreeennnttt cccooommmpppaaannnyyy ggguuuaaarrraaannnttteeeeeesss aaarrreee sssooouuuggghhhttt aaalllooonnnggg wwwiiittthhh mmmooonnnttthhhlllyyy mmmooonnniiitttooorrriiinnnggg ooofff aaagggeee aaannnddd rrreeecccooovvveeerrraaabbbiiillliiitttyyy ooofff tttrrraaadddeee rrreeeccceeeiiivvvaaabbbllleeesss...AAApppaaarrrttt fffrrrooommm rrreeeccceeeiiivvvaaabbbllleeesss ddduuueee fffrrrooommm cccuuussstttooommmeeerrrsss rrreeelllaaattteeeddd tttooo HHHMMM GGGooovvveeerrrnnnmmmeeennnttt,,, ttthhheee GGGrrrooouuuppp hhhaaasss nnnooo sssiiigggnnniiifffiiicccaaannnttt cccooonnnccceeennntttrrraaatttiiiooonnn ooofff cccrrreeedddiiittt rrriiissskkk,,, wwwiiittthhh eeexxxpppooosssuuurrreee sssppprrreeeaaaddd ooovvveeerrr aaa nnnuuummmbbbeeerrr ooofff cccooouuunnnttteeerrrpppaaarrrtttiiieeesss aaannnddd cccuuussstttooommmeeerrrsss... ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss 111000555 (d) liquidity riskTTThhheee GGGrrrooouuuppp ssseeeeeekkksss tttooo mmmaaaiiinnntttaaaiiinnn sssuuuffffffiiiccciiieeennnttt fffaaaccciiillliiitttiiieeesss tttooo eeennnsssuuurrreee ttthhhaaattt iiittt hhhaaasss aaacccccceeessssss tttooo fffuuunnndddiiinnnggg tttooo mmmeeeeeettt cccuuurrrrrreeennnttt aaannnddd aaannntttiiiccciiipppaaattteeeddd fffuuutttuuurrreee fffuuunnndddiiinnnggg rrreeeqqquuuiiirrreeemmmeeennntttsss dddeeettteeerrrmmmiiinnneeeddd fffrrrooommm bbbuuudddgggeeetttsss aaannnddd mmmeeedddiiiuuummm---ttteeerrrmmm ppplllaaannnsss...TTThhheee mmmaaatttuuurrriiitttyyy ooofff fffiiinnnaaannnccciiiaaalll aaasssssseeetttsss aaannnddd llliiiaaabbbiiillliiitttiiieeesss,,, wwwiiittthhh ttthhheee eeexxxccceeeppptttiiiooonnn ooofff iiinnnttteeerrreeesssttt rrraaattteee hhheeedddgggeeesss aaabbbooovvveee,,, aaarrreee dddiiissscccuuusssssseeeddd iiinnn ttthhheee ssspppeeeccciiifffiiiccc aaasssssseeettt aaannnddd llliiiaaabbbiiillliiitttyyy fffooooootttnnnooottteeesss... (e) capital riskTTThhheee GGGrrrooouuuppp mmmaaannnaaagggeeesss iiitttsss cccaaapppiiitttaaalll tttooo eeennnsssuuurrreee ttthhhaaattt eeennntttiiitttiiieeesss iiinnn ttthhheee GGGrrrooouuuppp wwwiiillllll bbbeee aaabbbllleee tttooo cccooonnntttiiinnnuuueee aaasss gggoooiiinnnggg cccooonnnccceeerrrnnnsss,,, wwwhhhiiilllsssttt ssseeeeeekkkiiinnnggg tttooo oooppptttiiimmmiiissseee ttthhheee dddeeebbbttt aaannnddd eeeqqquuuiiitttyyy bbbaaalllaaannnccceee,,, iiinnn ooorrrdddeeerrr tttooo mmmaaaxxxiiimmmiiissseee ttthhheee rrreeetttuuurrrnnn tttooo ssstttaaakkkeeehhhooollldddeeerrrsss... TTThhheee cccaaapppiiitttaaalll ssstttrrruuuccctttuuurrreee ooofff ttthhheee GGGrrrooouuuppp cccooonnnsssiiissstttsss ooofff nnneeettt dddeeebbbttt,,, wwwhhhiiiccchhh iiinnncccllluuudddeeesss cccaaassshhh,,, dddeeepppooosssiiitttsss aaannnddd bbbooorrrrrrooowwwiiinnngggsss (((nnnooottteee 222111))),,, aaannnddd eeeqqquuuiiitttyyy aaattttttrrriiibbbuuutttaaabbbllleee tttooo eeeqqquuuiiitttyyy hhhooollldddeeerrrsss ooofff ttthhheee pppaaarrreeennnttt...TTThhheee GGGrrrooouuuppp hhhaaasss,,, ooovvveeerrr rrreeeccceeennnttt yyyeeeaaarrrsss,,, hhhaaaddd aaa pppooollliiicccyyy ooofff ppprrrooogggrrreeessssssiiivvveeelllyyy iiinnncccrrreeeaaasssiiinnnggg dddiiivvviiidddeeennndddsss pppaaaiiiddd tttooo ssshhhaaarrreeehhhooollldddeeerrrsss... TTThhheee GGGrrrooouuuppp mmmaaayyy aaadddjjjuuusssttt ttthhheee cccaaapppiiitttaaalll ssstttrrruuuccctttuuurrreee ooofff ttthhheee GGGrrrooouuuppp bbbyyy rrreeetttuuurrrnnniiinnnggg cccaaapppiiitttaaalll tttooo ssshhhaaarrreeehhhooollldddeeerrrsss,,, iiissssssuuueee nnneeewww ssshhhaaarrreeesss ooorrr ssseeellllll aaasssssseeetttsss tttooo rrreeeddduuuccceee dddeeebbbttt...TTThhheee GGGrrrooouuuppp iiisss nnnooottt sssuuubbbjjjeeecccttt tttooo eeexxxttteeerrrnnnaaallllllyyy iiimmmpppooossseeeddd cccaaapppiiitttaaalll rrreeeqqquuuiiirrreeemmmeeennntttsss bbbuuuttt iiisss sssuuubbbjjjeeecccttt tttooo cccooovvveeennnaaannntttsss iiinnn iiitttsss llloooaaannn aaagggrrreeeeeemmmeeennntttsss wwwhhhiiiccchhh ssseeeeeekkk tttooo mmmaaaiiinnntttaaaiiinnn ttthhheee llleeevvveeelll ooofff dddeeebbbttt aaannnddd iiinnnttteeerrreeesssttt ttthhhaaattt ttthhheee GGGrrrooouuuppp mmmaaayyy ssseeerrrvvviiiccceee aaattt rrreeeaaasssooonnnaaabbbllleee llleeevvveeelllsss bbbyyy rrreeefffeeerrreeennnccceee tttooo ttthhheee GGGrrrooouuuppp’’’sss eeeaaarrrnnniiinnngggsss wwwhhhiiiccchhh uuullltttiiimmmaaattteeelllyyy llliiimmmiiitttsss ttthhheee aaammmooouuunnnttt ooofff dddeeebbbttt ttthhhaaattt ttthhheee GGGrrrooouuuppp cccaaannn tttaaakkkeee ooonnn...23. trade and other paYables - amounts fallInG due WIthIn one Year31 december 2012£million333111 DDDeeeccceeemmmbbbeeerrr 222000111111£££mmmiiilllllliiiooonnn333111 DDDeeeccceeemmmbbbeeerrr 222000111000£££mmmiiilllllliiiooonnnOOObbbllliiigggaaatttiiiooonnnsss uuunnndddeeerrr fififinnnaaannnccceee llleeeaaassseeesss (((nnnooottteee 222555)))0.5000...555 000...666 TTTrrraaadddeee pppaaayyyaaabbbllleeesss214.0111999111...555 111999444...777 AAAdddvvvaaannnccceeesss rrreeeccceeeiiivvveeeddd20.6222555...999 333111...777 OOOttthhheeerrr tttaaaxxxaaatttiiiooonnn aaannnddd sssoooccciiiaaalll ssseeecccuuurrriiitttyyy33.8333000...444 222999...444 OOOttthhheeerrr pppaaayyyaaabbbllleeesss34.9333000...888 333000...555 AAAccccccrrruuuaaalllsss aaannnddd dddeeefffeeerrrrrreeeddd iiinnncccooommmeee251.7222111333...666 222000555...999 555.5444999222...777444999222...88824. trade and other paYables - amounts fallInG due after more than one Year31 december 2012£million333111 DDDeeeccceeemmmbbbeeerrr 222000111111£££mmmiiilllllliiiooonnn333111 DDDeeeccceeemmmbbbeeerrr 222000111000£££mmmiiilllllliiiooonnnOOObbbllliiigggaaatttiiiooonnnsss uuunnndddeeerrr fififinnnaaannnccceee llleeeaaassseeesss (((nnnooottteee 222555)))0.7000...555 000...666 TTTrrraaadddeee pppaaayyyaaabbbllleeesss0.6000...333 000...555 OOOttthhheeerrr pppaaayyyaaabbbllleeesss2.7333...333 555...666 4.0444...111 666...777 TTThhheee cccaaarrrrrryyyiiinnnggg aaammmooouuunnnttt ooofff tttrrraaadddeee aaannnddd ooottthhheeerrr pppaaayyyaaabbbllleeesss aaapppppprrroooxxxiiimmmaaattteeesss tttooo ttthhheeeiiirrr fffaaaiiirrr vvvaaallluuueee...TTThhheee aaavvveeerrraaagggeee cccrrreeedddiiittt pppeeerrriiioooddd tttaaakkkeeennn fffooorrr tttrrraaadddeee pppuuurrrccchhhaaassseeesss iiisss 666333 dddaaayyysss (((222000111111::: 888222 dddaaayyysss)))...AAAgggeeeiiinnnggg ooofff aaammmooouuunnntttsss pppaaayyyaaabbbllleee eeexxxcccllluuudddiiinnnggg aaadddvvvaaannnccceeesss,,, fffiiinnnaaannnccceee llleeeaaassseeesss,,, aaaccccccrrruuuaaalllsss aaannnddd dddeeefffeeerrrrrreeeddd iiinnncccooommmeee iiisss aaasss fffooollllllooowwwsss:::31 december 2012£million333111 DDDeeeccceeemmmbbbeeerrr 222000111111£££mmmiiilllllliiiooonnn333111 DDDeeeccceeemmmbbbeeerrr 222000111000£££mmmiiilllllliiiooonnnLLLeeessssss ttthhhaaannn ooonnneee yyyeeeaaarrr282.7 222555222...777 222555444...666 BBBeeetttwwweeeeeennn ooonnneee aaannnddd tttwwwooo yyyeeeaaarrrsss3.3 333...666 666...111 286.0 222555666...333 222666000...777 nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss111000666 IIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss25. oblIGatIons under fInance and operatInG leases (a) finance leasesminimum lease paymentspresent value of minimum lease payments2012£million222000111111£££mmmiiilllllliiiooonnn2012£million222000111111£££mmmiiilllllliiiooonnnAAAmmmooouuunnntttsss pppaaayyyaaabbbllleee uuunnndddeeerrr fififinnnaaannnccceee llleeeaaassseeesss:::WWWiiittthhhiiinnn ooonnneee yyyeeeaaarrr0.5 000...555 0.5 000...555 IIInnn ttthhheee ssseeecccooonnnddd tttooo fifififffttthhh yyyeeeaaarrrsss iiinnncccllluuusssiiivvveee0.8 000...666 0.7 000...555 1.3 111...111 1.2 111...000 LLLeeessssss::: fffuuutttuuurrreee fififinnnaaannnccceee ccchhhaaarrrgggeeesss(0.1)(((000...111)))n/annn///aaaPPPrrreeessseeennnttt vvvaaallluuueee ooofff llleeeaaassseee ooobbbllliiigggaaatttiiiooonnnsss 1.2 111...000 1.2 111...000 CCCeeerrrtttaaaiiinnn ooofff ttthhheee GGGrrrooouuuppp’’’sss ppplllaaannnttt aaannnddd eeeqqquuuiiipppmmmeeennnttt iiisss hhheeelllddd uuunnndddeeerrr fffiiinnnaaannnccceee llleeeaaassseeesss... TTThhheee aaavvveeerrraaagggeee llleeeaaassseee ttteeerrrmmm iiisss fffooouuurrr tttooo fffiiivvveee yyyeeeaaarrrsss... FFFooorrr ttthhheee yyyeeeaaarrr eeennndddeeeddd 333111 DDDeeeccceeemmmbbbeeerrr 222000111222,,, ttthhheee aaavvveeerrraaagggeee eeeffffffeeeccctttiiivvveee bbbooorrrrrrooowwwiiinnnggg rrraaattteee wwwaaasss 333...333%%% (((222000111111::: 444...000%%%)))... IIInnnttteeerrreeesssttt rrraaattteeesss aaarrreee fffiiixxxeeeddd aaattt ttthhheee cccooonnntttrrraaacccttt dddaaattteee... AAAllllll llleeeaaassseeesss aaarrreee ooonnn aaa fffiiixxxeeeddd rrreeepppaaayyymmmeeennnttt bbbaaasssiiisss aaannnddd nnnooo aaarrrrrraaannngggeeemmmeeennntttsss hhhaaavvveee bbbeeeeeennn eeennnttteeerrreeeddd iiinnntttooo fffooorrr cccooonnntttiiinnngggeeennnttt rrreeennntttaaalll pppaaayyymmmeeennntttsss...AAAllllll fffiiinnnaaannnccceee llleeeaaassseee ooobbbllliiigggaaatttiiiooonnnsss aaarrreee dddeeennnooommmiiinnnaaattteeeddd iiinnn sssttteeerrrllliiinnnggg...TTThhheee cccaaarrrrrryyyiiinnnggg aaammmooouuunnnttt ooofff ttthhheee GGGrrrooouuuppp’’’sss fffiiinnnaaannnccceee llleeeaaassseee ooobbbllliiigggaaatttiiiooonnnsss aaapppppprrroooxxxiiimmmaaattteee ttthhheeeiiirrr fffaaaiiirrr vvvaaallluuueee...TTThhheee GGGrrrooouuuppp’’’sss ooobbbllliiigggaaatttiiiooonnnsss uuunnndddeeerrr fffiiinnnaaannnccceee llleeeaaassseeesss aaarrreee ssseeecccuuurrreeeddd bbbyyy ttthhheee llleeessssssooorrrsss’’’ ccchhhaaarrrgggeeesss ooovvveeerrr ttthhheee llleeeaaassseeeddd aaasssssseeetttsss... (b) operating leasesAAAttt ttthhheee bbbaaalllaaannnccceee ssshhheeeeeettt dddaaattteee,,, ttthhheee GGGrrrooouuuppp hhhaaaddd ooouuutttssstttaaannndddiiinnnggg cccooommmmmmiiitttmmmeeennntttsss fffooorrr fffuuutttuuurrreee mmmiiinnniiimmmuuummm llleeeaaassseee pppaaayyymmmeeennntttsss uuunnndddeeerrr nnnooonnn---cccaaannnccceeellllllaaabbbllleee ooopppeeerrraaatttiiinnnggg llleeeaaassseeesss,,, wwwhhhiiiccchhh fffaaallllll ddduuueee aaasss fffooollllllooowwwsss:::2012222000111111land and buildings£millionother£milliontotal£millionLLLaaannnddd aaannnddd bbbuuuiiillldddiiinnngggsss£££mmmiiilllllliiiooonnnOOOttthhheeerrr£££mmmiiilllllliiiooonnnTTToootttaaalll£££mmmiiilllllliiiooonnnWWWiiittthhhiiinnn ooonnneee yyyeeeaaarrr12.59.421.9111111...444777...111111888...555IIInnn ttthhheee ssseeecccooonnnddd tttooo fifififffttthhh yyyeeeaaarrrsss iiinnncccllluuusssiiivvveee28.813.842.6222888...000111000...000333888...000AAAfffttteeerrr fififivvveee yyyeeeaaarrrsss14.70.114.8111777...555000...111111777...66656.023.379.3555666...999111777...222777444...111TTThhheee mmmaaajjjooorrriiitttyyy ooofff llleeeaaassseeesss ooofff lllaaannnddd aaannnddd bbbuuuiiillldddiiinnngggsss aaarrreee sssuuubbbjjjeeecccttt tttooo rrreeennnttt rrreeevvviiieeewwwsss aaattt pppeeerrriiiooodddiiiccc iiinnnttteeerrrvvvaaalllsss ooofff bbbeeetttwwweeeeeennn ttthhhrrreeeeee aaannnddd fffiiivvveee yyyeeeaaarrrsss aaannnddd aaarrreee bbbaaassseeeddd ooonnn mmmaaarrrkkkeeettt rrraaattteeesss... ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss 11100077726. provIsIonsdeferred consideration£millioncontract provisions£millionother£milliontotal£millionAAAttt 111 JJJaaannnuuuaaarrryyy 222000111111000...777 333666...444 111000...000 444777...111 AAAddddddiiitttiiiooonnnaaalll ppprrrooovvviiisssiiiooonnn iiinnn ttthhheee yyyeeeaaarrr––– 111777...000 222...444 111999...444 RRReeellleeeaaassseee(((000...777)))(((222...000)))(((000...888)))(((333...555)))UUUtttiiillliiisssaaatttiiiooonnn ooofff ppprrrooovvviiisssiiiooonnn– (((666...666)))(((111...444)))(((888...000)))EEExxxccchhhaaannngggeee dddiiiffffffeeerrreeennnccceeesss– – – – AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 222000111111––– 444444...888 111000...222 555555...000 AAAddddddiiitttiiiooonnnaaalll ppprrrooovvviiisssiiiooonnn iiinnn ttthhheee yyyeeeaaarrr– 15.3 2.8 18.1 RRReeellleeeaaassseee– (5.8)(0.5)(6.3)UUUtttiiillliiisssaaatttiiiooonnn ooofff ppprrrooovvviiisssiiiooonnn– (13.8)(1.7)(15.5)EEExxxccchhhaaannngggeee dddiiiffffffeeerrreeennnccceeesss– – – – AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 222000111222– 40.5 10.8 51.3 31 december 2012£million333111 DDDeeeccceeemmmbbbeeerrr 222000111111£££mmmiiilllliiiooonnn333111 DDDeeeccceeemmmbbbeeerrr 222000111000£££mmmiiilllllliiiooonnnIIInnncccllluuudddeeeddd iiinnn cccuuurrrrrreeennnttt llliiiaaabbbiiillliiitttiiieeesss24.2222888...777222000...222IIInnncccllluuudddeeeddd iiinnn nnnooonnn---cccuuurrrrrreeennnttt llliiiaaabbbiiillliiitttiiieeesss27.1222666...333222666...99951.3555555...000444777...111TTThhheee iiimmmpppaaacccttt ooofff dddiiissscccooouuunnntttiiinnnggg iiisss nnnooottt mmmaaattteeerrriiiaaalll...CCCooonnntttrrraaacccttt ppprrrooovvviiisssiiiooonnnsss iiinnncccllluuudddeee cccooossstttsss ooofff sssiiittteee cccllleeeaaarrraaannnccceee,,, rrreeemmmeeedddiiiaaalll cccooossstttsss aaannnddd ooottthhheeerrr cccooonnntttrrraaaccctttuuuaaalll ppprrrooovvviiisssiiiooonnnsss... TTThhheeessseee aaarrreee eeexxxpppeeecccttteeeddd tttooo bbbeee uuutttiiillliiissseeeddd ooonnn fffiiinnnaaalll ssseeettttttllleeemmmeeennnttt ooofff ttthhheee rrreeellleeevvvaaannnttt cccooonnntttrrraaaccctttsss... nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss111000888 IIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss27. share capItal 31 december 2012£million333111 DDDeeeccceeemmmbbbeeerrr 222000111111£££mmmiiilllllliiiooonnn333111 DDDeeeccceeemmmbbbeeerrr 222000111000£££mmmiiilllllliiiooonnnIIIssssssuuueeeddd aaannnddd fffuuullllllyyy pppaaaiiiddd::: 111222666,,,888444666,,,999333999 ooorrrdddiiinnnaaarrryyy ssshhhaaarrreeesss ooofff 111000ppp eeeaaaccchhh (((222000111111::: 111222555,,,888000444,,,333444666 ooorrrdddiiinnnaaarrryyy ssshhhaaarrreeesss ooofff 111000ppp eeeaaaccchhh)))12.7111222...666111222...666sharesthousandsshare capital£millionAAAttt 111 JJJaaannnuuuaaarrryyy 222000111111 aaannnddd 333111 DDDeeeccceeemmmbbbeeerrr 222000111111111222555,,,888000444...444 111222...666 SSShhhaaarrreee aaawwwaaarrrdddsss iiissssssuuueeeddd iiinnn 2220001112221,042.5 0.1 AAAttt 333111 DDDeeeccceeemmmbbbeeerrr 222000111222126,846.9 12.7 AAAwwwaaarrrdddsss wwweeerrreee gggrrraaannnttteeeddd ddduuurrriiinnnggg ttthhheee yyyeeeaaarrr aaasss iiinnndddiiicccaaattteeeddd bbbeeelllooowww... EEExxxeeerrrccciiissseee aaannnddd vvveeessstttiiinnnggg dddeeetttaaaiiilllsss aaarrreee ssstttaaattteeeddd iiinnn ttthhheee DDDiiirrreeeccctttooorrrsss’’’ RRReeemmmuuunnneeerrraaatttiiiooonnn RRReeepppooorrrttt ooonnn pppaaagggeeesss 666666 tttooo 666888... OOOuuutttssstttaaannndddiiinnnggg oooppptttiiiooonnnsss aaannnddd aaawwwaaarrrdddsss ooovvveeerrr ssshhhaaarrreeesss iiinnn ttthhheee CCCooommmpppaaannnyyy aaattt 333111 DDDeeeccceeemmmbbbeeerrr 222000111222 wwweeerrreee aaasss fffooollllllooowwwsss:::31 december 2012333111 DDDeeeccceeemmmbbbeeerrr 222000111111date of grantsubscription price per 10p sharenumber of beneficiaries including directorsnumber of sharesNNNuuummmbbbeeerrr ooofff bbbeeennneeefifificcciiiaaarrriiieeesss iiinnncccllluuudddiiinnnggg dddiiirrreeeccctttooorrrsssNNNuuummmbbbeeerrr ooofff ssshhhaaarrreeesss(((aaa))) EEExxxeeecccuuutttiiivvveee ssshhhaaarrreee oooppptttiiiooonnn sssccchhheeemmmeeesss111999 MMMaaarrrccchhh 222000000222555666666...555000ppp- - 444 222111,,,111888000 222333 AAAppprrriiilll 222000000333222000555...888333ppp1133,333111 111333333,,,333333333 222666 MMMaaayyy 222000000444222555333...222555ppp8240,000999 222555555,,,000000000 999 DDDeeeccceeemmmbbbeeerrr 222000000444333222444...000000ppp150,000111 555000,,,000000000 111444 MMMaaarrrccchhh 222000000555333555999...333333ppp21681,394222333 888000888,,,777222333 1,104,727111,,,222666888,,,222333666(((bbb))) PPPeeerrrfffooorrrmmmaaannnccceee SSShhhaaarrreee PPPlllaaannn222333 MMMaaarrrccchhh 222000000999NNNiiilll- - 666111 111,,,999333777,,,888111222 111999 AAAppprrriiilll 222000111000NNNiiilll571,576,702555888 111,,,555999333,,,333111999 222777 AAAppprrriiilll 222000111000NNNiiilll110,386111 111000,,,333888666 222000 AAAppprrriiilll 222000111111NNNiiilll611,982,454666222 222,,,000000111,,,111333888 111111 AAAppprrriiilll 222000111222NNNiiilll1022,570,881––6,140,423555,,,555444222,,,666555555(((ccc))) SSShhhaaarrreeesssaaavvveee SSSccchhheeemmmeee777 AAAuuuggguuusssttt 222000000999111555222...555000ppp14581,396111,,,333444666 777888000,,,111333888 111444 MMMaaayyy 222000111000222111444...555000ppp754312,308888333666 333444555,,,888000555 111555 AAAppprrriiilll 222000111111222333111...000000ppp816310,284999111222 333444555,,,777777444 555 AAAppprrriiilll 222000111222222333888...000000ppp1,235451,925– – 1,155,913111,,,444777111,,,777111777 ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss 11100099928. contInGent lIabIlItIesTTThhheee CCCooommmpppaaannnyyy aaannnddd iiitttsss sssuuubbbsssiiidddiiiaaarrriiieeesss aaarrreee,,, fffrrrooommm tttiiimmmeee tttooo tttiiimmmeee,,, pppaaarrrtttiiieeesss tttooo llleeegggaaalll ppprrroooccceeeeeedddiiinnngggsss aaannnddd ccclllaaaiiimmmsss wwwhhhiiiccchhh aaarrriiissseee iiinnn ttthhheee ooorrrdddiiinnnaaarrryyy cccooouuurrrssseee ooofff bbbuuusssiiinnneeessssss... AAApppppprrroooppprrriiiaaattteee ppprrrooovvviiisssiiiooonnn hhhaaasss bbbeeeeeennn mmmaaadddeee iiinnn ttthhheeessseee aaaccccccooouuunnntttsss fffooorrr aaallllll mmmaaattteeerrriiiaaalll uuunnniiinnnsssuuurrreeeddd llliiiaaabbbiiillliiitttiiieeesss rrreeesssuuullltttiiinnnggg fffrrrooommm ppprrroooccceeeeeedddiiinnngggsss ttthhhaaattt aaarrreee,,, iiinnn ttthhheee ooopppiiinnniiiooonnn ooofff ttthhheee dddiiirrreeeccctttooorrrsss,,, llliiikkkeeelllyyy tttooo mmmaaattteeerrriiiaaallliiissseee...TTThhheee CCCooommmpppaaannnyyy aaannnddd ccceeerrrtttaaaiiinnn sssuuubbbsssiiidddiiiaaarrryyy uuunnndddeeerrrtttaaakkkiiinnngggsss hhhaaavvveee,,, iiinnn ttthhheee nnnooorrrmmmaaalll cccooouuurrrssseee ooofff bbbuuusssiiinnneeessssss,,, gggiiivvveeennn pppeeerrrfffooorrrmmmaaannnccceee ggguuuaaarrraaannnttteeeeeesss aaannnddd ppprrrooovvviiidddeeeddd iiinnndddeeemmmnnniiitttiiieeesss tttooo ttthhhiiirrrddd pppaaarrrtttiiieeesss iiinnn rrreeelllaaatttiiiooonnn tttooo pppeeerrrfffooorrrmmmaaannnccceee bbbooonnndddsss aaannnddd ooottthhheeerrr cccooonnntttrrraaacccttt rrreeelllaaattteeeddd ggguuuaaarrraaannnttteeeeeesss... TTThhheeessseee rrreeelllaaattteee tttooo ttthhheee GGGrrrooouuuppp’’’sss ooowwwnnn cccooonnntttrrraaaccctttsss aaannnddd tttooo ttthhheee GGGrrrooouuuppp’’’sss ssshhhaaarrreee ooofff ttthhheee cccooonnntttrrraaaccctttuuuaaalll ooobbbllliiigggaaatttiiiooonnnsss ooofff ccceeerrrtttaaaiiinnn jjjoooiiinnnttt vvveeennntttuuurrreeesss aaannnddd aaassssssoooccciiiaaattteeeddd uuunnndddeeerrrtttaaakkkiiinnngggsss... TTThhheee GGGrrrooouuuppp aaaccctttsss aaasss ggguuuaaarrraaannntttooorrr fffooorrr ttthhheee fffooollllllooowwwiiinnnggg:::maximum guaranteeamounts utilised2012 £million222000111111 £££mmmiiilllllliiiooonnn2012 £million222000111111 £££mmmiiilllllliiiooonnnAAAssssssoooccciiiaaattteeeddd uuunnndddeeerrrtttaaakkkiiinnngggsss’’’ bbbooorrrrrrooowwwiiinnngggsss16.1 777...333 0.2 000...222 JJJoooiiinnnttt vvveeennntttuuurrreee aaannnddd aaassssssoooccciiiaaattteeeddd uuunnndddeeerrrtttaaakkkiiinnngggsss’’’ bbbooonnndddsss aaannnddd ggguuuaaarrraaannnttteeeeeesss185.2 222000666...444 101.9 111222777...444 201.3 222111333...777 102.1 111222777...666 29. share-based paYmentsUUUnnndddeeerrr ttthhheee GGGrrrooouuuppp’’’sss ssshhhaaarrreee---bbbaaassseeeddd iiinnnccceeennntttiiivvveee sssccchhheeemmmeeesss ttthhheee fffooollllllooowwwiiinnnggg eeexxxpppeeennnssseee wwwaaasss ccchhhaaarrrgggeeeddd:::2012 £million222000111111 £££mmmiiilllllliiiooonnnPPPeeerrrfffooorrrmmmaaannnccceee SSShhhaaarrreee PPPlllaaannn4.1 222...111 SSShhhaaarrreeesssaaavvveee SSSccchhheeemmmeee0.2 000...222 TTToootttaaalll ccchhhaaarrrgggeee4.3 222...333 CCCaaassshhh ssseeettttttllleeeddd1.1 111...000 EEEqqquuuiiitttyyy ssseeettttttllleeeddd3.2 111...333 TTToootttaaalll ccchhhaaarrrgggeee4.3 222...333 (a) executive share option schemes TTThhheee eeexxxeeecccuuutttiiivvveee ssshhhaaarrreee oooppptttiiiooonnn sssccchhheeemmmeeesss ppprrrooovvviiidddeee fffooorrr aaa gggrrraaannnttt ppprrriiiccceee eeeqqquuuaaalll tttooo ttthhheee aaavvveeerrraaagggeee qqquuuooottteeeddd mmmaaarrrkkkeeettt ppprrriiiccceee ooofff ttthhheee GGGrrrooouuuppp’’’sss ssshhhaaarrreeesss ooonnn ttthhheee dddaaattteee ooofff gggrrraaannnttt... 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AAAwwwaaarrrdddsss aaarrreee nnnooorrrmmmaaallllllyyy fffooorrrfffeeeiiittteeeddd iiifff ttthhheee eeemmmpppllloooyyyeeeeee llleeeaaavvveeesss ttthhheee GGGrrrooouuuppp bbbeeefffooorrreee ttthhheee aaawwwaaarrrdddsss vvveeesssttt...2012awardsnumber222000111111AAAwwwaaarrrdddsssnnnuuummmbbbeeerrrOOOuuutttssstttaaannndddiiinnnggg aaattt bbbeeegggiiinnnnnniiinnnggg ooofff pppeeerrriiioooddd5,542,655 444,,,555555666,,,444888999 GGGrrraaannnttteeeddd ddduuurrriiinnnggg ttthhheee pppeeerrriiioooddd2,578,537 222,,,000111555,,,555000111 VVVeeesssttteeeddd ddduuurrriiinnnggg ttthhheee pppeeerrriiioooddd(929,883)---LLLaaapppssseeeddd ddduuurrriiinnnggg ttthhheee pppeeerrriiioooddd(1,050,886)(((111,,,000222999,,,333333555)))OOOuuutttssstttaaannndddiiinnnggg aaattt ttthhheee eeennnddd ooofff ttthhheee pppeeerrriiioooddd6,140,423 555,,,555444222,,,666555555 EEExxxeeerrrccciiisssaaabbbllleee aaattt ttthhheee eeennnddd ooofff ttthhheee pppeeerrriiioooddd---- TTThhheee rrreeemmmaaaiiinnniiinnnggg wwweeeiiiggghhhttteeeddd aaavvveeerrraaagggeee cccooonnntttrrraaaccctttuuuaaalll llliiifffeee iiisss 111...555 yyyeeeaaarrrsss (((222000111111::: 111...333 yyyeeeaaarrrsss)))...TTThhheee GGGrrrooouuuppp eeennngggaaagggeeeddd eeexxxttteeerrrnnnaaalll cccooonnnsssuuullltttaaannntttsss tttooo cccaaalllcccuuulllaaattteee ttthhheee fffaaaiiirrr vvvaaallluuueee ooofff ttthhheeessseee aaawwwaaarrrdddsss aaattt ttthhheee dddaaattteee ooofff gggrrraaannnttt... 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TTThhhiiisss nnnooottteee rrreeecccooonnnccciiillleeesss ttthhheeessseee kkkeeeyyy pppeeerrrfffooorrrmmmaaannnccceee iiinnndddiiicccaaatttooorrrsss tttooo iiinnndddiiivvviiiddduuuaaalll llliiinnneeesss iiinnn ttthhheee fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsss... (a) headline pre-tax profit2012 £million222000111111 £££mmmiiilllllliiiooonnn222000111000 £££mmmiiilllllliiiooonnnPPPrrrooofififittt bbbeeefffooorrreee tttaaaxxx182.9 666777...111 666444...111 AAAdddjjjuuusssttteeeddd fffooorrr:::AAAmmmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss6.0 555...222 555...000 SSShhhaaarrreee ooofff aaassssssoooccciiiaaattteeesss’’’ aaammmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss0.4 000...555 000...555 EEExxxccceeeppptttiiiooonnnaaalll iiittteeemmmsss(110.9)--- --- HHHeeeaaadddllliiinnneee ppprrreee---tttaaaxxx ppprrrooofififittt78.4 777222...888 666999...666 (b) operating cash flow2012 £million222000111111 £££mmmiiilllllliiiooonnn222000111000 £££mmmiiilllllliiiooonnnCCCaaassshhh gggeeennneeerrraaattteeeddd bbbyyy ooopppeeerrraaatttiiiooonnnsss33.7 444888...111 222555...222 AAAdddjjjuuusssttteeeddd fffooorrr:::PPPeeennnsssiiiooonnn cccooonnntttrrriiibbbuuutttiiiooonnnsss iiinnn eeexxxccceeessssss ooofff iiinnncccooommmeee ssstttaaattteeemmmeeennnttt ccchhhaaarrrgggeee30.8 222777...000 222666...777 PPPrrroooccceeeeeedddsss ooonnn dddiiissspppooosssaaalll ooofff ppplllaaannnttt aaannnddd eeeqqquuuiiipppmmmeeennnttt – nnnooonnn---hhhiiirrreee flflfleeeeeettt1.8 000...555 111...999 CCCaaapppiiitttaaalll eeexxxpppeeennndddiiitttuuurrreee --- nnnooonnn---hhhiiirrreee flflfleeeeeettt(10.7)(((999...000)))(((777...555)))OOOpppeeerrraaatttiiinnnggg cccaaassshhh flflflooowww55.6 666666...666 444666...333 (c) free cash flow2012 £million222000111111 £££mmmiiilllllliiiooonnn222000111000 £££mmmiiilllllliiiooonnnOOOpppeeerrraaatttiiinnnggg cccaaassshhh flflflooowww55.6 666666...666 444666...333 AAAdddjjjuuusssttteeeddd fffooorrr:::PPPeeennnsssiiiooonnn cccooonnntttrrriiibbbuuutttiiiooonnnsss iiinnn eeexxxccceeessssss ooofff iiinnncccooommmeee ssstttaaattteeemmmeeennnttt ccchhhaaarrrgggeee(30.8)(((222777...000)))(((222666...777)))TTTaaaxxxeeesss pppaaaiiiddd(10.7)(((333...222)))(((666...333)))DDDiiivvviiidddeeennndddsss rrreeeccceeeiiivvveeeddd fffrrrooommm aaassssssoooccciiiaaattteeesss aaannnddd jjjoooiiinnnttt vvveeennntttuuurrreeesss19.8 222000...666 333222...111 IIInnnttteeerrreeesssttt rrreeeccceeeiiivvveeeddd8.4 444...444 333...888 IIInnnttteeerrreeesssttt pppaaaiiiddd(9.6)(((666...777)))(((666...444)))EEEffffffeeecccttt ooofff fffooorrreeeiiigggnnn eeexxxccchhhaaannngggeee rrraaattteee ccchhhaaannngggeee(0.2)(((000...333)))000...333 FFFrrreeeeee cccaaassshhh flflflooowww32.5 555444...444 444333...111 (d) operating cash conversion2012 £million222000111111 £££mmmiiilllllliiiooonnn222000111000 £££mmmiiilllllliiiooonnnOOOpppeeerrraaatttiiinnnggg cccaaassshhh flflflooowww55.6 666666...666 444666...333 OOOpppeeerrraaatttiiinnnggg ppprrrooofififittt,,, bbbeeefffooorrreee eeexxxccceeeppptttiiiooonnnaaalll iiittteeemmmsss aaannnddd aaammmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss55.0 444555...999 444333...444 FFFuuullllll---yyyeeeaaarrr ooopppeeerrraaatttiiinnnggg cccaaassshhh cccooonnnvvveeerrrsssiiiooonnn101.1%111444555...111%%%111000666...777%%%TTThhhrrreeeeee---yyyeeeaaarrr rrrooolllllliiinnnggg ooopppeeerrraaatttiiinnnggg cccaaassshhh flflflooowww168.5 222222666...666 111999444...777 TTThhhrrreeeeee---yyyeeeaaarrr rrrooolllllliiinnnggg ooopppeeerrraaatttiiinnnggg ppprrrooofififittt,,, bbbeeefffooorrreee eeexxxccceeeppptttiiiooonnnaaalll iiittteeemmmsss aaannnddd aaammmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss144.3 111444555...999 111555999...444 OOOpppeeerrraaatttiiinnnggg cccaaassshhh cccooonnnvvveeerrrsssiiiooonnn,,, ttthhhrrreeeeee---yyyeeeaaarrr rrrooolllllliiinnnggg aaavvveeerrraaagggeee116.8%111555555...333%%%111222222...111%%% ooovvveeerrrvvviiieeewww gggooovvveeerrrnnnaaannnccceee bbbuuusssiiinnneeessssss rrreeevvviiieeewww financial statementsIIInnnttteeerrrssseeerrrvvveee aaannnnnnuuuaaalll rrreeepppooorrrttt 222000111222 fInancIal statements nnnooottteeesss tttooo ttthhheee cccooonnnsssooolllIIIdddaaattteeeddd fffIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss 111111777 (e) Gross operating cash conversion2012 £million222000111111 £££mmmiiilllllliiiooonnn222000111000 £££mmmiiilllllliiiooonnnOOOpppeeerrraaatttiiinnnggg cccaaassshhh flflflooowww55.6 666666...666 444666...333 DDDiiivvviiidddeeennndddsss rrreeeccceeeiiivvveeeddd fffrrrooommm aaassssssoooccciiiaaattteeesss aaannnddd jjjoooiiinnnttt vvveeennntttuuurrreeesss19.8 222000...666 333222...111 GGGrrrooossssss ooopppeeerrraaatttiiinnnggg cccaaassshhh flflflooowww75.4 888777...222 777888...444 OOOpppeeerrraaatttiiinnnggg ppprrrooofififittt,,, bbbeeefffooorrreee eeexxxccceeeppptttiiiooonnnaaalll iiittteeemmmsss aaannnddd aaammmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss55.0 444555...999 444333...444 SSShhhaaarrreee ooofff rrreeesssuuullltttsss ooofff aaassssssoooccciiiaaattteeesss aaannnddd jjjoooiiinnnttt vvveeennntttuuurrreeesss,,, bbbeeefffooorrreee eeexxxccceeeppptttiiiooonnnaaalll iiittteeemmmsss aaannnddd aaammmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss25.4 222777...999 333111...000 TTToootttaaalll ooopppeeerrraaatttiiinnnggg ppprrrooofififittt,,, bbbeeefffooorrreee eeexxxccceeeppptttiiiooonnnaaalll iiittteeemmmsss aaannnddd aaammmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss80.4 777333...888 777444...444 FFFuuullllll---yyyeeeaaarrr gggrrrooossssss ooopppeeerrraaatttiiinnnggg cccaaassshhh cccooonnnvvveeerrrsssiiiooonnn93.8%111111888...222%%%111000555...444%%%TTThhhrrreeeeee---yyyeeeaaarrr rrrooolllllliiinnnggg gggrrrooossssss ooopppeeerrraaatttiiinnnggg cccaaassshhhflflflooowww241.0 222999666...999 222555777...999 TTThhhrrreeeeee---yyyeeeaaarrr rrrooolllllliiinnnggg tttoootttaaalll ooopppeeerrraaatttiiinnnggg ppprrrooofififittt bbbeeefffooorrreee eeexxxccceeeppptttiiiooonnnaaalll iiittteeemmmsss aaannnddd aaammmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss228.6 222333333...999 222444888...111 GGGrrrooossssss ooopppeeerrraaatttiiinnnggg cccaaassshhh cccooonnnvvveeerrrsssiiiooonnn,,, ttthhhrrreeeeee---yyyeeeaaarrr rrrooolllllliiinnnggg aaavvveeerrraaagggeee105.4%111222666...999%%%111000444...000%%% (f) Gross revenue2012 £million222000111111 £££mmmiiilllliiiooonnn222000111000 £££mmmiiilllliiiooonnnCCCooonnnsssooollliiidddaaattteeeddd rrreeevvveeennnuuueee1,958.4 111,,,888444777...555 111,,,888777222...000 SSShhhaaarrreee ooofff rrreeevvveeennnuuueeesss ooofff aaassssssoooccciiiaaattteeesss aaannnddd jjjoooiiinnnttt vvveeennntttuuurrreeesss411.2 444777222...111 444444333...444 GGGrrrooossssss rrreeevvveeennnuuueee2,369.6 222,,,333111999...666 222,,,333111555...444 (g) operating margins2012 £million222000111111 £££mmmiiilllllliiiooonnn222000111000 £££mmmiiilllllliiiooonnnTTToootttaaalll ooopppeeerrraaatttiiinnnggg ppprrrooofififittt bbbeeefffooorrreee eeexxxccceeeppptttiiiooonnnaaalll iiittteeemmmsss aaannnddd aaammmooorrrtttiiisssaaatttiiiooonnn ooofff aaacccqqquuuiiirrreeeddd iiinnntttaaannngggiiibbbllleee aaasssssseeetttsss80.4 777333...888 777444...444 GGGrrrooossssss rrreeevvveeennnuuueee2,369.6 222,,,333111999...666 222,,,333111555...444 TTToootttaaalll ooopppeeerrraaatttiiinnnggg mmmaaarrrgggiiinnn3.4%333...222%%%333...222%%%34. events after the balance sheet date aaacccqqquuuiiisssiiitttiiiooonnn ooofff WWWiiillllllbbbrrrooosss mmmiiiddddddllleee eeeaaasssttt llliiimmmiiittteeedddTTThhheee CCCooommmpppaaannnyyy aaannnnnnooouuunnnccceeeddd ooonnn 777 JJJaaannnuuuaaarrryyy 222000111333 ttthhhaaattt iiittt hhhaaaddd eeennnttteeerrreeeddd iiinnntttooo aaannn aaagggrrreeeeeemmmeeennnttt tttooo aaacccqqquuuiiirrreee WWWiiillllllbbbrrrooosss MMMiiiddddddllleee EEEaaasssttt LLLiiimmmiiittteeeddd aaannnddd iiitttsss sssuuubbbsssiiidddiiiaaarrriiieeesss,,, wwwhhhiiiccchhh ppprrrooovvviiidddeee oooiiilll fffiiieeelllddd mmmaaaiiinnnttteeennnaaannnccceee,,, cccooonnnssstttrrruuuccctttiiiooonnn aaannnddd lllooogggiiissstttiiiccc ssseeerrrvvviiiccceeesss... TTThhheeessseee sssuuubbbsssiiidddiiiaaarrriiieeesss,,, ttthhheee fffooorrreeemmmooosssttt ooofff wwwhhhiiiccchhh iiisss TTThhheee OOOmmmaaannn CCCooonnnssstttrrruuuccctttiiiooonnn CCCooommmpppaaannnyyy,,, wwwiiillllll bbbeee ooowwwnnneeeddd 888555%%% bbbyyy ttthhheee GGGrrrooouuuppp aaannnddd 111555%%% bbbyyy aaannn OOOmmmaaannniii pppaaarrrtttnnneeerrr... SSSeeeeee nnnooottteee 111222 “““AAAcccqqquuuiiisssiiitttiiiooonnnsss”””... tttrrraaannnsssfffeeerrr ooofff pppfffIII IIInnnvvveeessstttmmmeeennntttsss tttooo ttthhheee IIInnnttteeerrrssseeerrrvvveee pppeeennnsssiiiooonnn sssccchhheeemmmeeeAAAttt aaa gggeeennneeerrraaalll mmmeeeeeetttiiinnnggg ooofff ttthhheee CCCooommmpppaaannnyyy hhheeelllddd ooonnn 777 JJJaaannnuuuaaarrryyy 222000111333,,, ssshhhaaarrreeehhhooollldddeeerrrsss aaapppppprrrooovvveeeddd ttthhheee dddiiissspppooosssaaalll ooofff aaallllll ttthhheee GGGrrrooouuuppp’’’sss iiinnnttteeerrreeessstttsss iiinnn aaa pppooorrrtttfffooollliiiooo ooofff 111999 PPPFFFIII iiinnnvvveeessstttmmmeeennntttsss aaattt aaannn aaagggrrreeeeeeddd vvvaaallluuuaaatttiiiooonnn ooofff £££555555 mmmiiilllllliiiooonnn tttooo ttthhheee IIInnnttteeerrrssseeerrrvvveee PPPeeennnsssiiiooonnn SSSccchhheeemmmeee... TTThhheee dddiiissspppooosssaaalll ooofff aaasssssseeetttsss wwwaaasss tttrrreeeaaattteeeddd aaasss aaa ssspppeeeccciiiaaalll eeemmmpppllloooyyyeeerrr cccooonnntttrrriiibbbuuutttiiiooonnn... AAAsss aaa rrreeesssuuulllttt ttthhheee rrreeetttiiirrreeemmmeeennnttt bbbeeennneeefffiiittt ooobbbllliiigggaaatttiiiooonnn wwwaaasss rrreeeddduuuccceeeddd bbbyyy £££555555 mmmiiilllllliiiooonnn... TTThhheeessseee aaasssssseeetttsss wwweeerrreee ccclllaaassssssiiifffiiieeeddd aaasss “““hhheeelllddd fffooorrr sssaaallleee””” aaattt 333111 DDDeeeccceeemmmbbbeeerrr 222000111222... Independent AudItor’s report to the MeMbers of Interserve plc overview governance business review financial statementsInterserve AnnuAl report 2012 fInAncIAl stAteMents Independent AudItor’s report to the MeMbers of Interserve plc 118118 Interserve AnnuAl report 2012 fffIIInnnAAAnnncccIIIAAAlll ssstttAAAttteeeMMMeeennntttsss Independent AudItor’s report to the MeMbers of Interserve plcIndependent AudItor’s report to the MeMbers of Interserve plcIIInnntttrrroooddduuuccctttIIIooonnnWe have audited the parent company financial statements of Interserve Plc for the year ended 31 December 2012 which comprise the Company balance sheet and the related notes A to Q. 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 auditor’s 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.rrreeessspppeeeccctttIIIvvveee rrreeessspppooonnnsssIIIbbbIIIlllIIItttIIIeeesss ooofff dddIIIrrreeeccctttooorrrsss AAAnnnddd AAAuuudddIIItttooorrrAs 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.ssscccooopppeee ooofff ttthhheee AAAuuudddIIIttt ooofff ttthhheee fffIIInnnAAAnnncccIIIAAAlll ssstttAAAttteeeMMMeeennntttsssAn 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.ooopppIIInnnIIIooonnn ooonnn fffIIInnnAAAnnncccIIIAAAlll ssstttAAAttteeeMMMeeennntttsssIn 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 2012;••• 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.ooopppIIInnnIIIooonnn ooonnn ooottthhheeerrr MMMAAAtttttteeerrrsss ppprrreeessscccrrrIIIbbbeeeddd bbbYYY ttthhheee cccoooMMMpppAAAnnnIIIeeesss AAAcccttt 222000000666In 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.p118-127 MAC_RF65714_B_P07 tp.indd 11819/03/2013 17:33 overview governance business review financial statements overview governance business review fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsssInterserve AnnuAl report 2012 FFFIIInnnAAAnnnCCCIIIAAAlll ssstttAAAttteeeMMMeeennntttsss Independent AudItor’s report to the MeMbers oF Interserve plC 119 MMMAAAtttttteeerrrsss ooonnn WWWhhhIIICCChhh WWWeee AAArrreee rrreeeQQQuuuIIIrrreeeddd tttooo rrreeepppooorrrttt bbbYYY eeeXXXCCCeeeppptttIIIooonnnWe 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.ooottthhheeerrr MMMAAAtttttteeerrrWe have reported separately on the Group financial statements of Interserve Plc for the year ended 31 December 2012.Stephen Griggs (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London, United Kingdom 27 February 2013p118-127 MAC_RF65714_B_P07 tp.indd 11919/03/2013 17:57 company balance sheet overview governance business review financial statementsInterserve annual report 2012 FInancIal statements company balance sheet 120120 Interserve annual report 2012 FFFIIInnnaaannncccIIIaaalll ssstttaaattteeemmmeeennntttsss company balance sheetcompany balance sheetaaattt 333111 DDDeeeccceeemmmbbbeeerrr 222000111222 Notes222000111222£££mmmiiilllllliiiooonnn2011£millionFixed assetsTangible fixed assetsE222...8883.1Interests in associated undertakingsF222...7772.7Investments in subsidiary undertakingsG444666333...999464.6444666999...444470.4current assetsDebtors:Due within one yearH111000777...22262.2Due after one yearH444...3332.6Cash at bank and in hand888...0008.8111111999...55573.6creditors: amounts falling due within one yearBank overdrafts and loans(((111111333...666)))(140.5)Trade creditors(((000...444)))(0.7)Other creditorsI(((777333...666)))(25.6)Short-term provisionsJ(((000...111)))(0.1)(((111888777...777)))(166.9)net current liabilities(((666888...222)))(93.3)total assets less current liabilities444000111...222377.1creditors: amounts falling due after more than one yearOther creditorsK(((666...555)))(6.4)Long-term provisionsJ(((000...111)))(0.2)net assets333999444...666370.5capital and reservesCalled-up share capitalM111222...77712.6Share premium accountN111111333...111112.7Capital redemption reserveN000...1110.1Acquisition reserveN111000888...555108.5Profit and loss accountN111666000...222136.6shareholders’ fundsO333999444...666370.5These financial statements were approved by the Board of Directors on 27 February 2013.Signed on behalf of the Board of DirectorsA M Ringrose T P HaywoodDirector DirectorCompany number: 88456 a) accountIng polIcIesThe 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.going concernThe directors have made enquiries and have a reasonable expectation that the Company has adequate resources to continue in existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements.basis of accountingThese financial statements have been prepared in accordance with the historical cost convention.Foreign currencyTransactions 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 equipmentTangible 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 landNilFreehold buildings2%Leasehold propertyOver period of leaseComputer hardware33.3%Computer software33.3%Furniture and office equipment33.3%Plant and equipment10% to 20%The costs of operating leases are charged to the profit and loss account as they accrue.provisionsProvisions 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.InvestmentsInvestments are stated at cost less provision for any impairment in value.pensionsThe 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 30 to the Annual Report and Financial Statements of the Group sets out details of the IAS 19 net pension liability of £101.1 million (2011: £56.2 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. overview governance business review financial statements overview governance business review fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsssInterserve AnnuAl report 2012 fffIIInnnAAAnnncccIIIAAAlll ssstttAAAttteeeMMMeeennntttsss notes to the coMpAnY fInAncIAl stAteMents 121notes to the coMpAnY fInAncIAl stAteMentsfffooorrr ttthhheee yyyeeeaaarrr eeennndddeeeddd 333111 DDDeeeccceeemmmbbbeeerrr 222000111222AAA))) AAAccccccooouuunnntttIIInnnggg pppooolllIIIcccIIIeeesssThe 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.gggoooiiinnnggg cccooonnnccceeerrrnnnThe directors have made enquiries and have a reasonable expectation that the Company has adequate resources to continue in existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements.bbbaaasssiiisss ooofff aaaccccccooouuunnntttiiinnngggThese financial statements have been prepared in accordance with the historical cost convention.fffooorrreeeiiigggnnn cccuuurrrrrreeennncccyyyTransactions 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.ppprrrooopppeeerrrtttyyy,,, ppplllaaannnttt aaannnddd eeeqqquuuiiipppmmmeeennntttTangible 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 landNilFreehold buildings2%Leasehold propertyOver period of leaseComputer hardware33.3%Computer software33.3%Furniture and office equipment33.3%Plant and equipment10% to 20%The costs of operating leases are charged to the profit and loss account as they accrue.ppprrrooovvviiisssiiiooonnnsssProvisions 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.IIInnnvvveeessstttmmmeeennntttsssInvestments are stated at cost less provision for any impairment in value.pppeeennnsssiiiooonnnsssThe 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 30 to the Annual Report and Financial Statements of the Group sets out details of the IAS 19 net pension liability of £101.1 million (2011: £56.2 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. notes to the coMpAnY fInAncIAl stAteMents122 Interserve AnnuAl report 2012 fffIIInnnAAAnnncccIIIAAAlll ssstttAAAttteeeMMMeeennntttsss notes to the coMpAnY fInAncIAl stAteMentsAAA))) AAAccccccooouuunnntttIIInnnggg pppooolllIIIcccIIIeeesss (((CCCOOONNNTTTIIINNNUUUEEEDDD)))tttaaaxxxaaatttiiiooonnnCurrent 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.fffiiinnnaaannnccciiiaaalll iiinnnssstttrrruuummmeeennntttsssdebtorsDebtors 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 equivalentsCash 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 borrowingsInterest-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.creditorsCreditors are measured at fair value.equity instrumentsEquity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.derivative financial instruments and hedge accountingFinancial 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.ssshhhaaarrreee---bbbaaassseeeddd pppaaayyymmmeeennntttsssThe 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 29 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. overview governance business review fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsssInterserve AnnuAl report 2012 fffIIInnnAAAnnncccIIIAAAlll ssstttAAAttteeeMMMeeennntttsss notes to the coMpAnY fInAncIAl stAteMents 123eeexxxeeemmmppptttiiiooonnnsssThe Company’s financial statements are included in the Interserve Plc consolidated financial statements for the year ended 31 December 2012. 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 wholly-owned members of the Interserve Group. The Interserve Plc consolidated financial statements for the year ended 31 December 2012 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.bbb))) ppprrrooofffIIIttt fffooorrr ttthhheee YYYeeeAAArrrInterserve Plc reported a profit after taxation for the financial year ended 31 December 2012 of £42.7 million (2011: £39.3 million).The auditors’ remuneration for audit services to the Company was £0.2 million (2011: £0.2 million).ccc))) eeeMMMpppllloooYYYeeeeeesssThe average number of persons employed, being full-time equivalents, by the Company during the year, including directors, was 91 (2011: 74).The costs incurred in respect of these employees were:222000111222£££mmmiiilllllliiiooonnn2011£millionWages and salaries999...2226.6Social security costs000...7770.6Share-based payments111...8881.2Pension costs000...7770.7111222...4449.1222000111222£££mmmiiilllllliiiooonnn2011£millionShare-based payments to employees of the Company111...8881.2Share-based payments to employees of subsidiaries222...5551.1Group share-based payment charge444...3332.3Cash settled111...1111.0Equity settled333...2221.3Group share-based payment charge444...3332.3 dddiiirrreeeccctttooorrrsss’’’ rrreeemmmuuunnneeerrraaatttiiiooonnnDetailed 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 64 to 68 and should be regarded as an integral part of this note.ddd))) dddIIIvvvIIIdddeeennndddsss222000111222£££mmmiiilllllliiiooonnn2011£millionAmounts recognised as distributions to equity holders in the period:Final dividend for the year ended 31 December 2011 of 13.0p (2010: 12.4p) per share111666...33315.5Interim dividend for the year ended 31 December 2012 of 6.4p (2011: 6.0p) per share888...1117.5222444...44423.0Proposed final dividend for the year ended 31 December 2012 of 14.1p per share111777...999The 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. notes to the coMpAnY fInAncIAl stAteMents124 Interserve AnnuAl report 2012 fffIIInnnAAAnnncccIIIAAAlll ssstttAAAttteeeMMMeeennntttsss notes to the coMpAnY fInAncIAl stAteMentseee))) tttAAAnnngggIIIbbbllleee fffIIIXXXeeeddd AAAsssssseeetttsss (((aaa))) MMMooovvveeemmmeeennnttt ddduuurrriiinnnggg ttthhheee yyyeeeaaarrrlllaaannnddd aaannnddd bbbuuuiiillldddiiinnngggsss£££mmmiiilllllliiiooonnnooottthhheeerrr£££mmmiiilllllliiiooonnntttoootttaaalll£££mmmiiilllllliiiooonnncostAt 1 January 2012444...333333...000777...333Additions000...111000...222000...333At 31 December 2012444...444333...222777...666depreciationAt 1 January 2012111...888222...444444...222Provided in year000...333000...333000...666At 31 December 2012222...111222...777444...888net book value At 31 December 2012222...333000...555222...888At 31 December 20112.50.63.1 (((bbb))) lllaaannnddd aaannnddd bbbuuuiiillldddiiinnngggsss222000111222£££mmmiiilllllliiiooonnn2011£millionnet book value of land and buildingsFreehold:Land at cost111...0001.0Buildings at cost less depreciation----111...0001.0Leaseholds over 50 years at cost less depreciation111...3331.5222...3332.5 (((ccc))) ooopppeeerrraaatttiiinnnggg llleeeaaassseeesssThe Company had annual commitments under non-cancellable operating leases that expire as follows:lllaaannnddd aaannnddd bbbuuuiiillldddiiinnngggsssooottthhheeerrr222000111222£££mmmiiilllllliiiooonnn2011£million222000111222£££mmmiiilllllliiiooonnn2011£millionWithin one year––––––––Within two to five years000...3330.3000...1110.1After five years111...1111.1----111...4441.4000...1110.1The majority of leases of land and buildings are subject to rent reviews at periodic intervals of between three and five years.fff))) IIInnnvvveeessstttMMMeeennnttt IIInnn AAAssssssooocccIIIAAAttteee uuunnndddeeerrrtttAAAkkkIIInnngggsss222000111222 £££mmmiiilllllliiiooonnn2011 £millionInvestment222...7772.7 overview governance business review fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsssInterserve AnnuAl report 2012 fffIIInnnAAAnnncccIIIAAAlll ssstttAAAttteeeMMMeeennntttsss notes to the coMpAnY fInAncIAl stAteMents 125ggg))) IIInnnvvveeessstttMMMeeennntttsss IIInnn sssuuubbbsssIIIdddIIIAAArrrYYY uuunnndddeeerrrtttAAAkkkIIInnngggsssssshhhaaarrreeesss aaattt cccooosssttt £££mmmiiilllllliiiooonnncostAt 1 January 2012444888666...555Disposals(((222...000)))At 31 December 2012444888444...555provisionsAt 1 January 2012222111...999Disposals(((111...333)))At 31 December 2012222000...666net book valueAt 31 December 2012444666333...999At 31 December 2011464.6Details of principal group undertakings are given on pages 128 to 135, which form part of these financial statements.hhh))) dddeeebbbtttooorrrsss222000111222 £££mmmiiilllllliiiooonnn2011 £millionAmounts falling due within one year:Trade debtors000...111-Amounts owed by subsidiary undertakings111000111...77756.6Corporation tax333...8882.9Prepayments and accrued income111...6662.7111000777...22262.2Amounts falling due after more than one year:Deferred taxation (note L)444...3332.6444...3332.6III))) ooottthhheeerrr cccrrreeedddIIItttooorrrsss222000111222 £££mmmiiilllllliiiooonnn2011 £millionAmounts owed to subsidiary undertakings444666...2222.2Other creditors222000...00017.9Accruals and deferred income777...4445.5777333...66625.6JJJ))) ppprrrooovvvIIIsssIIIooonnnsss222000111222 £££mmmiiilllllliiiooonnn2011 £millionAt 1 January(((000...333)))(0.3)Provision utilisation000...111-At 31 December(((000...222)))(0.3)Included in current liabilities(((000...111)))(0.1)Included in non-current liabilities(((000...111)))(0.2) notes to the coMpAnY fInAncIAl stAteMents126 Interserve AnnuAl report 2012 fffIIInnnAAAnnncccIIIAAAlll ssstttAAAttteeeMMMeeennntttsss notes to the coMpAnY fInAncIAl stAteMentskkk))) ooottthhheeerrr cccrrreeedddIIItttooorrrsss ––– AAAMMMooouuunnntttsss fffAAAllllllIIInnnggg ddduuueee AAAfffttteeerrr MMMooorrreee ttthhhAAAnnn ooonnneee YYYeeeAAArrr222000111222 £££mmmiiilllllliiiooonnn2011 £millionCorporation tax666...5556.4Amounts payable:After five years666...5556.4lll))) dddeeefffeeerrrrrreeeddd tttAAAXXXAAAtttIIIooonnn AAAsssssseeettt222000111222£££mmmiiilllllliiiooonnn2011£millionMovement in yearAt 1 January222...6662.4Provided in the year111...7770.2At 31 December444...3332.6The source of the balance on deferred tax account is as follows:Accelerated capital allowances----Other timing differences444...3332.6At 31 December444...3332.6MMM))) ssshhhAAArrreee cccAAApppIIItttAAAlll222000111222 £££mmmiiilllllliiiooonnn2011 £millionAllotted and fully paid126,846,939 ordinary shares of 10p each (2011: 125,804,346 ordinary shares of 10p each)111222...77712.6nnn))) rrreeessseeerrrvvveeesssssshhhaaarrreeeppprrreeemmmiiiuuummm£££mmmiiilllllliiiooonnncccaaapppiiitttaaalllrrreeedddeeemmmppptttiiiooonnn rrreeessseeerrrvvveee£££mmmiiilllllliiiooonnnAAAcccqqquuuiiisssiiitttiiiooonnnrrreeessseeerrrvvveee£££mmmiiilllllliiiooonnnPPPrrrooofififittt aaannndddlllooossssss rrreeessseeerrrvvveee£££mmmiiilllllliiiooonnntttoootttaaalll£££mmmiiilllllliiiooonnnAt 1 January 2012111111222...777000...111111000888...555111333666...666333555777...999Profit for the financial year (note B)---------444222...777444222...777Shares issued000...444---------000...444Dividends paid (note D)---------(((222444...444)))(((222444...444)))Fair value adjustment---------(((000...111)))(((000...111)))Investment in own shares---------111...000111...000Deferred tax on items taken directly to equity---------000...666000...666Share-based payments---------333...888333...888At 31 December 2012111111333...111000...111111000888...555111666000...222333888111...999Of the balance of £160.2 million in the profit and loss account at 31 December 2012, £43.1 million (2011: £56.6 million) is considered to be unrealised and is therefore not distributable. A loss of £0.1 million (2011: gain of £1.1 million) was recorded in the profit and loss reserve in respect of changes in the fair value of interest rate hedges. overview governance business review fffiiinnnaaannnccciiiaaalll ssstttaaattteeemmmeeennntttsssInterserve AnnuAl report 2012 fffIIInnnAAAnnncccIIIAAAlll ssstttAAAttteeeMMMeeennntttsss notes to the coMpAnY fInAncIAl stAteMents 127ooo))) rrreeecccooonnncccIIIlllIIIAAAtttIIIooonnn ooofff MMMooovvveeeMMMeeennnttt IIInnn ssshhhAAArrreeehhhooollldddeeerrrsss’’’ fffuuunnndddsss£££mmmiiilllllliiiooonnnProfit for the financial year attributable to the members of Interserve Plc444222...777Dividends(((222444...444)))111888...333Shares issued000...555Share-based payments333...888Deferred tax on items taken directly to equity000...666Investment in own shares111...000Fair value adjustments on hedging(((000...111)))Net increase to shareholders’ funds222444...111Shareholders’ funds at 31 December 2011333777000...555Shareholders’ funds at 31 December 2012333999444...666ppp))) cccooonnntttIIInnngggeeennnttt lllIIIAAAbbbIIIlllIIItttIIIeeesssAt 31 December 2012, 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 2012, these amounted to £3.1 million (2011: £0.2 million). The Company has provided a guarantee to the Interserve Pension Scheme for future contributions due from subsidiary undertakings amounting to £250.0 million (2011: £149.6 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 £13.7 million (2011: £9.3 million) in respect of borrowings and £144.9 million (2011: £171.5 million) in respect of guarantees. At 31 December 2012, £0.2 million (2011: £0.2 million) had been utilised in borrowings and £86.1 million (2011: £109.0 million) in guarantees.QQQ))) pppooosssttt bbbAAAlllAAAnnnccceee ssshhheeeeeettt eeevvveeennntttsssAt a general meeting of the Company held on 7 January 2013, shareholders approved the disposal of all the Group’s interests in a portfolio of 19 PFI investments at an agreed valuation of £55 million to the Interserve Pension Scheme. The disposal of assets was treated as a special employer contribution. PrinciPal SubSidiarieS, aSSociated undertakingS,Jointly-controlled entitieS and Jointly-controlled oPerationS128 interServe annual rePort 2012 Financial StateMentS PrinciPal grouP undertakingSThe 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 2012. 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 activitieScountry oF incorPoration or regiStrationgrouP holding(a) PrinciPal SubSidiarieSSuPPort ServiceSAdvantage Healthcare Group LtdProvision of healthcare services at home, through the delivery of care packages, as well as the supply of nurses and care staff to establishments such as NHS hospital trusts and care homesEngland & Wales100%First Security (Guards) Ltd1Provision of a range of security manpower and associated support servicesEngland & Wales100%Interserve (Defence) LtdProperty and facilities management services to the Ministry of Defence and other clients in the defence sectorEngland & Wales100%Interserve Environmental Services LtdProvision of asbestos services relating to surveying, record management and removal of asbestos materialsEngland & Wales100%Interserve (Facilities Management) LtdFacilities management services to a range of clients in the public and private sectorsEngland & Wales100%Interserve (Facilities Services-Slough) Ltd2 3 Provision of comprehensive management and maintenance services to Slough Borough CouncilEngland & Wales100%Interservefm Ltd4Holding companyEngland & Wales100%Interserve Industrial Services LtdIndustrial support services, including thermal insulation, access scaffolding, engineering construction and project managementEngland & Wales100%Interserve Technical Services LtdProvision of mechanical and electrical engineering servicesEngland & Wales100%Landmarc Support Services Ltd2Provision of management services to the Ministry of Defence Army Training EstateEngland & Wales51%MacLellan International LtdFacilities management servicesEngland & Wales100%SSD UK LtdProvision of specialist window cleaning services England & Wales100%TASS (Europe) LtdInstallation and testing of safety access and fall arrest equipmentEngland & Wales100%Principal Subsidiaries, associated undertakings,Jointly-controlled entities and Jointly-controlled operations overview governance business review financial statementsinterServe annual rePort 2012 Financial StateMentS PrinciPal grouP undertakingS 129PrinciPal activitieScountry oF incorPoration or regiStrationgrouP holdingconStructionInterserve Construction 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 alliancesEngland & Wales100%Interserve Engineering Services LtdDesign, installation and commissioning of mechanical, electrical and public health building engineering servicesEngland & Wales100%eQuiPMent ServiceSRapid Metal Developments (Australia) Pty LtdEquipment hire and salesAustralia100%Rapid Metal Developments (NZ) Ltd5Equipment hire and salesNew Zealand100%RMD Kwikform (Al Maha) Qatar WLL6Equipment hire and salesQatar49%RMD Kwikform Almoayed Bahrain WLL7Equipment hire and salesKingdom of Bahrain49%RMD Kwikform Chile SAEquipment hire and salesChile100%RMD Kwikform Guam, LLCEquipment hire and salesGuam100%RMD Kwikform Holdings LtdHolding companyEngland & Wales100%RMD Kwikform Hong Kong Ltd8Equipment hire and salesHong Kong SAR100%RMD Kwikform Ibérica, SAEquipment hire and salesSpain95%RMD Kwikform Ibérica – Cofragens e Construções Metálicas, Unipessoal, LdaEquipment hire and salesPortugal95%RMD Kwikform India Private Ltd2Equipment hire and salesIndia100%RMD Kwikform Ireland LtdEquipment hire and salesRepublic of Ireland100%RMD Kwikform LtdEquipment hire and salesEngland & Wales100%RMD Kwikform Middle East LLC9Equipment hire and salesEmirate of Sharjah49%RMD Kwikform North America IncEquipment hire and salesUSA100%RMD Kwikform Oman LLCEquipment hire and salesSultanate of Oman70%RMD Kwikform Panama, SAEquipment hire and salesRepublic of Panama100%RMD Kwikform Philippines, Inc8Equipment hire and salesPhilippines100%RMD Kwikform Saudi Arabia LLCEquipment hireKingdom of Saudi Arabia100%RMD Kwikform Singapore Pte LtdEquipment hire and salesRepublic of Singapore100%RMD Kwikform (South Africa) (Proprietary) LtdEquipment hire and salesRepublic of South Africa100% PrinciPal SubSidiarieS, aSSociated undertakingS,Jointly-controlled entitieS and Jointly-controlled oPerationS130 interServe annual rePort 2012 Financial StateMentS PrinciPal grouP undertakingSPrinciPal activitieScountry oF incorPoration or regiStrationgrouP holding(a) PrinciPal SubSidiarieS (CONTINUED)develoPMentSInterserve Investments LtdHolding companyEngland & Wales100%Interserve Working Futures Ltd (formerly Business Employment Services Training Ltd)Provision of placement, training and development for jobseekers and employersEngland & Wales100%grouP ServiceS Interserve Finance LtdGroup funding entityEngland & Wales100%Interserve Group Holdings Ltd8Holding companyEngland & Wales100%Interserve Holdings LtdHolding companyEngland & Wales100%Interserve Insurance Company LtdInsuranceGuernsey100% overview governance business review financial statementsinterServe annual rePort 2012 Financial StateMentS PrinciPal grouP undertakingS 131 PrinciPal activitieS country oF incorPoration or regiStrationiSSued Share caPitalgrouP holding(b) aSSociated undertakingSSuPPort ServiceSKhansaheb Group LLCFacilities management and maintenance servicesUnited Arab Emirates3,000 shares of 1,000 UAE Dirhams49%Madina Group WLLFabrication, engineering and maintenance solutions for the oil, gas and petrochemical industries, both on and off shoreQatar1,000 shares of 1,000 Qatari Riyals49%Occupational Training Institute LLCHSE and leadership training for operatives and management to recognised international standardsSultanate of Oman150,000 shares of 1 Omani Rial49%Qatar Inspection Services WLLProvision of non-destructive testing and third party inspection services for the processing industryQatar200 shares of 1,000 Qatari Riyals49%Qatar International Safety Centre WLLHSE and leadership training for operatives and management to recognised international standardsQatar200 shares of 1,000 Qatari Riyals49%Severn Glocon (Qatar) WLLSupply of valves and valve maintenance services for the process industryQatar200 shares of 1,000 Qatari Riyals49%conStructionDouglas OHI LLCCivil engineering and buildingSultanate of Oman100,000 shares of 10 Omani Rials49%Gulf Contracting Co WLLCivil engineering, building and maintenance servicesQatar1,000 shares of 1,000 Qatari Riyals49%How United Services WLLInstallation, testing and commissioning of building services; maintenance and facilities servicesQatar9,000 shares of 1,000 Qatari Riyals49%Khansaheb Civil Engineering LLCCivil engineering, building and maintenance servicesUnited Arab Emirates11,000 shares of 1,000 UAE Dirhams45%Khansaheb Civil Engineering LLCRoads and infrastructure constructionSultanate of Oman250,000 shares of 1 Omani Rial46%Khansaheb Hussain LLCCivil engineering, building and maintenance servicesUnited Arab Emirates1,000 shares of 1,000 UAE Dirhams49%SSPDL Interserve Private Ltd2Civil engineering, building and maintenance servicesIndia1,000,000 shares of 1 Rupee49% PrinciPal SubSidiarieS, aSSociated undertakingS,Jointly-controlled entitieS and Jointly-controlled oPerationS132 interServe annual rePort 2012 Financial StateMentS PrinciPal grouP undertakingSPrinciPal activitieS addreSS oF PrinciPal Place(S) oF buSineSSgrouP holding(c) Jointly-controlled entitieSJointly-controlled entities are where strategic and operating decisions of an incorporated joint venture require unanimous consent of the parties sharing control.SuPPort ServiceSPriDE (SERP) Ltd2Estate management services under the Ministry of Defence South East Regional Prime ContractAldershot, Hampshire, England50%develoPMentSAddiewell Prison Ltd2Design, build, finance and operation of Addiewell PrisonHMP Addiewell, West Lothian, Scotland33%Ashford Prison Services Ltd2Design, build, finance and operation of Bronzefield PrisonHMP Bronzefield, Ashford, Middlesex, England17%Belfast Educational Services (Derry) Ltd2Design, build, finance and operation of St Mary’s College and St Cecilia’s CollegeSt Mary’s College, Derry, Northern Ireland;St Cecilia’s College, Derry, Northern Ireland25%Belfast Educational Services (Down & Connor) Ltd2Design, build, finance and operation of three new schools in the diocese of Down and Connor, Northern IrelandSt 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 Ireland25%Belfast Educational Services (Downpatrick) Ltd2Design, build, finance and operation of St Patrick’s Grammar SchoolSt Patrick’s Grammar School, Downpatrick, Co Down, Northern Ireland25%Belfast Educational Services (Strabane) Ltd10Design, build, finance and operation of Holy Cross CollegeHolycross College, Strabane, Northern Ireland25%Environments for Learning Ltd10Investment company for the Building Schools for the Future initiativeTwyford, Reading, England25%Environments for Learning Leeds PFI Four Ltd10Design, build, finance and operation of a Wellbeing Centre for Leeds City CouncilHolt Park Wellbeing Centre, Cookridge, Leeds, England25%Environments for Learning Leeds PFI One Ltd10Design, build, finance and operation of four schools for Leeds City Council 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, England20% overview governance business review financial statementsinterServe annual rePort 2012 Financial StateMentS PrinciPal grouP undertakingS 133PrinciPal activitieS addreSS oF PrinciPal Place(S) oF buSineSSgrouP holdingEnvironments for Learning Leeds PFI Three Ltd10Design, build, finance and operation of two leisure centres for Leeds City CouncilArmley Leisure Centre, Armley, Leeds, England;Morley Leisure Centre, Morley, Leeds, England23%Environments for Learning Leeds PFI Two Ltd10Design, build, finance and operation of Swallow Hill Community CollegeSwallow Hill Community College, Armley, Leeds, England20%Environments for Learning Sandwell PFI One Ltd10Design, build, finance and operation of educational establishments for the Borough of Sandwell CouncilRowley Regis Learning Campus (St Michael’s C of E High School, The Westminster School and Whiteheath Education Centre), Rowley Regis, West Midlands, England20%Environments for Learning St Helens Partnership Ltd10Building Schools for the Future local education partnership – design, build and operation of two schools for St Helens CouncilInterserve House, Ruscombe Park, Twyford, Reading, England23%Environments for Learning St Helens PFI Ltd10Design, build, finance and operation of two schools for St Helens CouncilDe La Salle School, Eccleston, St Helens, England;Rainford High Technology College, Rainford, St Helens, England25%Harmondsworth Detention Services Ltd11 Design, build and operation of Harmondsworth Immigration Removal Centre Harmondsworth Immigration Removal Centre, West Drayton, England49%Healthcare Support (Newcastle) LtdDesign, build, finance and operation of two hospitals for the Newcastle upon Tyne Hospitals NHS Foundation TrustFreeman Hospital, Newcastle upon Tyne, England;Royal Victoria Infirmary, Newcastle upon Tyne, England10%Health Management (Carlisle) LtdDesign, build, finance and operation of hospitals for the North Cumbria University Hospitals NHS TrustCumberland Infirmary, Carlisle, England25%Health Management (UCLH) PLCDesign, build, finance and operation of the University College HospitalUniversity College Hospital, London, England15%Inteq Services Ltd2Design, build, finance and operation of the Ministry of Defence’s new office and accommodation complex at CorshamMOD Corsham, Corsham, Wiltshire, England25%Kent and East Sussex Weald Hospital LtdDesign, build, finance and operation of Tunbridge Wells HospitalTunbridge Wells Hospital, Tunbridge Wells, Kent, England13% PrinciPal SubSidiarieS, aSSociated undertakingS,Jointly-controlled entitieS and Jointly-controlled oPerationS134 interServe annual rePort 2012 Financial StateMentS PrinciPal grouP undertakingSPrinciPal activitieS addreSS oF PrinciPal Place(S) oF buSineSSgrouP holding(c) Jointly-controlled entitieS (CONTINUED)Leeds D&B One Ltd10Design and build of various schools for Leeds City CouncilCockburn 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, England20%Leeds LEP Ltd10Development and management of the build and running of various schools for Leeds City CouncilMerrion Street, Leeds, England20%NIHG South West Health Partnership LtdDesign, build, finance, operation and maintenance of the new acute hospital at EnniskillenEnniskillen Hospital, Enniskillen, County Fermanagh, Northern Ireland18%Peterborough Prison Management Ltd2Design, build, finance and operation of Peterborough PrisonHMP Peterborough, Peterborough, England17%Pyramid Schools (Plymouth) Design & Build Ltd10 Design and build of two schools for Plymouth City CouncilErnsettle Community School, Plymouth, England; Shakespeare Primary School, Plymouth, England25%Pyramid Schools (Plymouth) Ltd10Design, build, finance and operation of two schools for Plymouth City CouncilRiverside Community Primary School, Plymouth, England;Whitleigh Community Primary School, Plymouth, England25%Rehab Jobfit LLPEmployment-related support services to the Department for Work and PensionsTwyford, Reading, England49%Sandwell Futures Ltd10Development and management of the build and running of various schools for Sandwell Borough CouncilBroadwell Road, Oldbury, West Midlands, England20%West Yorkshire PFI Operational Training & Accommodation Ltd2Design, build, finance and operation of two new divisional headquarters, custody suites and a specialist operational training facility for the West Yorkshire Police AuthorityElland Road, Leeds, England;Havertop Lane, Normanton, Wakefield, England;Carr Gate, Wakefield, England50% overview governance business review financial statementsinterServe annual rePort 2012 Financial StateMentS PrinciPal grouP undertakingS 135PrinciPal activitieSaddreSS oF PrinciPal Place(S) oF buSineSSgrouP holding(d) Jointly-controlled oPerationSconStructionAcciona Agua SAU Joint VentureWater desalination project for Thames Water Utilities LtdBeckton Water Treatment Works, Jenkins Lane, London, England47%KMI Plus Water Joint VentureWater project framework for United UtilitiesWigan, Lancashire, England31%KMI Water Joint VentureWater project framework for United UtilitiesWigan, Lancashire, England33%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 Accounting reference date is 31 March.3 Issued share capital consists of 100 ordinary shares of £1 each and 100 deferred shares of £1 each.4 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.5 Shareholding split between Interserve Plc (2 ordinary shares of NZ$1 each) and Interserve Holdings Ltd (249,998 ordinary shares of NZ$1 each)6 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.7 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.8 Shareholding held directly by Interserve Plc.9 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.10 Accounting reference date is 30 September.11 Accounting reference date is 31 August. Five-year analySiS(unaudited)136 interServe annual rePort 2012 Financial StateMentS Five-year analySiS2012 £million2011 £million2010 £million2009 £million2008 £millionrevenue including share of associates and joint venturesSupport Services – UK1,215.4 1,069.6 1,098.7 1,051.3 981.6 Support Services – International31.3 25.9 23.7 19.0 12.3 Support Services1,246.7 1,095.5 1,122.4 1,070.3 993.9 Construction – UK737.2 731.1 754.3 822.7 772.7 Construction – International201.6 223.7 239.2 300.1 271.9 Construction938.8 954.8 993.5 1,122.8 1,044.6 Equipment Services167.5 154.3 139.9 157.1 171.7 Investments81.0 160.2 106.6 156.7 134.5 Inter-segment elimination(64.4)(45.2)(47.0)(36.2)(42.9)2,369.6 2,319.6 2,315.4 2,470.7 2,301.8 consolidated revenueSupport Services – UK1,118.1 1,007.3 1,024.8 963.2 898.5 Support Services – International– – – – – Support Services1,118.1 1,007.3 1,024.8 963.2 898.5 Construction – UK737.2 731.1 754.3 822.7 772.7 Construction – International– – – – – Construction737.2 731.1 754.3 822.7 772.7 Equipment Services167.5 154.3 139.9 157.1 171.7 Investments– – – – – Inter-segment elimination(64.4)(45.2)(47.0)(36.2)(42.9)1,958.4 1,847.5 1,872.0 1,906.8 1,800.0 Headline profitSupport Services – UK44.3 36.4 25.1 21.3 35.1 Support Services – International3.7 3.6 3.4 2.1 1.1Support Services48.0 40.0 28.5 23.4 36.2Construction – UK14.6 18.0 24.5 17.0 22.5 Construction – International14.3 16.6 22.8 22.4 14.8Construction28.9 34.6 47.3 39.4 37.3 Equipment Services16.0 13.6 14.4 35.9 29.6 Investments6.6 6.0 4.2 4.7 2.8 Group Services(19.1)(20.4)(20.0)(17.7)(17.9)Total operating profit80.4 73.8 74.4 85.7 88.0 Investment revenue40.4 39.7 36.1 31.6 39.9 Finance costs(42.4)(40.7)(40.9)(39.0)(42.7)Headline profit78.4 72.8 69.6 78.3 85.2 Earnings per share, penceBasic EPS131.9 45.9 39.5 54.9 43.5 Headline EPS47.2 49.3 42.8 49.7 46.7 Dividend per share, penceInterim6.4 6.0 5.6 5.5 5.3 Final14.1 13.0 12.4 12.0 11.7 Five-year analysis overview governance business review financial statementsinterServe annual rePort 2012 Financial StateMentS Five-year analySiS 1372012 £million2011 £million2010 £million2009 £million2008 £millionbalance sheetIntangible assets265.8 221.2 228.3 230.8 262.3 Property, plant and equipment137.8 139.7 149.0 148.8 156.8 Interests in joint ventures7.6 103.3 60.1 67.4 114.0 Interests in associated undertakings76.6 77.2 61.7 57.0 72.5 Deferred tax asset33.5 23.4 16.5 31.4 19.2 Non-current assets521.3 564.8 515.6 535.4 624.8 Assets held for sale51.2––––Inventories24.6 22.2 19.6 20.1 27.8 Trade and other receivables432.0 380.1 386.1 355.3 372.1 Cash and deposits76.8 46.1 67.6 60.9 61.3 Bank overdrafts and loans(19.8)(19.3)(35.2)(11.6)(3.1)Trade and other payables(559.7)(498.6)(496.7)(491.2)(479.8)Short-term provisions(24.2)(28.7)(20.2)(23.1)(14.0)Net current liabilities(19.1)(98.2)(78.8)(89.6)(35.7)Bank loans(30.0)(70.0)(85.0)(85.0)(165.5)Trade and other payables(13.2)(13.3)(15.8)(18.1)(14.2)Long-term provisions(27.1)(26.3)(26.9)(25.7)(24.0)Retirement benefit obligation(101.1)(56.2)(51.5)(95.3)(153.1)Non-current liablilites(171.4)(165.8)(179.2)(224.1)(356.8)Net assets330.8 300.8 257.6 221.7 232.3 Cash flow Operating cash flows before movements in working capital39.5 35.6 31.6 (11.6)65.8 Movement in working capital0.2 9.5 (21.5)52.6 (7.2) Changes in hire fleet(6.0)3.0 15.1 (3.4)(20.4)Taxes paid(10.7)(3.2)(6.3)(15.7)(14.0)Net cash from operating activities23.0 44.9 18.9 21.9 24.2 Acquisitions and investments 63.0(19.3)(32.6)83.7 (7.7)Net capital expenditure - non-hire fleet(8.9)(8.5)(5.6)(27.6)(14.2)Dividends from joint ventures and associates19.8 20.6 32.1 17.6 13.5 Interest received8.4 4.4 3.8 7.2 7.3 Net cash used in investing activities82.3(2.8)(2.3)80.9 (1.1)Interest paid(9.6)(6.7)(6.4)(5.8)(10.2)Dividends paid(27.0)(25.5)(24.8)(24.5)(23.5)Other1.5 - (2.2)- 0.8 Net cash used in financing activities excluding debt(35.1)(32.2)(33.4)(30.3)(32.9)Effect of foreign exchange(0.2)(0.3)0.3 (0.6)2.2 Movement in net debt70.0 9.6 (16.5)71.9 (7.6) Closing net cash/(debt)25.8(44.2)(53.8)(37.3)(109.2) Shareholder inForMation138 interServe annual rePort 2012 Financial StateMentS Shareholder inForMationFinancial calendar 2013Final results announcement for the year ended 31 December 201227 February 2013 Publication of Annual Report and Financial Statements 27 March 2013Annual General Meeting13 May 2013Interim management statement13 May 2013Final dividend payable (record date 5 April 2013)20 May 2013Half-year results announcement for the six months ended 30 June 201314 August 2013Publication of Half-Year Report Late August 2013Interim dividend payableOctober 2013Interim management statement13 November 2013Share PriceAs at 31 December 2012388.80pLowest for the year270.10pHighest for year392.80pThe current price of the Company’s shares is available on the Company’s website at www.interserve.com.analySiS oF regiStered ShareholdingSHoldersSharesNumber%Number%Notifiable interests60.1439,102,15630.82Banks, institutions and nominees1,09325.3578,654,08962.01Private shareholders3,21274.519,090,6947.17Total as at 27 February 20134,311100.00126,846,939100.00Shareholder ServiceSCapita is our registrar and they offer many services to make managing your shareholding easier and more efficient:(a) Share PortalThe Share Portal is a secure online site where you can manage your shareholding quickly and easily. You can:• View your holding and get an indicative valuation• Access shareholder communications• Change your address• Request to receive shareholder communications by email rather than by post• View your dividend payment history• Make dividend payment choices• Buy and sell shares• Register your proxy voting instructionJust visit www.capitashareportal.com. All you need is your investor code, which can be found on your share certificate or your dividend tax voucher.(b) customer Support centreAlternatively, you can contact Capita’s Customer Support Centre which is available to answer any queries you have in relation to your shareholding:By email: ssd@capitaregistrars.comBy phone: +44 (0)20 8639 3399 (lines are open 9.00am to 5.30pm, Monday to Friday)By post: Shareholder Administration, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TUShareholder information overview governance business review financial statementsinterServe annual rePort 2012 Financial StateMentS Shareholder inForMation 139(c) Sign up to electronic communicationsBy signing up to receive your shareholder communications by email, you will help us to save paper and receive your shareholder information quickly and securely. Registering for electronic communications is very straightforward. Just visit www.capitashareportal.com. All you need is your investor code, which can be found on your share certificate or your dividend tax voucher.(d) dividend payment options• Re-invest your dividends Capita’s Dividend Re-investment Plan is a convenient way to build up your shareholding by using your cash dividends to purchase additional shares. The plan is provided by Capita IRG Trustees Limited which is authorised and regulated by the Financial Services Authority. For more information and an application pack please call +44 (0)20 8639 3402 (lines are open from 9am to 5.30pm, Monday to Friday). Alternatively you can email shares@capitaregistrars.com or log on to www.capitashareportal.com. The value of shares and income from them can fall as well as rise and you may not recover the amount of money you invest. Past performance should not be seen as indicative of future performance. This arrangement should be considered as part of a diversified portfolio.• Elect to have your dividends paid direct into your bank account This means that:• your dividend reaches your bank account on the payment date;• it is more secure – cheques can sometimes get lost in the post; and• you don’t have the inconvenience of depositing a cheque and waiting for it to clear.You can sign up for this service by logging on to www.capitashareportal.com (click on ‘your dividend options’ and follow the onscreen instructions) or by contacting the Customer Support Centre.• Choose to receive your next dividend in your local currency Capita has partnered with Travelex to provide you with a service that will convert your sterling dividends into your local currency at a competitive rate. You can choose to receive payment directly into your bank account, or alternatively, you can be sent a currency draft. For further information contact Capita on +44 (0)20 8639 3405 (lines are open 9.00am to 5.30pm, Monday to Friday) or by email – ips@capitaregistrars.com. (e) buy and sell sharesA quick and easy way to buy and sell shares is provided by Capita Share Dealing Services. There is no need to pre-register and there are no complicated application forms to fill in. You can also access a wealth of stock market news and information free of charge. For further information on this service, or to buy and sell shares, visit www.capitadeal.com or call +44 (0)20 3367 2686 (lines are open 8.00am to 4.30pm, Monday to Friday).This is not a recommendation to buy and sell shares and this service may not be suitable for all shareholders. The price of shares can go down as well as up and you are not guaranteed to get back the amount you originally invested. Terms, conditions and risks apply. Capita Share Dealing is a trading name of Capita IRG Trustees Limited which is authorised and regulated by the Financial Services Authority. This service is only available to private shareholders resident in the EEA, the Channel Islands and the Isle of Man.Share registration and associated services are provided by Capita Registrars Limited (registered in England, No.2605568). Regulated services are provided by Capita IRG Trustees Limited (registered in England, No.2729260). The registered office of each of these companies is The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU.donate your ShareS to charityIf you have only a small number of shares which are uneconomical to sell, you may wish to donate them to charity free of charge through ShareGift (Registered Charity 10528686). Find out more at www.sharegift.org.uk or by telephoning +44 (0)20 7930 3737. Shareholder inForMation140 interServe annual rePort 2012 Financial StateMentS Shareholder inForMationbeneFicial 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/caPitaliSation changeSThe 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 27 February 2013, as indicated below, other than the rights issue in 1986 (one new share for every three existing shares at 140p per share).22 June 1982 - sub-division of each £1 share into four shares of 25p; bonus issue of two new 25p shares for each £1 share held;10 June 1983 - bonus issue of one new share of 25p for every four shares held; and31 October 1997 - share split of five new 10p shares for every two 25p shares held.Warning to ShareholderS regarding unSolicited inveStMent contactSIn 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. Group Company SeCretaryTrevor BradburyreGiStered offiCeInterserve HouseRuscombe ParkTwyfordReadingBerkshire RG10 9JUT +44 (0)118 932 0123F +44 (0)118 932 0206info@interserve.comwww.interserve.comreGiStered number88456reGiStrar andShare tranSfer offiCeCapita Registrars The Registry34 Beckenham RoadBeckenhamKent BR3 4TUT +44 (0)20 8639 3399F +44 (0)1484 600911ssd@capitaregistrars.comwww.capitashareportal.com auditorSDeloitte LLPStoCkbrokerSJPMorgan Cazenove LimitedNumis Securities LimitedLawyerSAshurst LLPadviSerSThis Annual Report was printed in the UK by CPI Colour Limited, using vegetable based inks.The printer and paper mill are accredited with ISO 14001 Environmental Management Systems andare Forestry Stewardship Council® chain-of-custody registered. The paper is 100% recycled, produced from de-inked post consumer waste. The silk laminate used on the outer cover is bio-degradable.Designed by accrue.co.uk8504 Interserve AR 2013 Cover_5 tp.indd 219/03/2013 14:55 registered office Interserve Plc Interserve House Ruscombe Park Twyford Reading Berkshire RG10 9JUt. +44 (0)118 932 0123 f. +44 (0)118 932 0206e. info@interserve.comwww.interserve.com

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