INGENUITY AT WORK
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REGISTERED OFFICE
Interserve Plc
Interserve House Ruscombe Park Twyford
Reading Berkshire RG10 9JU
T. +44 (0)118 932 0123 F. +44 (0)118 932 0206
E. info@interserve.com
www.interserve.com
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ANNUAL REPORT 2016
INTERSERVE ANNUAL REPORT 2015
OVERVIEW
CONTENTS
ANNUAL REPORT 2015
STRONG MARKET POSITIONS AND HEALTHY FUTURE WORKLOAD
“ 2016 was a mixed year for the Group. We delivered a strong cash performance and the majority of our businesses
CONTENTS
performed well despite political and economic uncertainties, together with the impact of the National Living Wage
in the UK. However, the performance of our UK Construction business was disappointing, and we are focusing our
efforts on improving and re-shaping this business.
“OVER THE LAST FIVE YEARS WE HAVE MADE
Managing the challenges of exiting from the Energy from Waste sector remains a significant priority. As previously
announced, we have increased the exceptional provision for exiting this market and the associated contracts to
£160 million. We expect to complete substantially all of the construction and commissioning of the projects during
2017, although our contractual obligations in respect of warranties and the resolution of claims will continue
for a period thereafter.
CHAIRMAN’S STATEMENT
Overview
HIGHLIGHTS
While liquidity available to the Group is adequate, having put in place new banking facilities that expand and extend our
debt capacity, the Board has a medium-term objective to reduce our overall indebtedness and enhance liquidity levels
further whilst continuing to invest in our core businesses. We have therefore taken the difficult decision to suspend the
dividend temporarily.
Strategic Report
OUR STRATEGY
OPERATIONS AT A GLANCE
Despite the increased uncertainty following the UK’s EU referendum, our outlook for the current year remains positive.
This, together with our strong market positions and healthy future workload, underpins the Board’s confidence in our
medium-term prospects.”
OUR BUSINESS MODEL
WHERE WE OPERATE
SUBSTANTIAL STRATEGIC PROGRESS CREATING
A BROADER, STRONGER BUSINESS. OUR
PERFORMANCE IN 2015 WAS GOOD, RESULTING
IN 12 PER CENT OPERATING PROFIT GROWTH IN
MARKETS THAT CONTINUE TO OFFER BOTH
OPPORTUNITIES AND CHALLENGES. OVERALL,
WE EXPECT 2016 TO BE BROADLY STEADY
COMPARED TO 2015.”
Adrian Ringrose
Chief Executive
ADRIAN RINGROSE
CHIEF EXECUTIVE
FINANCIAL HIGHLIGHTS
REVENUE
£3,244.6m
(LOSS)
BEFORE TAX
(£94.1m)
HEADLINE
PRE-TAX PROFIT*
£106.5m
FULL-YEAR
DIVIDEND
8.1p
01
02
06
08
10
12
14
16
28
32
38
41
42
51
56
80
87
PERFORMANCE
OPERATIONAL REVIEW
PRINCIPAL RISKS AND UNCERTAINTIES
FINANCIAL REVIEW
Governance
BOARD OF DIRECTORS
ADVISERS
CORPORATE GOVERNANCE
AUDIT COMMITTEE REPORT
DIRECTORS’ REPORT
DIRECTORS’ RESPONSIBILITY STATEMENT
DIRECTORS’ REMUNERATION REPORT
HEADLINE TOTAL
OPERATING PROFIT*
£124.2m
Financial Statements
INDEPENDENT AUDITOR’S REPORT
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
COMPANY FINANCIAL STATEMENTS
NOTES TO THE COMPANY
FINANCIAL STATEMENTS
FIVE-YEAR ANALYSIS
RELATED UNDERTAKINGS
HEADLINE EARNINGS
PER SHARE*
63.3p
SHAREHOLDER INFORMATION
90
98
104
147
149
164
171
173
COMMUNITY
CENTRE
* This Annual Report includes a number of non-statutory measures to reflect the impact of non-trading and non-recurring items. See note 32 to the
FOR FURTHER
INVESTOR INFORMATION:
consolidated financial statement for a reconciliation of these measures to their statutory equivalents and note 11 for calculation of earnings per share.
www.interserve.com/investors
This 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
and are Forest 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 and produced by
www.accruefulton.com
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Overview
Strategic Report
Strategic Report
Governance
Financial Statements
Financial Statements
CONTENTS
Overview
Highlights
Chairman’s statement
Strategic Report
Governance
Financial Statements
01
02
Business model
Our strategy
Where we operate
Performance
Operational review
Principal risks and uncertainties
Financial review
06
08
10
12
14
26
30
Board of directors
Advisers
Corporate governance
Audit Committee report
Directors’ remuneration report
Directors’ report
40
43
44
54
60
87
Directors’ responsibility statement 95
Independent auditor’s report
98
Consolidated financial statements 106
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company financial
statements
Related undertakings
Five-year analysis
Shareholder information
112
162
164
179
187
189
FOR FURTHER INVESTOR INFORMATION:
www.interserve.com/investors
STRATEGIC HIGHLIGHTS
• Revenue constant at £3.2 billion
• Strong performances from Equipment Services and Construction International and
resilience in Support Services UK, offset by weak performance from UK Construction
• Exited Energy from Waste business: exceptional charge of £160 million
• Equipment Services strategic review concluded and updated strategy being implemented
• Strong underlying cash generation, gross operating cash flow of £239.2 million
(FY 2015: £54.8 million)
• Strong future workload of £7.6 billion
• Dividend per share 8.1p – no final dividend proposed in order to enhance liquidity levels
while continuing to invest in our core businesses
• Key contract wins with both new and existing clients including the Defence
Infrastructure Organisation, the Home Office, BBC, JLL, Land Securities, Severn Trent,
Meraas (Dubai), SEPCO (Oman) and InterContinental Hotels Group (Qatar)
SUSTAINABILITY ICONS
Create places
that benefit
people
Deliver public
service in the
public interest
Build more
skills and more
opportunities
Generate a positive
environmental
impact
Achieve
sustainable
growth
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01
23/03/2017 17:43
GovernanceOverview OVERVIEW
Chairman’s statement
RESULTS AND DIVIDEND
Interserve Plc today announced its preliminary results for 2016,
the first year under my Chairmanship.
2016 was a challenging year for Interserve. We had solid results
in our core businesses, with a strong year for Equipment
Services, continued growth in International Construction and
further good progress in frontline and support services, backed
by an improved cash performance.
This performance was overshadowed by the serious challenges
posed by the legacy of our participation in the Energy from
Waste (EfW) business and the escalation in the costs of exiting
that sector. These contracts have been beset with contractual
problems, failures in our supply chain and complex technical
issues. We have undertaken a further detailed review of this
exited business, including the potential impact of our termination
on the Glasgow contract and the insolvency of one of our major
subcontractors. As a result, we announced last week that it
was necessary to increase the exceptional loss by a further
£90 million from that recognised in the 2016 half-year results,
giving an aggregate loss of £160 million. In arriving at this
position, we have undertaken a detailed and thorough analysis
of the situation and made a reasonable, prudent assessment of
the potential outcomes. I must stress, however, there remains
a range of possible outcomes and it will be some time before
we have full visibility of the actual final cost of resolution.
GLYN BARKER
CHAIRMAN
“WE DELIVERED SOLID RESULTS IN OUR CORE
BUSINESSES, WITH A STRONG YEAR FOR EQUIPMENT
SERVICES, CONTINUED GROWTH IN INTERNATIONAL
CONSTRUCTION AND FURTHER GOOD PROGRESS IN
UK FRONTLINE SERVICES”
I can assure you of three things, however:
REVENUE
£3,244.6m
• our construction teams will leave no stone unturned to try
to ensure that we complete the ongoing EfW contracts as
efficiently as possible;
• we have an excellent team of legal and technical experts
who will do all that is necessary to protect our position and
resolutely pursue our rights in the disputed areas; and
• the overwhelming majority of the Interserve leadership
and employees will remain focused on continuing to improve
and grow our core businesses by competing effectively
in the marketplace and continuing to provide outstanding
customer service.
During 2016 we undertook a strategic review of our Equipment
Services business, RMD Kwikform (RMDK). We concluded
that RMDK is a strong, attractive business with good growth
potential. We will continue to invest in this business which is
founded on innovation and engineering expertise coupled with
the application of world-class design and logistics capability.
02
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Strategic Report
Financial Statements
We have implemented a greater focus on cash flow during the year
and this has become all the more important as the impact of the
exited business has been increasingly onerous. In recognition of
the exceptional, short-term increased cash demands of the EfW
exit we have also successfully secured additional bank facilities of
£133 million, which raises our total available facilities and US Private
Placement Notes to £640 million.
While liquidity available to the Group is adequate, the Board
has a medium-term objective to reduce our overall indebtedness
and enhance liquidity levels further whilst continuing to invest
in our core businesses. We have therefore taken the difficult
decision to suspend the dividend temporarily. I regret this has
become necessary, but we took this decision only after examining
scrupulously all alternatives. The need to ensure that future
dividends are sustainable and covered by operating cash generation
and a strong balance sheet is fundamental. Improving the Group’s
performance and prospects amidst continuing economic uncertainty
also requires that we continue to invest and grow the level and
flexibility of liquid resources.
BOARD CHANGES
In November we announced that Adrian Ringrose will step down
from the Board and leave the Company once a successor has been
appointed. Adrian has played a key role in the growth and reshaping
of the business during his 13 years as Chief Executive and I would
like to thank him for his contribution and for his continued loyalty
and dedication to the Company. I am very conscious that our
shareholders and our employees are keen to learn the result of our
CEO selection process. We have undertaken a comprehensive search
and selection process which is now nearing its conclusion and I hope
to be in a position to make a further announcement shortly.
I am delighted to welcome Gareth Edwards, who joined the
Board on 1 February 2017 as a non-executive director. Gareth
has extensive experience as an adviser to Boards and CEOs and
considerable commercial and international experience and I am
confident he will make an excellent contribution to the Board.
SUSTAINABILITY
We recognise the vital importance of our social and community
responsibilities, our employee brand, and our environmental
impact. Our commitment to these issues was recognised with
the 2016 PLC Award for ‘Achievement in Sustainability’, and
a 3-star rating in Business in the Community’s 2016 corporate
responsibility index.
The skills agenda is central to Interserve, and we have successfully
expanded our work placement, internship and graduate
schemes and continue to increase the number of apprenticeship
opportunities we provide. We also continue to increase our focus
on diversity and inclusivity, evidenced by our achievement of the
National Equality Standard accreditation.
The creation of Social Value is a key part of our public-services
proposition, reflected in our support of the Buy Social Corporate
Challenge, led by Social Enterprise UK and the Cabinet Office,
our leadership of the Social Value Summit, and our innovative
work with Social Enterprises throughout our business.
OUR PEOPLE
Attracting and retaining the best people is a critical challenge
for any organisation, and our strong culture and values are proving
to be increasingly effective as shown by a marked improvement
in our overall employee engagement. This will always be a work-in-
progress, but it is gratifying to move above the peer group average
and make such positive progress. On behalf of the Board, I would
like to thank all our people for their continued hard work and
dedication in what has been an exceptionally tough year.
PROSPECTS
The next 12 months will witness the introduction of a number
of further regulatory changes which will add costs to our UK
Support Services business. Some, such as the apprenticeship
levy, also create business opportunity (in helping other employers
deliver their apprenticeship programmes) whereas others, such as
increased pension costs and other employment benefits, will take
some time to pass on fully to customers. Such changes, together
with the broader uncertainties arising from Brexit preparations are
challenging, but also create opportunity as clients look to solutions
such as outsourcing in order to capture efficiency gains. We are able
to seek to achieve productivity gains through continued investment
in operational efficiency. We benefit from a large and stable
order book (£7.6 billion) and are experiencing encouraging levels
of contract bidding opportunities across our core markets, which
underpins our expectation of modest volume growth and of stable
overall performance in 2017 relative to 2016.
The lower oil price and consolidation and reorganisation among
some of the main oil and gas players in the region has led to
some contraction in the addressable market for our International
Support Services business. This slowdown, the impact of which
was witnessed in the second half of 2016, is expected to suppress
volumes in 2017. We have been and will continue to take mitigating
action on our cost base where possible.
We expect to see continued positive momentum in Equipment
Services as we invest further in growth markets, new technologies
and products to differentiate our engineering-led customer
value proposition. The structural drivers for global infrastructure
remain healthy and our proven ability to identify and respond as
market demand shifts globally, underpins our confidence in the
division’s prospects.
In the near term our focus will be on consolidation and on
re-establishing the quality of earnings in our continuing UK
Construction operations.
Our International Construction business continues to trade well
and grow its workload with market conditions remaining generally
positive. In the Middle East, our combination of strong customer
and partner relationships provides a platform for future growth, as
do development plans such as Qatar’s ‘Vision 2030’, the UAE’s plans
for Expo 2020 and the ongoing need for infrastructure development
to keep pace with rapid population growth in the region.
Recognising the different characteristics and prospects of our
various markets, as described above, we anticipate overall Group
performance in 2017 to be stable compared to 2016.
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Glyn Barker
Chairman
28 February 2017
03
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GovernanceOverview MANAGING FACILITIES
ACROSS UK GOVERNMENT
DEPARTMENTS
We won a new five-year total facilities management (FM) account with six
central government departments worth over £40 million, becoming the first
FM provider to provide services to several ministries under one contract.
Known as the ‘Affiliate Cluster’,
the account covers the Cabinet
Office, the Department for
International Development (DFID),
the Food Standards Agency (FSA), the
Government Actuary’s Department
(GAD), the Health and Safety Executive
(HSE) and the Office for Standards
in Education, Children’s Services
and Skills (Ofsted).
Under the contract Interserve
delivers a broad range of services
including security, catering, front-
of-house, as well as mechanical
and electrical maintenance.
Alongside the new cross-departmental
deal, Interserve also has pre-existing
partnerships with the Home Office
(HO), the Foreign & Commonwealth
Office (FCO), the Department for
Environment, Food and Rural Affairs
(DEFRA) and the Health and Safety
Laboratory in Buxton (HSE).
The contract will deliver significant
benefits for each department and
for the government as a whole.
Interserve was chosen because of its
ability to deliver a consistent service
level across the estate while also
achieving cost savings and value for
money for the taxpayer.
04
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STRATEGIC REPORT Overview
Strategic Report
Strategic Report
Directors’ Report
Financial Statements
Financial Statements
Business model
Our strategy
Where we operate
Performance
Operational review
Principal risks and uncertainties
Financial review
06
08
10
12
14
26
30
Strategic Report
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05
23/03/2017 17:43
GovernanceOverview Business model
WHAT WE DO
WE ARE A SUCCESSFUL, GROWING, INTERNATIONAL BUSINESS:
A leader in innovative and sustainable outcomes for our clients and a great place to work for our people.
We offer construction, equipment services, facilities management and frontline public services. Headquartered
in the UK and FTSE listed, we have gross revenues of £3.7 billion and a workforce of circa 80,000 people worldwide.
We are a relationship business.
It is our relationships with our clients and colleagues which underpin our business model and enable us to
deliver great service to our clients around the world.
HOW WE DO IT
We listen and
encourage openness.
Whatever the task in
hand, everybody can
and should take pride
in a job well done.
We ask questions,
think differently, seek
solutions and create
ideas to support our
customers and add value.
We strive to always
work in a safe and
sustainable way.
EXPERTISE
SUPPLY CHAIN
MANAGEMENT
We manage and work with our
extensive supply chain to ensure we
get the best value from suppliers
to meet our clients’ needs safely
and sustainably. We manage risk by
ensuring our supply chain complies with
our policies and consider the cost of
ownership, quality, service and delivery
when selecting our suppliers. We treat
our supply chain in a consistent manner
from selection to contract agreement
and ongoing management.
SYSTEMS
AND PROCESSES
Interserve’s proven expertise over
many years lies in the evolution of
systems and processes to maximise
impact and manage resources. Through
the innovative use of technology and
the experience of serving numerous
customers, we are constantly looking at
ways to enhance process management.
Interserve brings ingenuity to work on
a daily basis to ensure we can always
improve systems and processes in
partnership with our customers.
PROJECT MANAGEMENT
AND DELIVERY
We use proven programme
management tools and draw from
our vast experience of delivering
complex projects for both public and
private-sector organisations. This
includes mobilising, transitioning and
transforming large-scale contracts
across a range of sectors. We recognise
the importance of using proven
systems to assure our readiness for
service commencement, allowing us
to deliver the best service possible to
our customers.
06
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23/03/2017 17:43
STRATEGIC REPORTVISION – REDEFINE THE FUTURE FOR PEOPLE AND PLACES VALUES – EVERYTHING WE DO IS SHAPED BY OUR CORE VALUES Strategic Report
Financial Statements
HOW WE CREATE VALUE
WE CREATE VALUE BY DELIVERING HIGHLY REGARDED PROFESSIONAL SERVICES TO CLIENTS ACROSS THE GLOBE:
INPUTS
WHAT WE DO
OUTPUTS
SUPPORT SERVICES
Facilities management
Frontline services
Estate management
Industrial services
Oil and gas services
CONSTRUCTION
Building
Infrastructure
Engineering services
Fit-out
Consulting
EQUIPMENT SERVICES
Design
Engineering
Propping and
shoring solutions
Ground shoring
10848 - INT AR16 01 Overview_02 Strategic Report_p1-37 CC15.indd 7
07
23/03/2017 17:43
FinancialCapital Share capitalBorrowingsCash generated from operationsFinancialCapital Achieve financial growth and investment growth; grow EPS and returns for investors; financial contribution to small businesses through local supply chains and generating UK tax through employment and improving returns.KnowledgeCapital SkillsExperienceUnderstanding our customers TalentInnovationKnowledgeCapital Collaborative partnerships and educational links with communities; investment in skills development and training for apprentices, graduates and other employees; creating innovative solutions for customers in design, building services and IT.SocialCapital EmployeesSuppliersCustomersCitizens CommunitiesSocialCapital Improved facilities and services for customers and communities through partnerships with central and local government; strengthening small businesses through local supply chains; development and career opportunities for employees.NaturalCapital Raw materialsWaterEnergyLandNaturalCapital Reduction in current CO2 emissions, waste energy usage and water consumption. GovernanceOverview Our strategy
INTERSERVE HAS A ROBUST STRATEGY TO MEET ITS CORPORATE GOALS AND CAPTURE THE GROWTH
OPPORTUNITIES IN OUR MARKETS. THREE KEY THEMES UNDERPIN OUR PLAN FOR DELIVERING ON THIS
STRATEGY WHILE MAXIMISING CUSTOMER AND SHAREHOLDER VALUE.
For more information on how we measure and reward strategic progress, please see our Directors’ Remuneration Report
on pages 60 to 86.
ACHIEVEMENTS
IN 2016
• Robust, in-line revenue and headline earnings
performance
• Strong gross operating cash flow (£239.2 million in
2016 vs £54.8 million in 2015)
• Updated strategy for our Equipment Services
business after concluding a strategic review to
maximise value creation for shareholders
• Implemented comprehensive change management
plan and new operating model in our justice business
FOCUS FOR 2017
• Continue to leverage scale and increase frontline
services capability
• Manage exit from remaining Energy from Waste projects
• Continue to implement actions as part of updated
strategy for Equipment Services
• Implement further procedural and organisational
changes across UK Construction
• Manage cost and investment risks in volatile oil
price environment
CREATE PLACES
THAT BENEFIT
PEOPLE
DELIVER PUBLIC
SERVICES IN THE
PUBLIC INTEREST
08
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STRATEGIC REPORTBUILD STRONG CORE BUSINESSESTo maintain and enhance our core businessesOUTCOMES Strategic Report
Financial Statements
• Diversified operations in Qatar and Oman, winning work
• Expanded our operations in the UK justice sector; for
in new areas such as the water and power sectors
• Leveraged our extensive UK experience and long-
standing customer relationships in the Middle East
• Mobilised first FM contracts in Saudi Arabia
example, winning work to provide employment services
within prisons
• Equipment Services expanded into the UK ground
shoring market, launching new products which
complement our existing strengths in falsework
and formwork
• Grew our education business in Saudi Arabia, winning
contracts to run one new college
• Continue work to integrate our oil and gas services
business across the Middle East to improve the
efficiency of our back office and to bid for work
on a pan-regional basis
• Control our resources in Qatar ahead of anticipation
of activity growth towards the end of 2017
• Leverage our extensive UK experience and long-
standing customer relationships in the Middle East to
build FM business further in UAE, Qatar and Oman
• Continue to deliver high standards of welfare, training
and development for Middle East workforce
• Further expand the range of services we provide
to the UK justice sector
• Roll out RMDK’s new ground shoring products in
new territories and markets
• Grow advisory services to the UK apprenticeship
market in response to the introduction of the
apprenticeship levy
BUILD MORE SKILLS AND
MORE OPPORTUNITIES
GENERATE A POSITIVE
ENVIRONMENTAL IMPACT
ACHIEVE SUSTAINABLE
GROWTH
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09
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EXPAND INTERNATIONALLYTo grow internationally and have the right offering for our customers, who value our products and servicesCAPTURE RELATED EXPANSION OPPORTUNITIESTo deliver organic growth through a number of incremental initiatives and invest in targeted joint ventures and acquisitions which meet our structural, cultural and financial expectations GovernanceOverview UNITED KINGDOM
53.9%
of headline
operating profit
MIDDLE EAST
& AFRICA
30.5%
of headline
operating profit
CONSTRUCTION
(INTERNATIONAL)
11.1%
SUPPORT
SERVICES
(INTERNATIONAL)
4.0%
REST OF
THE WORLD
15.6%
of headline
operating profit
STRATEGIC REPORT
Where we operate
BUSINESSES BY OPERATING PROFIT*
SUPPORT SERVICES
(UK)
53.0%
EQUIPMENT
SERVICES
31.9%
*Excluding Construction UK and Group Services
10
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Overview
Strategic Report
Strategic Report
Directors’ Report
Financial Statements
Financial Statements
WORLDWIDE
233
offi es
INFRASTRUCTURE
10.1%
SECTORS BY REVENUE
COMMERCE
JUSTICE
27.0%
3.4%
EXITED
BUSINESS
2.6%
JUSTICE
EDUCATION
11.7%
CENTRAL/LOCAL
GOVERNMENT
11.1%
INDUSTRY
HEALTH
13.6%
11.1%
3.4%
10848 - INT AR16 01 Overview_02 Strategic Report_p1-37 CC15.indd 11
DEFENCE
9.4%
11
23/03/2017 17:43
GovernanceOverview Performance
KPIs
We use a scorecard of financial and non-financial KPIs to measure critical aspects of the Group’s performance.
These KPIs are aligned with:
• Achieving the Group’s strategic objectives of delivering a
substantial future workload and generating strong earnings
growth and cash conversion.
• The Group’s key behavioural goals, specifically regarding
our employees and the health and safety of everyone
working both directly and indirectly for Interserve.
FinancialCapital
HEADLINE EARNINGS PER SHARE1
SocialCapital
EMPLOYEE VOLUNTEERING
2016
12.0%
TARGET
15% BY
2016
2015
5.0%
ACCIDENT INCIDENT RATE4
2016
128
2015
146
TARGET
HALVE THE
RATE BY 2020
FROM A 2010
BASE OF 379
2016
63.3p
2015
75.6p
FUTURE WORKLOAD2
2016
70%
2015
70%
TARGET
VISIBILITY OVER
70% OF NEXT
12 MONTHS’
REVENUE
(MARKET
CONSENSUS)
% SUPPLIERS WHERE SUSTAINABILITY CODE
OF CONDUCT HAS BEEN APPLIED
2016
52% 2015
47%
TARGET
50% BY
2016
GROSS OPERATING CASH CONVERSION,
THREE-YEAR ROLLING AVERAGE3
2016
84.8%
2015
41.7%
TARGET
100% OVER
MEDIUM TERM
1 See note 11 for calculation of earnings per share.
2 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.
3 See note 32 for a definition of gross operating cash conversion, three-year
rolling average.
4 Accident Incident Rate is based on the number of injuries meeting the
RIDDOR reporting requirements per 100,000 workforce and includes
associate entities.
5 Number of apprentices, trainees and graduates on programme.
12
EMPLOYEE ENGAGEMENT INDEX SCORE
2016
75%
2015
68%
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STRATEGIC REPORT Overview
Strategic Report
Strategic Report
Directors’ Report
Financial Statements
Financial Statements
KnowledgeCapital
APPRENTICES, TRAINEES,
GRADUATES5
2015
477
2016
601
TARGET
500 BY
2018
NaturalCapital
Natural Capital
Water consumption (m3)
(relative metric: m3/£m)1
Construction waste (tonnes)
(relative metric: tonnes/£m)1
Total carbon emissions (tonnes CO2e)
(relative metric: tonnes CO2e/£m)1
1 £m revenue 2 vs 2013 baseline
3 vs 2014
WORK PLACEMENTS
TRAINING DAYS
2016
2,941 2015
2,178
TARGET
1,000/YEAR
2016
101,168
2015
131,929
UK
ROW
Total
UK
ROW
Total
UK
ROW
Total
20% reduction by 20162
25% reduction by 20163
50% reduction by 20202
2016 Performance
vs. 2013
Yr on Yr Change 2016
vs. 2015
Absolute
Relative
Absolute
Relative
-11.4%
+6.7%
+6.1%
-21.4%
-25.8%
-25.1%
-11.7%
+4.7%
+1.2%
-23.4%
-29.6%
-14.3%
-32.1%
-51.1%
-39.5%
-23.7%
-30.9%
-18.2%
-16.2%
-1.0%
-1.5%
+9.7%
-7.7%
-4.9%
-8.5%
+8.0%
+4.5%
-16.7%
-8.8%
-4.0%
+9.1%
-15.0%
-7.4%
-9.0%
-0.5%
+1.8%
We recognise the natural environment plays a significant role in
the economy and society. Our approach to managing natural
capital includes setting ambitious targets to minimise our
impacts, focusing on responsible sourcing and improving
resources efficiency, and protecting the services the natural
environment provides.
The following key environmental issues are addressed through
our aim to generate a positive environmental impact as part of
our SustainAbilities programme:
• Mitigating climate change through reducing carbon
emissions associated with our use of energy, fuel and travel
• Waste management – generation, treatment and disposal
• Water use and scarcity
• Responsible sourcing and efficient use of natural resources
During 2016 we have made considerable progress towards
achieving our aim of making a positive contribution through both
our own operations and those we undertake on behalf of clients.
This includes reducing carbon emissions by 18 per cent (on a
relative basis over the last three years) across our operations.
This has been driven primarily by a focus on fuel use in our fleet
and a focus on energy use across our estate.
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GovernanceOverview Operational review
ADRIAN RINGROSE
CHIEF EXECUTIVE
ACHIEVED 2016
TARGET OF
REDUCTION IN
CONSTRUCTION
WASTE
25%
The Operational Review refers to a number of alternative
performance metrics; it is considered these better reflect
the underlying performance of the business. See note 32 for
the basis of calculation.
SUPPORT SERVICES
Support Services focuses on the management and delivery of
operational services for both public and private-sector clients
in the UK and internationally.
Results summary
Revenue
– UK
– International1
2016
2015
Change
£1,775.0m £1,834.4m
-3%
£267.9m
£224.3m
+19%
Contribution to
total operating profit
– UK
– International1
£87.0m
£100.4m
-13%
£80.8m
£6.2m
£92.2m
£8.2m
-12%
-24%
Operating margin
– UK
– International2
Future workload3
– UK
– International1
4.6%
2.4%
5.0%
4.1%
£5.7bn
£0.2bn
£5.6bn
£0.3bn
1
2
3
Including share of associates.
Operating margin is calculated based on the underlying operating
margin of associates and the reported operating margin of subsidiaries.
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 DELIVERED A STRONG CASH PERFORMANCE AND
THE MAJORITY OF OUR BUSINESSES PERFORMED WELL
DESPITE POLITICAL AND ECONOMIC UNCERTAINTIES”
UK
Support Services UK delivered a resilient performance, in
which we absorbed known cost headwinds and, despite
emerging political uncertainties, won £1.9 billion of new work
during the period. Revenue decreased by 3 per cent, reflecting
the interruption to government procurement around the 2015
General Election which worked its way through our order book
during the year. The division’s future workload, however, grew
slightly to £5.7 billion.
CUT UK WATER
CONSUMPTION
YEAR-ON-YEAR
BY
16%
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Financial Statements
The margin absorbed the substantial rise in the UK National
Living Wage (NLW), which came into force from April. On an
underlying basis – excluding the impact of the NLW – margins
rose by c20 basis points, reflecting improved productivity and
a strong operational performance across the division.
The UK Government has been our largest customer for many
years, and we continue to be one of its largest suppliers,
winning a number of important new contracts during the
year. We strengthened our position as one of the Ministry of
Defence’s largest infrastructure partners during the period,
winning a five-year contract worth £230 million with the
Defence Infrastructure Organisation to provide facilities
services to the United States Air Force’s (USAF) UK estate.
The addition of this contract means we now manage services
at the six USAF main bases in the UK and their associated
satellite sites, as well as the National Training Estate, Welbeck
Defence Sixth Form College, the Defence Communications
Services Agency and the Permanent Joint Overseas Bases
(Falklands, Ascension, Cyprus and Gibraltar).
We also won new work and extended existing contracts to
provide total facilities management (TFM) services including
maintenance, cleaning, catering and security support for the
Home Office. The new five-year contract covers more than
200 sites serving key Home Office departments including the
College of Policing, HM Passport Office, UK Border Force and
UK Visas and Immigration.
We achieved further success by securing a new five-
year TFM account worth over £40 million, known as the
‘Affiliate Cluster’. The account covers the Cabinet Office,
the Department for International Development, the Food
Standards Agency, the Government Actuary’s Department,
the Health and Safety Executive and the Office for Standards
in Education, Children’s Services and Skills (Ofsted). It is the
first time that these six departments’ facilities management
services will be handled by a single provider. We were also
awarded a two-year account extension with the Environment
Agency, building on our relationship with the department
and our existing partnership with the Department for
Environment, Food and Rural Affairs, which allows us to
unlock combined operational efficiencies and create
further value for both organisations.
Our position as one of the UK’s leading providers of facilities
services to the retail sector was reinforced by our success in
winning contracts during the year at 26 UK shopping centres.
Significant amongst these were a three-year, £60 million
appointment by JLL to provide services at 18 locations and a
£37.5 million contract for services at eight of Land Securities’
flagship shopping centres.
More broadly in the commercial sector we won new facilities
management contracts with energy group, SSE, and gas
distribution company, SGM, as well as beauty group, L’Oreal.
Additionally, we secured a two-year extension of our national
contract for security services to the BBC worth £20 million.
Our significant presence in the transport sector was further
strengthened by our success in securing extensions with existing
clients, East Midlands Trains and Spain’s RENFE Viajeros.
Our sustainability credentials play a large part in our winning
of new contracts and retention of existing work. During the
year our facilities management team working with law firm
CMS Cameron McKenna (where we deliver services including
mechanical engineering, security and helpdesk support) won
the Platinum Clean City Award for achieving a 10 per cent
energy reduction across the client’s estate.
We continued to embrace and drive innovation, benefitting
our customers and making our services evermore efficient.
During the year we supported Sainsbury’s in trialling the
Intellibot – a hands-free robotic cleaning machine – in its stores
and we now also maintain a fleet of robotic transporters that
move heavy loads such as laundry and waste around Alder
Hey Children’s Hospital in Liverpool. As part of our facilities
management contract with the University of Sussex, we also
used Unmanned Aerial Vehicles (UAVs) to identify potential
leaks in the campus’ district heating system.
Our frontline public-services business (welfare, skills,
healthcare and justice) continues to grow and develop well.
In Justice, we implemented our comprehensive change-
management plan by introducing a new operating model for
the provision of probation and rehabilitation services for
low and medium-risk offenders in five areas of England as
part of the Ministry of Justice’s Transforming Rehabilitation
programme. We are the largest provider (by volume) of
such contracts, which continue to perform in line with
our expectations.
Our healthcare business, which provides nursing care in
the home for high-acuity patients, delivered a resilient,
profitable performance during the year and is well placed
to continue to perform well in 2017.
ACHIEVED TARGET TO
DOUBLE THE NUMBERS
OF APPRENTICESHIPS,
TRAINEES AND
GRADUATES ON
PROGRAMME TWO
YEARS EARLY,
INCREASING TO 601 IN
2016 FROM 250 IN 2013
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HELPING BUILD THE
NEXT PHASE OF
DUBAI’S FINANCIAL
DISTRICT
Khansaheb, our construction joint venture in the United Arab
Emirates, won a £38 million contract to build a new nine-storey
office tower at the Dubai International Financial Centre (DIFC).
The Commercial Office Development (Gate Village 11) will feature
five basements, a service floor, a concourse and nine storeys of office
space over 27,119 square metres when it is complete in January 2018.
The tower, which Khansaheb started work on in July 2016, is one of
the latest developments at DIFC, which is the financial hub for the
Middle East, Africa and South Asia. More than 1,200 active registered
companies operate within DIFC, which offers an independent regulator
and judicial system as well as a global financial exchange employing
more than 18,000 people.
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SUPPLIERS NOW COVERED
BY OUR SUSTAINABILITY
CODE OF CONDUCT
52%
2016 TARGET
50%
Our learning and employment business supported customers
into over 3,300 jobs during the year and won a range
of contracts to provide skills support to local people
and employers across Leeds, Leicestershire, Sheffield,
Staffordshire and the North East of England and, separately,
help young people onto apprenticeships and training
schemes in Yorkshire. Our capability in designing, delivering
and evaluating apprenticeship training within our learning
and skills business will, we believe, play an increasingly
valuable role as higher employment costs and regulatory
requirements drive employers to invest more in training
and skills (either to defray their apprenticeship levy
or to gain additional productivity from an increasingly
costly workforce).
International
Internationally we provide outsourced services in sectors
such as hospitality, leisure, education, defence, retail,
and oil and gas across the Middle East region. Our oil and
gas services business, which accounts for the majority of
this division, provides essential maintenance services to
national oil companies in Abu Dhabi, Oman and Qatar. The
division delivered strong revenue growth over the year but
saw a significant reduction in activity and in profit in the
second half, reflecting continued low oil prices and the
cumulative impact on clients’ spending.
We have taken pre-emptive actions to reduce the size and cost
base of our operations in response to these market conditions,
which we expect to remain challenging during at least the
first part of 2017. We have also diversified our operations in
Qatar and Oman, winning work in new areas such as the water
and power sectors. Work to integrate our oil and gas services
business across the region is progressing well, enabling us to
improve the efficiency of our back office, and to bid for work
on a pan-regional basis.
In Qatar, we successfully completed the Steam Header Project
for RasGas, replacing 10 kilometres of steam pipeline, and
were also awarded a £76 million contract by Occidental
Petroleum to provide onshore engineering and fabrication
services. We had a good year in Oman, winning a two-year
extension on the Oman LNG maintenance contract worth
£13 million and, separately, are nearing completion of our
works on the Muscat-to-Sohar Product Pipeline Project.
Our developing position in the Middle East facilities
management market continues to benefit from our ability
to leverage our extensive UK experience and long-standing
customer relationships in the region.
Highlights during the period included winning an integrated
facilities management contract with Emaar, one of the UAE’s
largest developers, to provide services at all of its community
and retail centres across Dubai. We also won a contract with
Meraas (another major UAE developer) to provide integrated
FM services at its first roadside food truck park in Dubai.
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Our joint venture in Saudi Arabia with the Rezayat Group
(Interserve Rezayat) won facilities management contracts
for around £11 million of services on the Al Waha project –
part of the King Abdullah Economic City development.
Interserve continues to drive standards forward in the region
and we achieved a number of significant advances in, and
awards for, sustainable procurement, waste reduction and
staff training during 2016, all of which align closely with our
SustainAbilities goals.
EQUIPMENT SERVICES
Equipment Services, which trades globally as RMD Kwikform
(RMDK), provides engineering solutions in the specialist field of
temporary structures needed to deliver major infrastructure
and building projects. It is a global market leader and our
engineers solve complex problems for our customers, through
the application of world-class design and logistics capabilities,
backed up by technology and an extensive fleet of specialist
equipment. Our activities have a broad geographic spread,
the mix of which can change quickly, hence we manage our
equipment fleet globally, combining our scale and expertise
with agility and responsiveness to meet customers’ needs and
safeguard our operational efficiency.
Results summary1
Revenue
Contribution to total
operating profit
2016
2015
Change
£224.1m
£207.0m
£48.6m
£44.5m
+8%
+9%
Operating margin
21.7%
21.5%
1 Excluding Exited Businesses.
Performance in the period was excellent. Our strong
growth momentum, bolstered by sustained, but disciplined,
investment in the fleet and focus on growth markets,
continued as we delivered revenue growth of 8 per cent.
Contribution to total operating profit increased by 9 per cent to
£48.6 million, reflecting strong pricing strategies and a focus on
supply-chain management and fleet logistics which continued
to drive fleet utilisation improvements. It is notable that the
profitable growth occurred across a broad range of our markets,
rather than in any one individual territory, as described below,
and, in aggregate, away from the Middle East.
In Asia-Pacific, we delivered strong performances in Hong Kong
and the Philippines, driven by our ongoing work on large-scale
infrastructure projects, including the Kowloon Rail Terminus,
the Hong Kong Macau Bridge and the Manila Bay Development.
The North American business has made good progress
in 2016 winning sizeable jobs along the west coast of the
USA, particularly around Los Angeles and San Francisco, and
Texas. In South America trading conditions remain tough but
project wins in Peru offer some optimism for our prospects
in the region.
We again performed well in the Middle East, though volumes
and profits represented a smaller proportion of the overall
result than in previous years. We benefitted from the
continuation of a number of large projects started last year,
including the East:West Highway project in Qatar. Demand
also continued to grow in the UAE, where we won work on
the Dubai Ports Bridge project and in Saudi Arabia, where
we started work on the Jeddah Metro scheme.
In the UK we delivered another strong performance, winning
work on several major projects, including the Mersey Gateway
Bridge, the Medway crossing, the National Automotive
Innovation Centre and the Defence National Rehabilitation
Centre. Work also continues on sizeable rail improvement
projects in Reading and on the Stockley Viaduct project near
Heathrow airport.
In February 2016 we announced that, following several years
of substantial growth across the Group, we would conduct a
strategic review of RMDK to assess the full range of options
to maximise value for shareholders. Following the strategic
review, we announced in October 2016 that the Board had
concluded that Interserve remains the best owner for this
business, and that retaining RMDK as a core part of the Group,
with an updated strategy, best enables sustainable value
creation for shareholders.
Since then we have begun implementing our plan. We are
investing further in new technologies (to augment our already
extensive in-house 3D virtual reality and gaming-based
applications and differentiate further our engineering-led
customer value proposition) in growth markets to develop
a stronger position and improved financial performance. As
part of this we have launched new products within the UK
ground shoring market, complementing our existing strengths
in falsework and formwork. Additionally, we are exiting some
of our smaller, less attractive markets including Singapore and
Colombia and have rationalised part of the product range.
Details of the costs associated with these actions can be seen
in note 5 on page 125. We set up Kwikform College in South
Africa during the year to equip our growing workforce with
a broad range of skills including sales and design and to offer
advice on less traditional topics such as work/life balance,
nutrition, negotiation skills and time management.
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CONSTRUCTION
We offer design and construction services to create whole-life,
sustainable solutions for building and infrastructure projects.
Our focus is on forming long-term relationships and delivering
repeat business through commercial structures such as
framework agreements and project-financed schemes.
Our presence in the Middle East (in UAE, Qatar and Oman) is
structured through longstanding joint-venture partnerships,
enabling us to form enduring relationships with clients and to
combine our international experience with our partners’ local
knowledge to deliver outstanding service.
Reflecting this increased selectivity in work winning
our future workload fell 12 per cent to £1.2 billion, the
substantial majority of which is focused on low-risk projects
with an average value of less than £10 million, constructing a
range of buildings and infrastructure often under framework
agreements with public-sector customers and utility
companies. Notwithstanding the uncertainty following the
EU Referendum vote, which has begun to impact on the
London fit-out market with some project deferrals, our
assessment is that demand within our core areas remains
adequate to meet our modified volume, risk and return
aspirations for the business.
Results summary
2016
2015
Change
Revenue
- UK1
- International2
Contribution to
total operating profit
- UK1
- International2
Operating margin
- UK1
- International3
Future workload
- UK1
- International2
£971.4m
£894.9m
£296.9m
£279.0m
+9%
+6%
£13.8m
£23.7m
-42%
(£3.1m)
£16.9m
£10.7m
£13.0m
+30%
-0.3%
5.5%
1.2%
4.3%
£1.2bn
£0.4bn
£1.4bn
£0.3bn
1 Excluding Exited Business.
2 Share of associates.
3
Operating margin is calculated based on the underlying
operating margin of associates.
UK
Our UK Construction business, excluding the Exited Business
(reported separately, below), delivered a disappointing
performance. The continuation of a long period of challenging
market conditions, coupled with pockets of underperformance
in operational delivery in a number of contracts, offset strong
performances in most of our regional businesses, resulting
in a net loss result for the division.
These results, allied to the difficulties around the Exited
Business, have led to a series of senior management,
procedural and other organisational changes across the
division, which will continue this year. We are also investing
in new management information systems to improve scrutiny
of and risk assessment in our operations. Strategically, we
have narrowed our focus for work winning to core sectors
and activities and have refined the risk profile of work that
we take on.
During the year we secured a place on the Department of
Health’s £4 billion ProCure22 (P22) construction framework,
which continued our 14-year role on UK health frameworks,
through which we have delivered over £1 billion of diverse
healthcare facilities across more than 250 projects, including
the UK’s first Proton Beam therapy unit, currently under
construction at The Christie in Manchester. We also won
a place on the new £750 million Eastern Highways Alliance
Framework, which covers 11 local highways authorities across
the East of England.
Our strong presence in the utilities sector was reinforced
with new contract wins worth more than £200 million. These
included the Birmingham Resilience ‘Treated Water’ contract
for Severn Trent (in joint venture with Kier), and (in joint
venture with Doosan Enpure), a contract with Northumbrian
Water to upgrade the Horsley water treatment works in the
Tyne Valley. We were also selected by South West Water
to deliver a new water-treatment plant, which will serve
Plymouth and the surrounding area.
In another of our longstanding core markets, education, we
were selected to design and build a three-storey development
at the University of York and also to design and build two
new student accommodation buildings in Leamington Spa
for Alumno Developments.
Where appropriate we continue to be at the forefront of
innovation in the industry, for example increasing our use
of Unmanned Aerial Vehicles to undertake surveys in areas
where access is difficult or restricted, enabling us to provide
innovative designs and reduce delivery costs; and the design
and delivery of Ingenuity House – an exemplar sustainable
workplace of the future for our Midlands-based staff.
International
International Construction continued to gain momentum in
improving markets stimulated by development plans such as
Qatar’s ‘Vision 2030’, the UAE’s plans for Expo 2020 and the
ongoing need for infrastructure development to keep pace
with rapid population growth in the region.
Contribution to operating profit in our associate businesses
rose by 30 per cent to £16.9 million (2015: £13.0 million), with
a strong increase in volume and margins strengthening to
5.5 per cent (2015: 4.3 per cent). Future workload increased
to £0.4 billion (2015: £0.3 billion).
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RMDK HELPS BRING
HONG KONG BRIDGE
PROJECT TO LIFE
RMD Kwikform has designed and supplied specialist formwork and
shoring solutions to support the creation of the turnaround facilities for a
new £6.5 billion bridge linking Hong Kong, Macao and Zhuhai (HKZMB).
The 50 kilometre, dual three-lane bridge will connect Hong Kong to China
across the Pearl River when it is completed later this year, becoming one of
the world’s longest bridges. RMD Kwikform has been involved with the project
since 2014, having previously supported major works for the land phase
of the bridge.
For the latest phase, which is being built by a Dragages, China Harbour and
VSL joint venture, RMD Kwikform designed and supplied a range of formwork
and shoring solutions to support the construction of the turnaround facilities
in the water, over the marine viaducts.
The turnaround facility – a junction that allows traffic travelling in one
direction to make a U-turn – is located above the main bridge, meaning
the overall structure had to be built using both deck mounted and barge
mounted cranes.
Composed of different concrete elements, the formwork and shoring solutions
required to support the construction of the whole turnaround structure, were
both complex and varied. In order to cope with the loads from the precast
sections we designed solutions based on our modular, heavy-duty Megashor
shoring system. We designed two identical Megashor towers each side
of the main bridge, reaching a height of just over 19 metres.
We also created a specially fabricated support tower to help connect
the upper section of the bridge to the base as well as a number of safety
platforms to support the teams working on the project.
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Financial Statements
Market conditions in the UAE were largely good with key
contract wins including the £75 million expansion of the City
Centre mall in Ajman for Majid Al Futtaim, a client for whom
we have worked extensively on numerous projects, including
Dubai’s flagship Mall of the Emirates (the significant extension
of which we completed and handed over during the year).
We also won a £40 million contract to design and build a new
office tower at the Dubai International Financial Centre as well
as a contract to build a 389-room Premier Inn hotel in Dubai.
In Qatar, we are making good progress in delivering Doha
Festival City with joint-venture partner ALEC, where
(also in joint venture with ALEC) we have recently won a
£120 million contract to design and build a five-star hotel for
the InterContinental Hotels Group. The market continues to
show few immediate signs of the long-awaited resurgence.
Nevertheless, we remain confident of its medium-term
prospects and are carefully controlling our resources in
anticipation of activity growth towards the end of 2017.
In Oman, we successfully delivered the extension to Muscat
City Centre (again for Majid Al Futtaim) and completed the
£55 million Sohar Refinery Improvement Project for the Oman
Oil Refineries and Petroleum Industries Company. Activity
levels in downstream industrial development are healthy
in Oman and since the year end we have won contracts
for civil and building works for the new 445 MW combined
power plant in Salalah for SEPCO and for £120 million worth
of buildings, civils and underground piping work on the Liwa
Plastics project.
Our training centres in Dubai and Qatar, which run a full trades
training curriculum taught by Construction Industry Training
Board qualified tutors, enabled us to continue to invest in the
skills and workmanship of our workforce, and delivered over
55,000 training days in 2016.
Exited Business
Results summary
Revenue
– UK Exited Business
(Consolidated revenue)
2016
2015
£91.0m
£145.9m
Total pre-tax exceptional loss
£160.0m
£10.6m
In November we were served notice of termination on the
Glasgow Recycling and Renewable Energy project. We have
considered the implications of this development with our legal
advisers and expect a lengthy period of litigation to ensue.
Alongside this exercise we have continued to undertake a
detailed review of operational developments on the other
contracts in our exited EfW business, including the impact of
the entering into administration by our principal gasification
sub-contractor, Energos, together with the likelihood and
timing of potential recoveries and claims from third parties.
In the light of these developments and of the continuing
uncertainties in relation to the final conclusion of our EfW
contracts, we have concluded that the exceptional loss of
£70 million announced in May 2016 is no longer adequate
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to reflect the incurred and anticipated losses associated
with this business. Consequently, we have determined that
it is appropriate to increase the exceptional loss for exiting
this market and the associated contracts to £160 million.
We expect to complete substantially the construction and
commissioning of the projects during 2017, although our
contractual obligations in respect of warranties, and the
resolution of claims will continue for a period thereafter.
Further cash outflows of c£60 million are expected during
2017 as the income statement charge is utilised.
Managing the challenges of exiting from these projects and
of pursuing our entitlements to recoveries and claims from
third parties remains the focus for the large, experienced
team of commercial, operational and legal experts we have
deployed and will remain an area of critical focus for the
foreseeable future.
Group Services
All central costs, including those related to our financing
and central bidding activities, are disclosed within the
Group Services segment.
Group Services’ costs rose 7 per cent to £25.2 million
(FY 2015: £23.6 million), due principally to investment in
back-office capabilities, IT infrastructure, people development
and communications. We anticipate this increased level of
investment will continue in the medium term, as we continue
to scale our support and assurance functions appropriately
with the growth of our operational businesses. This investment
is also reflected in an increased level of capital expenditure as
we continue the construction of a new Midlands hub into which
we will consolidate many of our back-office activities.
OUTLOOK
Our near-term development will continue to be played out
against a backdrop of mixed economic conditions.
Support Services UK
The next 12 months will witness the introduction of a number
of further regulatory changes which will add costs to our UK
Support Services business. Some, such as the apprenticeship
levy, also create business opportunity (in helping other employers
deliver their apprenticeship programmes) whereas others, such
as increased pension costs and other employment benefits,
will take some time to pass on fully to customers. Offsetting
these headwinds, we are able to benefit from productivity gains
generated by the substantial investment we have made in our
own back office and customer facing systems and processes. In
aggregate we therefore expect margins to remain resilient.
We continue to benefit from a large and stable order book
(£5.7 billion) and to see encouraging levels of contract bidding
opportunities across our core markets, as clients increasingly
look to solutions such as outsourcing in order to capture
efficiency gains to offset their own rising costs. This underpins
our expectation of modest volume growth and of a stable
overall performance in 2017 relative to 2016.
Support Services International
The lower oil price and consolidation and reorganisation among
some of the main oil and gas players in the region has led to
some contraction in the addressable market. This slowdown,
the impact of which was witnessed in the second half of 2016,
is expected to suppress volumes in 2017. We have been and
will continue to take mitigating action on our cost base where
possible. Notwithstanding these short-term pressures, we
expect a more favourable 2018 outlook as markets stabilise.
Equipment Services
We expect to see continued positive momentum in Equipment
Services as we invest further in growth markets, new
technologies and products to differentiate our engineering-led
customer value proposition. The structural drivers for global
infrastructure remain healthy and our proven ability to identify
and respond as market demand shifts globally, underpins our
confidence in the division’s prospects.
Construction UK
Managing the challenges of exiting the remaining EfW projects
is a significant priority, as is ensuring our processes continue
to improve given the lessons we have learned. In the near
term our focus will be on consolidation and on re-establishing
the quality of earnings and the appropriate risk:reward profile
in our continuing UK Construction operations. In more stable
market conditions overall, we believe there is sufficient
demand to enable us to achieve this objective at broadly
current revenues.
Construction International
Our International Construction business continues to trade
well and grow its workload with market conditions remaining
generally positive. In the Middle East, our combination
of strong customer and partner relationships that have
developed over more than 30 years provide a platform for
future growth, as do development plans such as Qatar’s
‘Vision 2030’, the UAE’s plans for Expo 2020 and the ongoing
need for infrastructure development to keep pace with rapid
population growth in the region.
Overall
Recognising the different characteristics and prospects of our
various markets, as described above, we anticipate overall
Group performance in 2017 to be stable compared to 2016.
OUR PEOPLE
Employee consultation and participation
We believe in involving our people in matters affecting them as
employees and keeping them informed of all relevant factors
concerning the Group’s performance, strategy, financial status,
charitable activities and other issues. We achieve this through
formal and informal briefings, our Group newspaper ‘Focus’
and our intranet.
22
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STRATEGIC REPORT Overview
Strategic Report
Strategic Report
Directors’ Report
Financial Statements
Financial Statements
We continued to grow our web-based employee portal,
www.MyInterserve.com, specifically aimed at reaching our
thousands of frontline employees. The portal, which now has
around 20,000 regular users, is accessible on mobile devices,
giving staff access to e-pay slips, company news, the ability to
participate in discussion forums, and to give days of their time
in support of good causes, as well as access to staff discounts
at a range of retailers and leisure outlets.
We operate two all-employee share schemes to encourage
our employees to share in the future of the Group. In our
Sharesave Scheme, employees save small amounts each month
which can then be used to purchase Company shares at a
discount to the market price. In our Share Incentive Plan,
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.
Equal opportunities
Interserve 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 justifi ble, on the grounds of gender
(including sex, marital or civil partner status, gender re-
assignment), race (including ethnic origin, colour, nationality
and national origin), disability, sexual orientation, religion or
belief, age, and pregnancy or 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.
Diversity and inclusion
In 2016 we were awarded the National Equality Standard (NES)
for equality, diversity and inclusion. This is a cross-industry
recognised standard covering all areas of Equality, Diversity
and Inclusion in the UK.
We became the first company operating in the support
services and construction sectors to have been accredited,
as well as being the largest employer to achieve the standard
to date. The target of achieving a diversity and equality
standard across the Group by 2018 was a key aim within our
SustainAbilities Plan.
The Group was praised for its visible leadership support for
the agenda at Executive Board and Divisional Board level,
for having comprehensive people policies across the business
and delivering diversity and inclusion programmes across the
Group. The Company was also commended for demonstrating
strong employee engagement through diversity network groups
and its employee survey.
Interserve already works with a variety of different
organisations who are helping us put in place programmes and
practices that improve the diversity of our talent pipeline and
build our culture of inclusion. These include BITC (Business
in the Community), Investors in Diversity (IiD), The Prince’s
Trust, WISE, Ban the Box, Leonard Cheshire and Two Ticks
(for disability), to name several. The NES is the consolidating
standard that binds all our activities together and through
their process will help our selection of partner organisations
moving forward.
To improve the gender split of our talent pipeline, Interserve
further invested in the following activities in 2016:
development of a Woman in Interserve network, provision of
one-on-one and group coaching to support career progression
of our female talent and an enhancement on maternity
benefits across the divisions.
As at 31 December 2016, 33,157 of our global workforce of
60,123 were male and 26,966 were female. Further information
is provided in the table below.
Throughout our worldwide operations we strive to operate to
high standards of human rights in accordance with our values
and all appropriate legislation.
Number of persons who were
directors of the Company1
Number of persons who were
senior managers of the Group2
Number of persons who were
employees of the Group3
Male
Female
Total
2016
8
102
2015
9
106
2016
2015
1
7
1
8
2016
9
109
2015
10
114
33,047
34,671
26,958
28,775
60,005
63,446
Total
33,157
34,786
26,966
28,784
60,123
63,570
1 Plc Board directors at year end.
2 Subsidiary directors and Persons Discharging Managerial Responsibility (PDMRs) at year end.
3 Employees of wholly-owned subsidiaries included within Group consolidation at year end.
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GovernanceOverview Operational review continued
128
2016 ACCIDENT
INCIDENT RATE
146
2015 ACCIDENT
INCIDENT RATE
HEALTH AND SAFETY
Interserve adopts a formal and proactive approach to the
management of health and safety throughout our operations.
Bruce Melizan is the executive director designated as
Safety Champion and senior directors are appointed with
responsibility for health and safety in each division. These
directors, together with the Heads of Safety from each
of the divisions, met five times during the year to review
performance and the various health and safety initiatives being
undertaken to facilitate the spread of best practice.
Our standard is for all operating businesses to implement safety
management systems that meet the OHSAS 18001 standard.
During the year Group Centre achieved certification to the
standard. Across the world 97 per cent of our employees work
under safety management systems certified to this standard.
Safety performance is clearly defined as a line-management
responsibility and together with formal management systems
we provide appropriate training and professional support to
ensure managers are able to effectively discharge their duties.
Proactive site visits and safety inspections are carried out by
directors, management teams and safety advisers. Members of
the Executive Board carried out a total of 101 site safety visits
during the year and across the Group over 4,900 management
safety tours were recorded. As a result of these and other
inspections over 131,500 unsafe conditions were identified and
corrected, preventing potential incidents.
We are regularly recognised for our contributions to delivering
high standards of health and safety and in 2016 this included:
• Construction and Engineering Services received RoSPA Order
of Distinction awards for 16 and 15 consecutive Gold Awards
respectively.
• Other RoSPA awards included eight President’s Awards (for
between 10 and 14 Gold Awards), four Gold Medals (for
between five and nine Gold Awards), eight Gold Awards and
a Silver Award.
• Two employees received recognition through RoSPA Guardian
Angel Awards.
Despite this success two of our employees suffered fatal
injuries in an incident in Oman and a contractor working for
us was fatally injured in an incident in Qatar. These incidents
were each investigated to find lessons learned and they have
informed a detailed review of the culture we have surrounding
our approach to both safety and health.
Overall our reportable injury incidence rate reduced by 12 per
cent with our overall accident rate for all lost-time injuries
reducing by 10 per cent.
24
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STRATEGIC REPORT Strategic Report
Financial Statements
ACHIEVING THE
NATIONAL EQUALITY
STANDARD
We achieved the National Equality Standard (NES) for equality,
diversity and inclusion in the UK during the year.
The NES was developed by Ernst & Young (EY) alongside leading
businesses, the Equality and Human Rights Commission and the CBI.
It is based on a robust assessment of an organisation against defined
criteria across seven standards, comprised of 49 competencies and is
tested through documentary analysis, staff interviews and site visits.
The target of achieving a diversity and equality standard across the
Group by 2018 was a key aim within our SustainAbilities Plan.
We became the first company operating in the support services and
construction sectors to have been accredited, as well as being the
largest employer to achieve the standard to date.
Interserve was praised for its visible leadership support for the
agenda at Executive Board and Divisional Board level, for having
comprehensive people policies across the business and delivering
diversity and inclusion programmes across the Group. The Company
was also commended for demonstrating strong employee engagement
through diversity network groups and its employee survey.
Interserve Chief Executive, Adrian Ringrose said: “The next challenge
for us is to ensure our diversity and inclusion agenda continues to
move forward.”
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GovernanceOverview Principal risks and uncertainties
We operate in a business environment in which a number of risks and uncertainties exist. While it is not possible to eliminate
these completely, the established risk-management and internal control procedures, which are regularly reviewed by the
Group Risk Committee on behalf of the Board, are designed to manage their effects and thus contribute to the preservation
and 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. More information about how we
manage risk can be found in the Corporate Governance report on pages 50 to 52. The table below details the principal risks
and uncertainties which the Group addresses through its risk-management measures. The changes to these risks relative to
the last bi-annual review undertaken by the Board in August 2016 are depicted in the column entitled “Risk Environment”.
RISK
POTENTIAL IMPACT
RISK ENVIRONMENT
MITIGATION AND MONITORING
BUSINESS,
ECONOMIC
AND POLITICAL
ENVIRONMENT
Among the changes which could affect our
business are:
• shifts in the economic climate both in
the UK and internationally, including
changes in the oil and gas industry should
the current low prices continue into the
medium term;
• alterations in the UK Government’s
policy with regard to employment
costs, expenditure on improving public
infrastructure, buildings, services and
modes of service delivery and delays
in or cancellation of the procurement
of government-related projects;
• Brexit, in particular our reliance on
the large number of EU nationals within
our workforce;
• the imposition of unusually onerous
contract conditions by major clients;
• changes in our competitors’ behaviour;
• a deterioration in the profile of our
counterparty risk; and
• civil unrest and/or shifts in the political
climate in some of the regions in which
we operate
any one or more of which might result in a
failure to win new or sufficiently profitable
contracts in our chosen markets or to deliver
contracts with sufficient profitability.
We seek to mitigate these risks by
fostering long-term relationships with our
clients and partners, our governmental/
quasi-governmental medium-to-long-term
revenue streams, the development of
additional capabilities to meet anticipated
demand in new growth areas, maintaining
a flexible cost base, careful supply-chain
management and by operating in various
regions of the world, including the Middle
East, as part of a global balanced portfolio,
where we are able to transfer resources
to maximum effect between the differing
economies of that region.
We also have in place new and enlarged
committed financing with long maturity
dates.
We are presently undertaking a workforce
survey in order to be able to determine
the effects of any change to the current
arrangements for EU nationals working in
the UK.
We constantly monitor market conditions
and assess our capabilities in comparison
to those of our competitors. Whether we
win, lose or retain a contract we analyse
the reasons for our success or shortcomings
and feed the information back at both
tactical and strategic levels. We also
constantly monitor our cost base and take
action to ensure it is suitable given the
prevailing market environment.
We constantly monitor and assess levels
of political risk and have contingency plans
to mitigate such risks.
We have also set ourselves the goals of
delivering sustainable solutions to our
clients, ensuring that we and our suppliers
uphold the highest standards in equality,
diversity, human rights and ethics, playing
an active role in the communities in which
we operate and placing sustainability at
the heart of our business.
FinancialCapital
SocialCapital
KnowledgeCapital
NaturalCapital
26
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STRATEGIC REPORT Strategic Report
Financial Statements
RISK
POTENTIAL IMPACT
RISK ENVIRONMENT
MITIGATION AND MONITORING
IT SYSTEMS/
SECURITY
As IT systems become ever more integrated
and the number of cyber attacks increases,
there is an increasing need to:
MAJOR
CONTRACTS
• maintain data integrity;
• prevent loss of service; and
• meet contractual requirements which
impose increased levels of data security.
As we focus on large-volume relationships
with certain major clients for a significant
part of our revenue, termination of one or
more of the associated contracts would be
likely to reduce our revenue and profit. In
addition, the management of such contracts
entails potential risks including mis-pricing,
inaccurate specification, poor mobilisation
of new contracts leading to non-delivery of
promised cost or efficiency improvements,
failure to appreciate risks being taken
on, poor control of costs or of service
delivery, sub-contractor performance and/or
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, there may be
increases in costs, including wage inflation,
beyond those anticipated or clients under
financial pressure seeking to implement
alternative interpretations of the contract
in order to reduce payments.
OPERATING
SYSTEM
We enjoy demonstrable success in working
with third parties both through joint
ventures and associated companies in the
UK and abroad. This success results in a
material proportion of our profits and cash
flow being generated from businesses in
which we do not have overall control. Any
weakening of our strong relationships with
these business partners could have an effect
on our profits and cash flow.
We have, and continue to invest in, IT
applications and infrastructure bringing
on board a high-quality team to implement
our IT strategic roadmap, and the
management of cyber security risk.
We have also enhanced our data security
policies and procedures.
Among our mitigation strategies are
targeting work within, or complementary
to, our existing competencies, engagement
of experts to effectively deploy both
business and cultural change requirements,
the fostering of long-term relationships
with clients, operating an authority
matrix for the approval of large bids,
monthly management reporting with
key performance indicators at contract
and business level, the use of monthly
cost-value reconciliation, supply-chain
management and ensuring that periodic
benchmarking and/or market testing are
included in long-term contracts.
We monitor the risk on contractual
counterparties to avoid over-dependency
on any one customer or sub-contractor.
We have made a series of senior
management, procedural and other
changes across our UK Construction
division which will continue into the
current year.
We have a proven track record of
developing and re-enforcing such
relationships in a mutually beneficial
way over a long period of time and our
experience of this places us well to
preserve existing relationships and create
new ones as part of our business model.
The measures taken to limit risk in this
area include: board representation,
shareholders’ agreements, management
secondments, local borrowings and rights
of audit in addition to investing time in
personal relationships.
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GovernanceOverview Principal risks and uncertainties continued
RISK
POTENTIAL IMPACT
RISK ENVIRONMENT
MITIGATION AND MONITORING
KEY PEOPLE
The success of our business is dependent on
recruiting, retaining, developing, motivating
and communicating with sufficient numbers
of appropriately skilled, competent people of
integrity at all levels of the organisation. This
is particularly relevant during periods of rapid
growth and expansion into new markets.
HEALTH AND
SAFETY REGIME
The nature of the businesses conducted by the
Group involves exposure to health and safety
risks for both employees and third parties.
Management of these risks is critical to the
success of the business and is implemented
through the adoption and maintenance of
rigorous operational and occupational health
and safety procedures.
FINANCIAL RISKS We are subject to certain financial risks which
are discussed in the Financial Review on
page 34.
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 certain
development 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 have a Group-wide leadership
programme designed to support the strategic
aims of the Company. We have various
incentive schemes and run a broad range of
training courses for people at all stages in
their careers. With active human resources
management and Investors in People
accreditation in many parts of the Group,
we manage our people professionally and
encourage them to develop and fulfil their
maximum potential with the Group.
We have also set ourselves the goals
of inspiring the next generation of
professionals, measuring and recognising
the value of people, society and the
environment.
We are also committed to providing skills
development and training to our current
employees through work experience,
graduate and apprenticeship schemes. We
work with organisations such as the Social
Market Foundation and the Skills Commission
to lead the debate with the UK Government
on training for the workforce of tomorrow.
We are very conscious of protecting workers’
rights issues in the Middle East and monitor
evolving standards and costs of compliance
very closely.
A commitment to safety forms part of
our mission statement and the subject
leads every Board meeting both at Group
and divisional level. Each member of the
Executive Board undertakes dedicated
visits to look at health and safety measures
in place at our operational sites and we
have ongoing training and communication
campaigns across the Group emphasising its
importance.
Health and safety also has its own category
in our reward and recognition scheme.
We have policies in place to monitor the
effective management of working capital,
including the production of daily balances,
weekly cash reports and forecasts together
with monthly management reporting.
We have put in place increased and
extended committed financing with long
maturity dates.
FinancialCapital
SocialCapital
KnowledgeCapital
NaturalCapital
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STRATEGIC REPORT Strategic Report
Financial Statements
RISK
POTENTIAL IMPACT
RISK ENVIRONMENT
MITIGATION AND MONITORING
DAMAGE TO
REPUTATION
Issues arising within contracts, from the
management of our businesses or from the
behaviour of our employees at all levels, can
have broader repercussions on the Group’s
reputation than simply their direct impact
and may have an adverse impact upon the
Group’s “licence to operate”.
This risk increases as we expand the range
of frontline services being delivered,
some of which are high profile and/or
politically sensitive.
ENVIRONMENTAL
CHANGE
Adverse weather events, travel disruption,
long-term climate shifts, water stress and
sea-level rises which could have uncertain
implications for our business and for many
of our clients, who increasingly require us to
help them address the impact of these issues
on their activities.
Control procedures and checks governing
the operation of our contracts and of
our businesses, supported by business
continuity plans, are in place. With the
expansion of our frontline services there is
even more emphasis placed upon assessing
reputational risk before entering into such
contracts, having proper procedures in place
to monitor performance, escalate issues
and monitor our response, promoting a
good understanding of our brand amongst
stakeholders through timely, clear and
consistent communications.
We have a clear set of core values which
we strive to embed within our organisation
and set ourselves the goals of creating a
culture of innovation in sustainability and
offering transparency to clients on public-
sector projects.
We have in place business continuity plans
for our own businesses and work closely
with our clients in respect of their business
continuity arrangements.
Our SustainAbilities Plan identifies a number
of specific and challenging targets in areas
of waste, emissions, recycling and water
use. We have set ourselves the goals of being
responsible for zero net loss in biodiversity,
procuring products and services beyond
best practice in environmental and social
standards, becoming a water positive
business, halving our absolute carbon
emissions and those from our supply chain,
helping our clients to increase their energy
security, caring for the natural resources we
use (including treating waste as a resource)
and building resilience to environmental
change in everything we do.
The Group continues to have no material exposure to currency risks. Whilst it does not trade in commodities, the Group
does operate in countries where their economies depend upon commodity extraction and are therefore subject to volatility
in commodity prices. The Group’s principal businesses operate in countries which we regard as politically stable.
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GovernanceOverview Financial review
REVENUE AND OPERATING PROFIT
For commentary on the operational results and highlights of the year please refer to the Operational Review section of the
Strategic Report on page 14 to 25.
NET INTEREST CHARGE
The net interest charge for the year of £17.7 million can be analysed as follows:
£million
Net interest on Group debt
Pension finance credit
Group net interest charge
2016
(18.8)
1.1
(17.7)
2015
(16.7)
0.3
(16.4)
The increased interest charge on Group debt of £18.8 million (2015: £16.7 million) reflects higher average net debt levels in
2016, principally driven by the impact of the loss-making exited businesses. 2016 average net debt stood at £390.9 million.
The pension finance credit is calculated based on the funding position at the end of the preceding year. Consequently, the 2015
IAS 19 pension surplus position resulted in a 2016 pension finance credit of £1.1 million (2015: £0.3 million credit). In 2017 this
will become a pension finance charge, reflecting the £52.4 million IAS 19 deficit position as at 31 December 2016; this charge is
expected to be in the region of £2.0 million in 2017.
PENSIONS
At 31 December 2016 the Group had an IAS 19 pension deficit of £52.4 million (2015: £17.2 million net surplus).
£million
Gross liabilities
Insurance assets
Defined benefit obligation net of insurance assets
Other assets
Total surplus/(deficit)
2016
(1,044.6)
368.7
(675.9)
623.5
(52.4)
2015
(880.9)
347.9
(533.0)
550.2
17.2
Although the aggregate investment portfolio delivered a strong return this was not sufficient to prevent the scheme moving
from a surplus position at year end 2015 to a deficit position at year end 2016. The key elements in this movement were a
reduction in the liability discount rate from 3.8 per cent in 2015 to 2.8 per cent in 2016 (reflecting the continued low yields
on bonds) and an increase in anticipated RPI inflation from 3.1 per cent to 3.3 per cent.
Looking to 2017 it is anticipated that these macro-economic factors will lead to an increase in our overall pension costs
of £5 million to £10 million.
Cash contributions into the pension scheme, however, will remain unchanged until the next triennial valuation, due in 2018
on the position as at December 2017. The existing deficit recovery payments of £12 million per annum, indexed for inflation,
will continue until that date.
30
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STRATEGIC REPORT Strategic Report
Financial Statements
TAXATION
The tax charge for the year of £7.5 million is further analysed below. The factors underlying this effective rate are shown in the
table below.
£million
Subsidiary companies
Joint ventures and associates1
Headline profit before tax
Amortisation of intangible assets
Pre-exited business and exceptional items
Exited business and exceptional items
Effective tax charge and rate
2016
2015
Profit/(loss)
83.9
22.6
106.5
(29.9)
76.6
(170.7)
(94.1)
Tax
(12.2)
-
(12.2)
4.7
(7.5)
-
(7.5)
Rate
Profit/(loss)
14.5%
0.0%
11.5%
15.7%
9.8%
n/a
n/a
106.0
22.6
128.6
(31.1)
97.5
(18.0)
79.5
Tax
(17.8)
-
(17.8)
5.8
(12.0)
2.7
(9.3)
Rate
16.8%
0.0%
13.8%
18.6%
12.3%
15.0%
11.7%
1 The Group’s share of the post-tax results of joint ventures and associates is included in profit before tax in accordance with IFRS.
The Group companies’ effective rate stands at 14.5 per cent, below the UK corporation tax rate of 20.0 per cent, due to the
impact of profits in lower tax Middle East locations and the utilisation of prior year losses.
Tax credits arising on the amortisation of intangible assets and on other exceptional items have remained at broadly stable rates
from 2015.
No tax credit has been recognised on the charges relating to the exited business and the exceptional items relating to the
strategic review of Equipment Services. This reflects a prudent approach to the speed of possible utilisation, particularly in
overseas jurisdictions we have subsequently exited.
NEW ACCOUNTING STANDARDS
IFRS 9 Financial instruments
The impact of the sections of IFRS 9, effective from 1 January 2018 at the earliest, currently issued will result in the Group’s
project finance interests that are currently treated by the joint-venture companies as being available-for-sale, being treated as
a debt carried at “fair value through profit or loss” or “amortised cost”. As a result, movements in the fair value will no longer
be taken to “Other comprehensive income”.
IFRS 15 Revenue from contracts with customers
The new standard will replace IAS 18 Revenue and IAS 11 Construction contracts. It will become effective for accounting periods
on or after 1 January 2018, at the earliest. The main impact of the standard will be to require the recognition and disclosure of
revenue to be based around the principle of disaggregation of discrete performance obligations.
IFRS 16 Leases
The new standard will replace IAS 17 Leases. It will become effective for accounting periods on or after 1 January 2019, at the
earliest. It will require nearly all leases to be recognised on the balance sheet as liabilities, with corresponding assets being
created.
In advance of the adoption of IFRS 9, IFRS 15 and IFRS 16, the Group will conduct a systematic review to ensure that the impact
and effect of the new standards are fully understood, and changes to the current accounting procedures are highlighted and
acted upon. Any impact is not known at this time.
Except for IFRS 9, IFRS 15 and IFRS 16 noted above, the directors do not currently anticipate that the adoption of any other
standard and interpretation that has been issued but is not yet effective will have a material impact on the financial statements
of the Group in future periods.
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GovernanceOverview Financial review continued
DIVIDEND
No final dividend is proposed for the year. The total dividend for the year is 8.1 pence (2015: 24.3 pence).
NET DEBT AND CASH FLOW
Year-end net debt stands at £274.4 million (1.7x EBITDA) an improvement on the 2015 position of £308.8 million (1.9x EBITDA).
This decrease is analysed below:
£million
Operating profit before exceptional items and amortisation of intangible assets
Depreciation and amortisation
EBITDA
Net capital expenditure
Land disposal – Midlands office consolidation
Gain on disposal of property, plant and equipment
Other
Working capital movement
Dividends in excess/(deficit) of JVA profit
Gross operating cash flow
Exited Business
Exceptional items
Pension contributions in excess of the income statement charge
Interest and tax
Dividends paid
Investments (net)
Foreign exchange
Other non-recurring
Decrease/(increase) in net debt
Year-end net debt
2016
124.2
39.0
163.2
(46.0)
7.0
(16.0)
(0.3)
119.7
11.6
239.2
(116.9)
(7.7)
(19.5)
(29.0)
(37.1)
(5.2)
10.9
(0.3)
34.4
2015
145.0
36.1
181.1
(44.2)
(7.0)
(12.9)
0.4
(53.7)
(8.9)
54.8
(10.4)
(5.6)
(16.1)
(23.5)
(34.7)
(6.6)
0.1
2.1
(39.9)
(274.4)
(308.8)
2016 was a strong year of cash generation in our continuing operations, with a gross operating cash inflow of £239.2 million.
Some of this significant inflow arose from actions of a non-recurring nature, largely implemented in order to mitigate the cash
requirements in the exited businesses. The majority, however, arose from structural improvements to our processes and/
or the resolution of previous years’ investments and imbalances. Overall, pre the funding of revenue growth, we continue to
target gross operating cash conversion at 100 per cent of profits over a three-year period. Following two years of relatively
high investment and consequent low cash conversion, 2016 has seen a reversal and a return of our rolling three-year conversion
closer to our norms. This measure now stands at 85 per cent (three years to 31 December 2015: 42 per cent). The constituent
parts of this year’s performance are discussed below.
Net capex of £46.0 million (2015: £44.2 million) reflects our continued investment across the Group, in the Equipment Services
equipment fleet, our customer-facing IT solutions and particularly improving our back-office IT solutions. The £7.0 million net
land disposal in the period reflects the progression of arrangements in respect of our Midlands Office consolidation. No profit
was recognised on this transaction.
The very strong working capital inflow of £119.7 million reflects the impact of settlement of a number of final accounts, an
increased focus on cash management throughout the business and the stabilisation of customer payment terms, following
several periods of tightening. During 2016 we released an aggregate of £87.1 million from our receivables and inventory
balances. Some of the benefit we received in 2016 from our creditor balances is expected to unwind in the current financial
year. Over the coming year we would expect to continue with our programmed improvements in customer collections, the
order-to-cash cycle, and the management of contract work in progress.
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STRATEGIC REPORT Strategic Report
Financial Statements
This strong cash performance has also been reflected in good dividend flow from our overseas joint ventures and associates,
with dividends at c150 per cent of reported profits in period. This reflects both the improved underlying cash flow management
within those businesses and the final settlement of a number of significant contracts in the period.
The £116.9 million cash outflow in the year (£127.3 million cumulatively since 2015) within the UK Construction exited business
reflects our gross operational losses (cumulatively £181.5 million), the settlement of subcontract accounts and customer
damages ahead of any recoveries from third parties. We expect approximately £60 million of further net cash outflows in 2017
as the contracts are completed and our claims are pursued. Although the timing of resolution of claims is uncertain, ultimately
the contract cash and profit outflows will equate.
£7.7 million of exceptional items reflect the cash costs of the Equipment Services strategic review (£4.9 million) and the 2016
losses generated in those countries exited (£2.8 million) as a consequence of the review.
Investments outflow in the year of £5.2 million reflects the net position following continued investment into our property
portfolio and the disposal of our investment in West Yorkshire Police in H1 2016.
The foreign exchange related increase reflects the decline in strength of sterling, which had the impact of increasing the
translated value of cash balances held overseas.
AVERAGE NET DEBT AND OUTLOOK
2016 average net debt stood at c£390 million (YE 2016: £274.4 million) with main drivers of the difference being the phasing of
flows on the Exited UK Construction Business, timing of creditor payments and the benefit of reductions in our inventory and
debtor balances.
2017 average net debt is expected to be c£450 million with the key movers from 2016 presented below:
2016 average net debt
Full-year impact of 2016 Exited Business outflows
Average impact of 2017 Exited Business outflows
Cash generation – underlying business
2017 average net debt
Expected 2017
£m
(390)
(45)
(60)
45
(450)
Flows from the Exited Business were staggered throughout 2016 and the full-year impact of these within 2016 will increase
average net debt by c£45 million. It is expected the average net debt impact of 2017 Exited Business outflows will be broadly
in line with the expected net full-year cash flow; however, the timing of claims resolution will have a significant influence on
this number. Expected cash generation from the underlying business is after the funding of obligations to both equity and debt
holders.
In February 2017 we enhanced our committed borrowing facilities, which now total £640 million. These are discussed in greater
detail overleaf.
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GovernanceOverview Financial review continued
TREASURY RISK MANAGEMENT
We operate a centralised Treasury function whose primary role is to manage interest rate, liquidity and foreign exchange risks.
The Treasury function is not a profit centre and it does not enter into speculative transactions. It aims to reduce financial risk by
the use of hedging instruments, operating within a framework of policies and guidelines approved by the Board.
Liquidity risk
We seek to maintain sufficient facilities to ensure access to funding for our current and anticipated future requirements,
determined from budgets and medium-term plans.
We have two main committed funding sources, totalling £640 million:
• a $350 million, fully-hedged, US private placement facility with a weighted average maturity at June 2024. This amount
is fully swapped out into a sterling amount of £207 million; and
• committed revolving bank facilities. Throughout 2016 these stood at £300 million with an expiry date of February 2019. During
February 2017 we replaced these with new committed bank facilities totalling £433 million with a weighted average expiry
date of April 2021.
These additional facilities were put in place to reflect the increased liquidity requirements of the Group, accommodating the
actual and forecast outflows from the Exited Business. As discussed above it is anticipated that average net debt for 2017 will
be approximately £450 million. Debt facilities are sufficient on both covenant compliance and absolute net debt metrics.
Market price risk
The objectives of our interest rate policy are to match funding costs with operational revenue performance and to ensure that
adequate interest cover is maintained, in line with Board-approved targets and banking covenants.
Our borrowings under the US private placement are denominated in US dollars and subject to fixed interest rates. These are
fully hedged back into a sterling fixed rate with foreign exchange swaps lasting for the duration of the loan period.
Our other 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 approximately one year and six months.
Foreign currency risk
Transactional currency translation
The revenues and costs of our trading entities are typically denominated in their functional currency. Where a material trade is
transacted in a non-functional currency, the entity is required to take out instruments through the centralised Treasury function
to offset 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 translation
We do not hedge the impact of translating overseas entities’ trading results or net assets into the consolidation currency.
The impact of changes in the year-end exchange rates, compared to the rates used in preparing the 2016 consolidated financial
statements, has led to an increase in consolidated net assets of £67.4 million (2015: £7.3 million increase).
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STRATEGIC REPORT Strategic Report
Financial Statements
2016 Tax strategy and risk management
Interserve understands and seeks to observe its corporate and social responsibilities as a large employer in the UK whilst
seeking to ensure that it is fiscally efficient.
Governance
The Group seeks constantly to evolve its systems, processes and procedures as they relate to taxation to ensure that confidence
is maintained in the Group’s ability to process and deal with its taxation affairs. All tax decisions and considerations are routed
through the specialist Group Tax Department prior to being considered further and, when appropriate, put forward for approval
at Board level. All tax disclosures and errors are reported to the Group Tax Department which also forms the principal point
of contact between the Group and HMRC.
The Group has a robust system of documented controls which are regularly reviewed to ensure they remain fit for their intended
purpose and which ensure that we are able to meet our taxation obligations and the requirements of the Senior Accounting
Officer (SAO) reporting obligations. A comprehensive review is undertaken each year of adherence to SAO requirements before
considering whether it is necessary to draw attention to errors which may have affected the Group’s ability to account for the
correct amount of tax.
Responsibility for the execution of the Group’s tax strategy rests with the Group Finance Director and the Head of Tax
and Treasury.
Planning
Efficient management of the tax base of the Group involves structuring the Group’s affairs efficiently for tax and conducting
the Group’s affairs in accordance with tax legislation, but does not involve or permit the use of risky or aggressive tax structures
or schemes.
The Group’s tax strategy is determined by the Board of directors and is summarised in the following statement:
The Group will seek to manage the tax it pays i) by abiding by legal and regulatory principles, ii) by considering acceptability
to stakeholders, and iii) by avoiding any acts inconsistent with the Group’s reputation.
The Group seeks to create value for its shareholders and efficient management of the tax base of the Group is an integral part
of that value creation, subject to the principles outlined above.
Relationship with UK tax authorities
Interserve seeks to maintain an open dialogue in the UK with HMRC regarding its plans and tax affairs, discussing potential tax
issues which may arise in the business as well as initiating discussion around the suitability of the systems and controls in place
to control and manage its tax position.
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GovernanceOverview Financial review continued
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 Strategic Report and Governance sections. Our financial
position, cash flows, liquidity position and borrowing facilities and details of financial risk management
are described above.
The majority of our revenue is derived from long-term contracts, which provides a strong future workload
and good forward revenue visibility. In February 2017 we enhanced our committed debt facilities,
as outlined in the Treasury Risk Management section above, and these now total £640 million with a
weighted average maturity of April 2022. The directors believe that the Group is well placed to manage
its business risks successfully.
After making enquiries, the directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future, representing, at least, a period
of twelve months from the date of this report. For this reason, they consider it appropriate to continue
to adopt the going concern basis in preparing the financial statements.
VIABILITY STATEMENT
The directors have assessed the viability of the Group over a three-year period to December 2019, taking
account of the Group’s current position and the potential impact of the principal risks documented in the
Strategic Report. The choice of a three-year period accords with the strategic planning horizon considered
in the Group’s budget process. Based on this assessment, the directors have a reasonable expectation that
the Company will be able to continue in operation and meet its liabilities as they fall due over the period
to December 2019.
In making this statement the directors have considered the resilience of the Group, taking account of
its current position, the principal risks facing the business in severe but reasonable scenarios, and the
effectiveness of any mitigating actions. This assessment has considered the potential impacts of these
risks on the business model, future performance, solvency and liquidity over the period. The presence
and effectiveness of internal audit and other review processes has also been assessed. These are
discussed in the Governance section.
The directors have determined that the three-year period to December 2019 is an appropriate period
over which to provide the viability statement. In making this assessment the directors have taken account
of a number of factors including:
• the Group’s financial position with £640 million of committed bank facilities with a weighted average
maturity of April 2022;
• potential mitigants to any cash outflows in the form of possible restrictions on dividends and capex;
• the expected future cash flow profile on the Group’s Exited Business activities;
• the diversified and blue-chip nature of the Group’s client base;
• the long-term secured nature of the Group’s work with £4.5 billion of work already secured in the
orderbook until the end of 2019; and
• the Group’s commitment to a long-term and balanced approach to doing business, as exemplified by
our SustainAbilities agenda and our business plan.
The Strategic Report was approved by the Board of Directors on 28 February 2017 and signed on its
behalf by:
Adrian Ringrose
Director
Tim Haywood
Director
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STRATEGIC REPORT
Strategic Report
Financial Statements
USING ARTIFICIAL
INTELLIGENCE TO
HELP THE RNLI
As part of our total facilities management contract with the Royal
National Lifeboat Institution (RNLI), Interserve has introduced
artificial intelligence (AI) systems to diagnose and report on the
health of vital machinery.
Earlier this year we fitted a range of AI sensors to the RNLI’s
All-weather Lifeboat Centre (ALC) in Poole where boats are
manufactured and the Sea Survival Pool (SSP) where lifeguards
are trained.
The sensors capture the sounds that the machines create to learn
normal operation, allowing us to diagnose any anomalous sounds
that could indicate imminent machine failure.
The Cognitive Plant room allows us to maintain the equipment based
on deterioration in their condition as opposed to a fixed schedule,
thus reducing cost without increasing the risk of machine failure.
The ultimate aim is to gather an extensive body of machine health
data from the thousands of plant rooms Interserve maintain, which
allows Interserve to understand the performance of any machinery
in greater detail. In the future, statistical models will be built
to predict failures and optimise the balance between delaying
maintenance and reducing machine failure risk.
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GovernanceOverview BUILDING HOMES AND
OPPORTUNITIES FOR
EX-SERVICE PERSONNEL
We started work on a project to design and build an apartment complex in
Plymouth for ex-service personnel who will work on the project and live in
the complex once complete.
The scheme is to design and build 24
one-bedroom dwellings, arranged in
four three-storey clusters of six units,
in the Stonehouse area of Plymouth.
12 of these units will provide
accommodation for ex-service
personnel who will participate fully
in the construction process. The
Community Self Build Agency (CSBA)
selected the ‘self-builders’, who
are learning construction skills and
gaining qualifications during the build,
having an affordable home to rent on
completion of the project.
Interserve staff train and manage the
self-builders while they are on site.
The aim of this project is to provide
support for people with a variety of
needs, based on a successful initiative
in Bristol where military service
veterans were helped to retrain in
various construction trades and build
their own dwellings.
This is one of many projects – including
the Defence National Rehabilitation
Centre in Loughborough which we are
currently building - where Interserve
works with and provides opportunities
to ex-service personnel.
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Page Title continuedGOVERNANCE Strategic Report
Financial Statements
Board of directors
Advisers
Corporate governance
Audit Committee report
Directors’ remuneration report
Directors’ report
40
43
44
54
60
87
Directors’ responsibility statement 95
Governance
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GovernanceOverview Board of directors
GLYN BARKER (63)
Chairman
Joined the Board in January 2016 and
became Chairman in March 2016
Chairman of the Nomination Committee and
Member of the Remuneration Committee
Skills and experience
Glyn has extensive experience as a business
leader and trusted adviser to FTSE-100
companies and their boards on a wide variety
of corporate finance issues. He previously
held a number of senior positions during his
35-year career at PricewaterhouseCoopers
and built PwC’s private-equity focused
Transactions Services business. He has a deep
understanding of accounting and regulatory
issues, together with comprehensive
transactional and financial services
experience. Glyn is a Fellow of the Institute
of Chartered Accountants in England and
Wales and holds a BSc (Hons) in Economics
and Accountancy from the University of
Bristol.
External appointments
• Non-Executive Director and Audit
Committee Chairman, Aviva plc
ADRIAN RINGROSE (49)
Chief Executive
Joined the Board in January 2002 and
became Chief Executive in July 2003
Member of the Nomination Committee
TIM HAYWOOD (53)
Group Finance Director
Joined the Board in November 2010
Skills and experience
Adrian joined Interserve in December 2000
on its acquisition of the Building & Property
Group and became Managing Director
of Interservefm a year later. Adrian’s
background is in commercial management
and business development, and prior
to leading Interserve, he worked in the
outsourcing and utilities sectors. Adrian is a
member of the CBI’s President’s Committee,
a member of the Chartered Institute of
Marketing, a Fellow of the Chartered
Management Institute and a Fellow of the
Institute of Directors. He holds a BA (Hons)
in Political Theory and Institutions from the
University of Liverpool.
External appointments
• Adviser, University of Liverpool
• Chairman, Prince’s Trust Built Environment
Skills and experience
Tim has extensive financial experience
gained from a variety of senior management
roles and is a Fellow of the Institute of
Chartered Accountants in England and Wales
(ICAEW). Since 2011 he has also been Head
of Sustainability, launching Interserve’s
SustainAbilities Plan in March 2013. He is a
member of the Sustainability Committee of
the ICAEW and of the Enterprise Leadership
Team of Business in the Community. He holds
an MA (Hons) in Modern History from the
University of Oxford.
External appointments
• Non-Executive Director and Audit
Committee Chairman, Tarsus Group plc
Former key appointments
• Finance Director, St Modwen Properties plc
Leadership Group (from March 2017)
• Group Finance Director, Hagemeyer UK Ltd
• Non-Executive Director and Remuneration
Committee Chairman, The Berkeley Group
Holdings plc
Former key appointments
• Chairman, CBI’s Public Services
• Non-Executive Chairman, Irwin Mitchell
Strategy Board
• Senior Finance Director and various
Financial Controller positions, Williams
Holdings PLC
• President, Business Services Association
• Head of Business Development,
Building & Property Group
Holdings Ltd
• Non-Executive Chairman, Transocean
Partners LLC (NYSE)
• Non-Executive Director, Transocean
Ltd (NYSE)
Former key appointments
• Vice Chairman, UK,
PricewaterhouseCoopers LLP
• Managing Partner, UK,
PricewaterhouseCoopers LLP
• Head of Assurance, UK,
PricewaterhouseCoopers LLP
• Deputy Chairman, English National Opera
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GOVERNANCE Strategic Report
Financial Statements
BRUCE MELIZAN (49)
Executive Director
Joined the Board in January 2008
DOUGIE SUTHERLAND (51)
Executive Director
Joined the Board in January 2011
GARETH EDWARDS (58)
Independent
Non-Executive Director
Joined the Board in February 2017
Skills and experience
Bruce is Managing Director of Interserve’s
Support Service division. He joined Interserve
in 2003 and was Managing Director of the
Investments division before being appointed
to his current role in 2006. He has been in the
outsourcing industry for over 20 years and
has held a wide variety of roles, both in the
UK and globally, ranging from direct delivery
through to sales, marketing and general
management. Bruce is a Fellow of the Royal
Institute of Chartered Surveyors and holds an
MBA from Cranfield School of Management
and a BSc in Electrical and Electronics
Engineering from Queen’s University, Canada.
External appointments
• Chair of charity, Safer London
Former key appointments
• Managing Director, Amey plc
• Bid Management Director, Mowlem plc
• Various roles, TYE Manufacturing Ltd
• Senior Field Engineer, Schlumberger Ltd
Skills and experience
Dougie, who joined Interserve in
September 2006, is Managing Director
of Interserve’s Developments division and
is also responsible for UK Construction.
He began his career with seven years in the
Royal Engineers. He then led on various
deals on behalf of the Government including
the redevelopment of the HM Treasury,
GCHQ and National Savings sites. He has
an extensive background in the Private
Finance Initiative infrastructure investment
arena, across both public and private sectors.
Dougie holds an MBA from Cranfield School
of Management and a BSc (Hons) in Civil and
Structural Engineering from the University
of Edinburgh.
External appointments
• None
Former key appointments
• Partner, 3i Infrastructure
Skills and experience
As a partner at Pinsent Masons, Gareth’s
expertise is in corporate legal matters,
but he also has extensive experience as an
advisor to Boards and CEOs in a range of
public (predominantly FTSE 250), private
and entrepreneurial companies on their
strategy and wider business and commercial
issues. He has considerable international
experience, particularly in the Middle
East and has spent recent years expanding
Pinsent Masons’ offices in Continental
Europe and facilitating its business
development between Asian, Middle Eastern
and European offices. Gareth, a qualified
solicitor, has a BA in French/German from
the University of Keele. Gareth will be
leaving Pinsent Masons on 30 April 2017.
External appointments
• Partner, Global Head of Corporate,
Pinsent Masons LLP
• Director, Pinsent Masons Director Ltd
• Divisional Managing Director, Lend Lease
• Director, Pinsent Masons Secretarial Ltd
• Managing Director, Amey Ventures Ltd
• Non-Executive Director, Positive
• Various roles at HM Treasury
Healthcare plc
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GovernanceOverview Board of directors continued
ANNE FAHY (56)
Independent
Non-Executive Director
Joined the Board in January 2013
Chair of the Audit Committee, and Member
of the Nomination and Remuneration
Committees
Skills and experience
During her 27 years at BP, Anne gained
extensive experience of global business,
developing markets, risk management,
internal control, compliance and strategy
development in the aviation, petrochemicals,
trading and retail sectors. She is a Fellow
of the Institute of Chartered Accountants
in Ireland and a Bachelor of Commerce in
Economics, Accounting and Business from
University College Galway, Ireland. Anne has
chaired the Audit Committee since May 2013.
External appointments
• Non-Executive Director and Audit
Committee Chair, Nystrar NV (Belgium)
• Non-Executive Director and Audit
Committee Chair, SThree plc
• Director/Trustee and Chair of Finance
Committee, Save the Children
Former key appointments
• Chief Financial Officer,
Global Fuels, BP
• Controller Strategic Businesses, BP
• Controller Petrochemicals, BP
• Other senior management roles at BP
• Senior Audit Manager, KPMG (Ireland and
Australia)
RUSSELL KING (59)
Senior Independent Director
Joined the Board in September 2014
Member of the Audit, Nomination and
Remuneration Committees
Skills and experience
Following his appointment to the Board in
September 2014, Russell was appointed as
Senior Independent Director in May 2015.
He has broad international experience in
business/strategy development, human
resources relations, government and
sustainable development acquired during
his 20 years in various management roles at
ICI and senior positions at Anglo American,
Bergteamet and GeoProMining. Russell holds
a BA (Hons) in Politics from the University of
Durham.
External appointments
• Non-Executive Chairman, Hummingbird
Resources PLC
• Senior Independent Non-Executive Director
and Remuneration Committee Chairman,
Spectris Plc
• Senior Independent Non-Executive Director
and Remuneration Committee Chairman,
Aggreko plc
Former key appointments
• Senior Adviser, Heidrick & Struggles
• Chairman, Sepura plc
• Chairman, Sorrett Advisors Ltd
• Chairman, GeoProMining Ltd
• Senior Adviser, RBC Capital Markets on
Metals and Mining
• Chairman, Bergteamet AB
• Non-Executive Director, Anglo Platinum Ltd
• Chief Strategy Officer, Anglo American plc
• Executive Vice President of Group Human
Resources and Business Development,
Anglo American plc
• Various senior management roles at ICI
KEITH LUDEMAN (67)
Independent
Non-Executive Director
Joined the Board in January 2011
Chairman of the Remuneration Committee,
and Member of the Audit and Nomination
Committees
Skills and experience
Keith has many years’ experience in the
transport and infrastructure industries
including some 15 years with the Go-Ahead
Group, where, as Chief Executive, he was
responsible for the negotiation and operation
of complex public-service contracts and
the management and motivation of large
workforces. He is a Fellow of the Chartered
Institute of Transport and Logistics and a
Fellow of the Institute of Railway Operators.
He holds a BA in Geography from the
University of Newcastle and an MSc in
Transport Engineering and Planning from the
University of Salford. Keith has chaired the
Remuneration Committee since July 2014.
External appointments
• Non-Executive Chairman, TXM Plant
• Non-Executive Chairman, Aspin Group
Holdings Ltd
• Non-Executive Chairman, Bristol Water plc
• Non-Executive Chairman, London Transport
Museum Ltd
• Senior Independent Director, Eversholt Rail
Group
• Director, European Rail Finance (GB) Ltd
Former key appointments
• Senior Independent Non-Executive
Director, Network Rail Ltd
• Non-Executive Director, Network Rail
Infrastructure Ltd
• Non-Executive Director, Network Rail
Consulting Ltd
• Group Chief Executive, Go-Ahead
Group Plc
• Chairman, Association of Train Operating
Companies
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GOVERNANCE Strategic Report
Financial Statements
Advisers
GROUP COMPANY SECRETARY
Trevor Bradbury
REGISTERED OFFICE
Interserve House
Ruscombe Park
Twyford
Reading
Berkshire RG10 9JU
T +44 (0)118 932 0123
F +44 (0)118 932 0206
info@interserve.com
www.interserve.com
REGISTERED NUMBER
00088456
REGISTRAR AND SHARE
TRANSFER OFFICE
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
T +44 (0)371 664 0300
shareholderenquiries@capita.co.uk
www.capitashareportal.com
AUDITORS
Grant Thornton UK LLP
STOCKBROKERS
J.P. Morgan Cazenove Limited
Numis Securities Limited
LAWYERS
Ashurst LLP
NICK SALMON (64)
Independent
Non-Executive Director
Joined the Board in August 2014
Member of the Audit, Nomination and
Remuneration Committees
Skills and experience
Nick brings a wealth of experience from
a number of senior roles in multinational
companies. A mechanical engineer by
training, he spent his formative years as a
project engineer before joining Alstom in
1988. During his tenure at Alstom, Babcock
and Cookson, Nick was responsible for
leading several major restructuring projects
and negotiating complex acquisitions
and disposals. He is a Fellow of the Royal
Academy of Engineering and holds a
BSc (Hons) in Mechanical Engineering
from the University of Bristol.
External appointments
• Non-Executive Chairman, South East
Water Ltd
• Senior Independent Non-Executive
Director, Elementis plc
Former key appointments
• Senior Independent Non-Executive
Director, United Utilities Group plc
• Chief Executive, Cookson Group plc
• Executive Vice President, Alstom SA
• Chief Executive, Babcock International
Group plc
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GovernanceOverview Corporate governance
Dear Shareholder
Our corporate governance framework is based on:
• setting out our core values and the ethical standards
by which we expect the business to operate;
• fostering a culture that supports those behaviours; and
• calling to account those who do not abide by them.
We also continue to focus on risk management, reducing
the overall level of risk in the business and upon the
control environment.
Glyn Barker
Chairman
Our “licence to operate” for our expanding citizen services, and increasingly our wider business, relies upon maintaining the
trust and confidence of our stakeholder base.
With a dispersed workforce such as ours, a set of strong core values forms a crucial part of our governance framework.
Our continuing SustainAbilities strategic initiative increasingly assists us in building stronger ties with the communities in
which we work.
In addition to our own observations when we are out in the
business, the Board uses the results of our employee survey to
help us gauge how well our core values are embedded within
the business. 79 per cent of respondents reported that they
understand our vision and values, 68 per cent could see evidence
of our vision and values in their day-to-day work and 89 per cent
thought that health and safety was taken seriously where they
work. We were also very pleased this year to have increased our
overall employee engagement score to 75 per cent.
The diversity and inclusion agenda and developing our talent
pipeline continues to be an important element of our people
strategy.
We were delighted to have attained the National Equality
Standard (NES) in 2016. Whilst this is a significant achievement,
the Board is aware that the Group still has some way to go on
the journey towards a truly diverse and inclusive workforce.
The Nomination Committee paid particular attention to diversity and workforce demographics in its review of succession
planning. Diversity of participation in our leadership development programmes also continues to be monitored.
Our aim is to deliver a sustainable and growing business. We have set ourselves stretching financial objectives which require us
to improve operating margins and cash flow and aligned our remuneration targets to this end.
As was the case last year, all directors wishing to remain in office will seek re-election at the AGM.
Glyn Barker
Chairman
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GOVERNANCE Strategic Report
Financial Statements
COMPLIANCE WITH THE CODE
The Financial Reporting Council (FRC) requires the Company
to disclose how it has applied the principles of the UK
Corporate Governance Code published in September 2014
(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). Reporting
for the 2017 financial year will be against the April 2016
version of the Code.
The directors consider that the Company has complied
throughout the year with all provisions of the Code
applicable to it, save for provision B.1.2 (requiring at
least half the Board, excluding the Chairman, to comprise
independent non-executive directors) for a brief period
between 1 March to 4 May 2016 when there were more
executive than non-executive directors.
The resignation of Steven Dance on 4 May 2016 restored
parity between independent non-executive directors and
executive directors.
LEADERSHIP
The Board
Operation of the Board
The Board has a formal schedule of matters reserved for its
decision, whilst day-to-day operational decisions are managed
by the Executive Board, as referred to on page 47.
In order to facilitate the efficient use of its time the Board has
delegated certain of its powers to Board committees, details
of which are set out later in this report. From time to time the
Board also establishes certain other committees to deal with
a specific issue which the Board has approved.
Board activities in the 2016 financial year
The Board is responsible for reviewing the Group’s strategic
direction, governance, ethics, values and risk management.
Set out below are the key matters dealt with by the Board
during the course of the year, in addition to the ongoing
monitoring of operational and financial performance of
the Group:
Strategy
• setting the health and safety targets for the Group
and monitoring performance on a monthly basis;
• completing the strategic review of the Equipment
Services business and setting a revised strategy for
its growth based upon the findings of that review;
• reviewing progress on a quarterly basis against the
HR strategy;
• monitoring progress against the Group’s SustainAbilities Plan;
• reviewing the progress of the Group’s IT enhancement plans;
• considering the results of the employee survey;
Finance/governance
• ongoing monitoring of key contracts where outcomes could
impact financial performance with particular reference to
the exited Energy from Waste (EfW) business forming part
of the UK Construction business;
• considering capital investments and requests by the
businesses for approval of significant tenders within the
framework of matters reserved for the Board’s decision;
• setting the Group’s annual budget and plan;
• approval of the annual and half-year report;
• satisfying itself as to the basis for and appropriateness
of the going concern and viability statements;
• declaration of the interim dividend and recommendation
of the final dividend;
Risk management
• ensuring the maintenance of a sound system of
internal controls and an effective risk management and
assurance strategy;
• reviewing the risk and control performance report from
the Executive Board, including conducting, in February
and August, a robust assessment and ongoing monitoring
of the principal risks facing the Company, including
those that would threaten its business model, future
performance, solvency or liquidity; and horizon scanning
for emerging risks;
• careful consideration of the risk/reward profile of significant
bids and potential joint ventures; and
• reviewing legal risk management within the Group.
The Board also undertook a visit to a number of the Group’s
Support Services and Construction contracts in the Salford and
Manchester areas.
Division of responsibilities
There is a clear division of responsibilities between the role
of the Group Chairman and Chief Executive which are clearly
defined in written terms of reference, agreed by the Board.
The role of the Chairman
The Group Chairman leads the Board and creates the
conditions for overall Board and individual director
effectiveness, both inside and outside the boardroom.
The Group Chairman considers succession planning and the
Board’s composition with the Nomination Committee and
ensures effective communication with shareholders and
other stakeholders.
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 Group Chairman has a number of other significant
commitments which are set out in his biography on page 40.
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GovernanceOverview Corporate governance continued
The role of the Chief Executive
The Chief Executive manages the Group, 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 Senior Independent Director
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 acts as a sounding board for the
Group Chairman, serves as an intermediary for the other
directors when necessary, conducts the Group Chairman’s
annual performance evaluation and leads any new Chairman
appointment process.
The role of the Company Secretary
The Company Secretary distributes 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, advises on Board procedures
and ensures that 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. The Company Secretary plays a key role in the
good governance of the Company and in particular by
supporting the Group Chairman on all Board matters
pertaining to governance.
Non-executive director independence and appointments
The Board reviews the independence of its non-executive
directors on an annual basis as part of its nomination for re-
election process. The Group Chairman and the non-executive
directors are considered by the Board to be independent in
character and judgement and free from any relationships or
circumstances which are likely to affect, or could appear to
affect, their judgement.
The non-executive directors have complementary skills,
experience and qualifications in a wide range of economic
sectors and so are able to bring independent judgement and
constructive challenge to bear on matters for consideration.
As at 31 December 2016 the Board comprised nine
members: the Group Chairman, four executive and four
non-executive directors. The appointment of Gareth Edwards
on 1 February 2017 has increased the number of non-
executive directors to five.
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 letters of appointment of the
non-executive directors and the Group Chairman specify the
anticipated level of time commitment.
The terms and conditions of appointment of the non-
executive directors and the Group Chairman are available for
inspection at the Company’s registered office during normal
business hours.
BOARD EFFECTIVENESS
Meetings
The Board held 11 pre-scheduled meetings throughout the
year and three ad hoc meetings to deal with time-critical
matters. Attendance at Board and committee meetings
during the year is set out in the table below.
Board
Audit
Remuneration
Nomination
Number of
meetings
G A Barker1
Lord Blackwell2
S L Dance3
A K Fahy
T P Haywood
R J King
K L Ludeman
B A Melizan
A M Ringrose
N R Salmon
D I Sutherland
5
1
5
5
5
5
14
14
3
5
14
14
14
14
14
14
13
14
10
9
2
10
10
10
10
5
4
2
5
5
5
4
5
1
Glyn Barker was appointed on 1 January 2016. He retired from
the Audit Committee on his appointment as Group Chairman on
1 March 2016.
2 Lord Blackwell resigned on 29 February 2016.
3 Steven Dance resigned on 4 May 2016.
The Group Chairman held six sessions with the non-executive
directors at which no executive directors were present plus
a number of informal discussions with the Chief Executive
present. The non-executive directors also met under the
chairmanship of the Senior Independent Director, without
the Group Chairman being present, to review the Group
Chairman’s performance.
46
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Financial Statements
Board induction, training and development
On appointment, new directors receive a tailored induction
programme arranged by the Company Secretary which
includes, for example, refresher training on the duties of
a listed company director, the operation and activities
of the Group, meetings with management and other
corporate advisers, and operational site visits encompassing
a representative cross-section of most of the Group’s UK
operations accompanied by the executive director responsible
for that part of the Group.
An ongoing programme of site visits, staff meetings and
business presentations provides additional opportunities for
the Group Chairman and non-executive directors to visit
various operations of the Group and to receive insight and
feedback from employees. The executive directors also
make the details of their scheduled site visits available
to the non-executive directors in order to provide further
opportunities for the non-executive directors to learn
more about the business.
During the year under review the non-executive directors
have attended a number of seminars and/or other non-
executive forums relevant to their roles.
Performance evaluation
During the course of the year the performance of the
directors was reviewed by the Group Chairman on an ongoing
basis and the Group Chairman’s performance was reviewed by
the Senior Independent Director.
The overall time commitment of the non-executive directors
in the attendance of Board meetings/visits was in the order of
20 days in addition to the time taken to read Board papers and
attendance at six meetings held by the Group Chairman.
An external evaluation of the Board, including Board
Committees, was last conducted in 2013. In view of the
changes and forthcoming changes to the Board it was
considered more appropriate to postpone this for a year in
favour of an internal evaluation conducted by the Company
Secretary involving one-to-one interviews with each of the
executive and non-executive directors.
The key themes emerging from the evaluation were that:
• the Board members continued to work well together;
• the balance between operational and strategic
matters at meetings remained appropriate to the
needs of the business;
• the strategy would be re-visited once the new Chief
Executive has had the opportunity to get to know the
business;
• the Group’s culture was open and there were a strong
set of values understood and generally applied by the
workforce; and
• whilst outwardly Board diversity had not increased, there
was sufficient diversity of view and strength of character
and a demonstrable commitment to continue to work to
improve the diversity and inclusiveness of the Group.
The Group Chairman and the Senior Independent Director are
developing an action plan dealing with matters where further
work is required.
Information and support
Individual directors may, after consultation with the Group
Chairman, take independent legal advice in furtherance
of their duties at the Company’s expense up to a limit of
£10,000 in relation to any one event. In the case of the Group
Chairman he must consult with the Senior Independent
Director. All directors have access to the advice and services
of the Company Secretary, whose appointment or removal is
a matter reserved for the approval of the Board or any duly
delegated committee thereof.
Election and re-election
Gareth Edwards will submit himself for election by
shareholders at the AGM on 12 May 2017 in accordance with
the Company’s Articles of Association. All remaining directors
will also submit themselves for re-election.
Biographical details for each of the directors standing for
election or re-election are set out on pages 40 to 43.
EXECUTIVE BOARD
The Executive Board, which, during the year, comprised
the executive directors together with the senior operational
and functional leaders of the Group, is chaired by the
Chief Executive.
The Executive Board, which met 11 times during the
course of the year, is responsible for:
• the operational management and delivery against
budget and forecast of the Group;
• implementing resolutions of the Board, formulation
of strategy, annual budgets and other proposals for
consideration by the Board;
• the identification and evaluation for consideration by
the Board of risks faced by the Group;
• conducting the employee survey and oversight
of divisional action plans addressing areas for
improvement; and
• designing, operating and monitoring a suitable system of
internal control embracing the policies adopted by the Board
and providing assurance to the Board that it has done so.
The Executive Board is also responsible for devising and,
once approved by the Board, implementing suitable
policies and monitoring procedures for health and safety,
environmental, social and ethical, treasury, human resources
and information technology.
AUDIT COMMITTEE
Details of the Audit Committee are included in the Audit
Committee Report on pages 54 to 59 and are incorporated
into this Corporate Governance report by reference.
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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 generally
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.
Overview of activities
Business conducted during the year included recommendations
to the Board for the re-election of retiring directors at
the AGM, reviewing the Board structure and composition,
and oversight of the senior management talent review and
succession planning up to and including those at Board level.
The effectiveness of the Committee and its terms of reference
were also reviewed.
Re-election of retiring directors at the AGM
In making its recommendation to the Board for the re-election
of directors, the subject of “overboarding” was considered by
the Committee. It reached the conclusion that all directors
were sufficiently available to the Company. Neither
Glyn Barker nor Russell King are over-committed in terms
of current guidance, particularly as only one of Mr Barker’s
two chairmanships is of a listed company and Mr King’s
chairmanship is of an AIM-listed company. The Committee
considers these other directorships assist in bringing valuable
knowledge and experience to Board and committee debate.
Senior appointment and recruitment
The Committee is currently managing the recruitment
process for a new Chief Executive (CEO). A role and person
specification for the CEO position was drawn up and
specification for and credible external and internal
candidates were identified and assessed. The process
is being facilitated by external headhunters.
External headhunters were also involved in Gareth Edwards’
selection in assessing his suitability and referencing as a non-
executive director.
There are no other connections between the headhunters and
the Company.
Succession planning
The annual talent review in November encompassed
846 employees (2015: 705), down to three layers of
management below Executive Board level, enabling
management to have excellent visibility of the composition
and development needs of the Group’s extensive talent pool.
The diversity and demographic challenges within the business
were identified and are being addressed.
There was good short-term emergency cover in place for
most key positions, with identified successors for all but
one Executive Board position.
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 79 to 86.
Effectiveness
The Committee also reviewed its effectiveness against its
terms of reference and concluded that it continued to
operate effectively.
Equality, diversity and inclusion
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/about-us/policies. The
goal is to recruit, motivate, develop and retain outstanding
people that reflect the diversity of the communities in which
the Group operates.
In 2016 we achieved the National Equality Standard (NES)
and in so doing achieved one of our SustainAbilities targets
two years early.
The NES sets clear equality, diversity and inclusion (EDI)
criteria against which we were assessed and has become the
accepted standard for inclusiveness in business across the UK.
Only 11 organisations in the UK have successfully achieved
the NES standard to date, and of those we are the largest
employer and first from the Support Services sector.
Actions undertaken during the year to advance the EDI agenda
within the Group included:
• Updating our Leadership Competency Profile to include
diversity and inclusion descriptors and language. The profile
is being rolled out across the divisions and used in our
leadership development programmes, performance and
development process, succession and talent reviews and
360 degree feedbacks.
• Enhancing our employee survey to include questions about
diversity and inclusion culture, and prompt respondents to
include diversity information to enable us to analyse the
results of the survey by diversity group.
• Increased leadership visibility from our Executive and
divisional boards. Diversity and Inclusion was chosen as
a central topic in the UK and international leadership
conferences, attended by 170 of our most senior leaders.
The output from the discussions have been used to generate
key activities to prioritise during 2017.
• Members of the Executive and divisional boards have
increased their participation in employee forums dedicated
to diversity and inclusion.
• Diversity networks focusing on LGBT, mental health,
disability and religious awareness have been launched. The
Women in Interserve Network, now five years old, continues
to grow in membership and programmes.
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Financial Statements
Meeting the NES was a significant milestone for the
organisation and we are committed to continuous
improvement in order to maintain high standards of
equality, diversity and inclusion.
It is recognised that increased workforce diversity will require
positive steps to be taken and take time to achieve. The
actions outlined above, combined with the talent review and
succession planning processes, are aimed at accelerating
diversity generally and, in particular, at a senior level.
The success in developing the diversity of the Board
is monitored as part of our annual evaluation of
Board effectiveness.
We would expect our diversity policy and the ongoing work on
diversity and equality throughout the organisation to lead to
greater diversity on the Board and divisional boards over time.
Culture
Our culture, drawn from our core values and expressed in
our leadership framework, is promoted through the way
we deliver the Company Vision and key initiatives such as
SustainAbilities; Innovation; Health and Safety; and Diversity
and Inclusion. These initiatives, which are implemented across
the Group, provide a common thread connecting our diverse
businesses and set cultural and behavioural norms that form
a key part of our employer brand.
The beliefs, norms and behaviours fostered by our
culture include:
• we make a difference in the work that we do;
• we care about each other, our customers, the community,
the environment and the services we deliver;
• we are a place where different people thrive and make
their mark;
• we enjoy being successful;
and characterise what it feels like to be a colleague within
our organisation. They also make a positive contribution
towards both employee engagement and our reputation
as an employer of choice.
Our well-established employee survey, the work of internal
audit and internal communication audits are all used to help
us ensure that there is alignment between our culture, beliefs,
norms, behaviours and our employer brand.
As part of our commitment to compliance in anti-bribery
and competition laws, we have worked with the Institute
of Business Ethics to develop and recently launch our smart
choice toolkit. This is a decision-making guidance tool
providing practical help and guidance on the legal position
in a variety of situations in which our employees may find
themselves, such as when it is and is not appropriate to accept
a gift or offer hospitality, practical tips to avoid involvement
in facilitation payments and how best to act if faced with a
conflict of interest.
REMUNERATION COMMITTEE
The Remuneration Committee is composed entirely of
independent non-executive directors, details of whom
are set out in the table on page 46. The responsibilities of
the Committee, together with an explanation of the work
undertaken and how it applies the directors’ remuneration
principles of the Code, are set out in more detail in the
Directors’ Remuneration Report on pages 60 to 86 and
are incorporated by reference into this Corporate
Governance report.
OTHER BOARD COMMITTEES
The Conflicts Committee comprises the Group Chairman or, in
the event that he is interested in the matter to be considered,
the Senior Independent Director, and the Company Secretary.
The 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 Private Finance Initiative (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:
Committee
Confl cts
General Purposes
Inside Information
PFI
Number of
meetings
2
29
8
1
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ACCOUNTABILITY
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 95,
an Independent Auditor’s Report about their reporting
responsibilities on pages 98 to 105, a going concern statement
on page 36 and a viability statement on page 36. An
explanation of the Company’s business model and strategy
for delivering the Company’s objectives is set out on
pages 6 and 7, and 8 and 9, respectively.
The Directors’ Report contained on page 87 to 94, 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 (as amended
by The Companies Act 2006 (Strategic Report and Directors’
Report) Regulations 2013 and The Large and Medium-sized
Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013)).
Risk management and internal control
The Board has documented a risk management framework
setting out its objectives in terms of the risk management
framework and risk appetite, risk management policy, risk
oversight structures and accountability, risk identification
and assessment, escalation, monitoring and reporting, and
guidance on the application of the framework, which is
included within the Group’s internal controls manual.
The Board has carried out a robust assessment of the principal
risks facing the Group1, as required by the Code, together with
a review of effectiveness of the Group’s risk management and
internal control systems, including operational and financial
controls during the period covered by this report and has not
identified nor been advised of any failings or weaknesses in
the operational or financial controls which it determines to
be significant.
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.
Risk management framework
The Board has overall responsibility for the Group’s systems
of risk management and internal controls, together with the
ongoing review of its effectiveness, and sets appropriate
policies having regard to the objectives of the Group.
Key decisions are reserved by the Board to itself. Other
decisions are taken under various delegated authorities
down through the management chain.
The Executive Board, under delegated responsibility from
the Board, identifies, assesses, manages and monitors risk
and operates and monitors the system of internal control and
provides assurance to the Board that it has done so. The Risk
Committee assists the Executive Board in discharging its risk
management responsibilities.
The Risk Committee, comprising 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,
the Group Chief Information Officer, the Group Information
Security Officer and a representative from each of the Group’s
operating divisions, met five times during the course of the
year. 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.
Work undertaken by the Risk Committee included reviewing
the Group’s prime risk areas2 and principal risks and
uncertainties, providing a bi-annual risk and control report
to the Executive Board, a programme of reviewing (on a
divisional bottom-up basis) a selection of the Board’s key risks
against the overall assurance map, mapping (on a top-down
basis) the three lines of assurance (management, functional
oversight and independent internal reporting), receiving
reports from the Information Security Forum, regular horizon
scanning for risks presented by legal developments and
forthcoming legislation, reviewing business continuity planning
and reviewing whistleblowing notifications and the results of
subsequent investigations.
Risk committees have also been established by most divisions.
These committees review risk at a divisional and business
unit level, providing both reports to and attendance at the
Risk Committee.
1 Further details of the Group’s Principal Risks and Uncertainties, their potential to affect the business, how they are being mitigated and changes
in the current risk environment are set out in the Strategic Report on pages 26 to 29.
2 The Group’s prime risk areas are sub-sets of and have been mapped to the Principal Risks and Uncertainties set out on pages 26 to 29 of the
Strategic Report and are matters which, if not appropriately managed, may lead to events which breach the Board’s risk appetite.
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Financial Statements
Risk oversight, structures and accountability
The risk and control framework is predicated on the basis that
line management is best placed to ensure that appropriate
risk management is being exercised to maintain risk within the
constraints of the Board’s risk appetite.
Escalating, reporting, monitoring and review
Monthly management accounts, divisional board meetings,
the March, May and September forecast reviews, monthly and
quarterly safety and quarterly legal and insurance reports all
provide an opportunity for emerging risks to be escalated.
The risk oversight structure mirrors the operating style and
culture of the Group, devolving responsibility for operational
risk mitigation controls to those best placed to supervise
and ensure their proper implementation. Divisional line
management exercise oversight to manage risk appropriately
and to ensure that the Board’s risk appetite is not
being exceeded.
The Board’s risk appetite is cascaded throughout the Group
indirectly by defined delegated decision boundaries and
authority matrices. Certain key areas listed on pages 26
to 29 are subject to central management or control.
Best practice, procedure and, where appropriate, policies
in the areas of information security, business continuity
and human resources, are promulgated by specialist forums
comprised of subject matter experts from across the business.
Risk identification and assessment
As a normal part of Board business, consideration is given
to any emerging or changing risks and whether these affect
the strategy.
A thorough risk identification and assessment exercise is
undertaken of the prime risk areas by the Risk Committee
on a six-monthly basis. This review focuses on risks with the
potential for material impact on the Group’s operational,
financial or reputational standing. The review takes into
account the latest divisional updates, actions taken, current
performance against existing and any new key performance
indicators and whether, as a result of the foregoing, the
residual (net) risk of the prime risk area has changed since the
last assessment.
The identification of risks associated with new business and
associated risk controls/mitigation is part of the process for
obtaining Board approval.
New and emerging risks are captured by divisional risk
committee bi-annual risk reviews which are consolidated
into the risk and control performance report by the Risk
Committee. The Board also gives consideration to emerging
risks as part of its bi-annual risk review and more generally
as part of its ongoing consideration of the future development
of the Group.
Divisional boards are required bi-annually to review their
risk matrices, in January/February and June/July, to
facilitate aggregation ahead of the release of the annual
and half-year results.
Divisional management monitor the implementation,
operation and efficacy of the risk management procedures
within their division. Improvements implemented by
divisional management are reported as part of the bi-annual
risk reviews.
The Executive Board and the Board monitor risk as part
of their monthly review of trading.
The internal audit function also undertakes a rolling review of
the effectiveness of the internal control and risk management
procedures as part of its annual work programme. Divisional
risk and assurance resources have also been increased to
support this work.
The Board performs a formal assessment of the effectiveness
of the risk management process twice a year prior to
publication of the half-year and annual results, taking into
account the risk and control performance report from the
Executive Board.
The Board has an ongoing process for identifying, evaluating
and managing principal risks that the Group faces, together
with an ongoing process to embed internal control and risk
management within the business operations. This process
was in place for the period under review and up to the date
of approval of this Annual Report and Financial Statements
and the systems accord with the FRC’s guidance on Risk
Management, Internal Control and Related Financial and
Business Reporting.
Control effectiveness
Divisional boards undertake an ongoing assessment of, and
effect improvements to, the control environment, and report
their actions through the bi-annual risk review process.
The internal audit function assesses the effectiveness of
certain internal control and risk management procedures
as part of its annual work programme.
Recent enhancements to the risk management process include
the development of an assurance map which identifies the
three lines of assurance (management, functional oversight
and independent internal reporting) over the prime risk areas.
This enables the Board to make an informed assessment of the
appropriateness of assurance.
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Financial reporting
Based on submissions from the trading divisions, a budget is
prepared 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 Group Services.
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 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 34 and a description of how the
Group manages those risks is set out on page 28.
Operational controls
The principal features of the Group’s system of operational
control are:
• An established management structure comprising the Board
with its various committees and an Executive Board.
• Executive Board and Board review of the monthly finance
and divisional trading reports.
• Documented delegated authority limits which are kept
under regular review. Larger value proposals and business
acquisitions and disposals are controlled by the Board.
• All Group companies operate detailed tendering procedures
designed to ensure effective risk management when
tendering for high-value projects or projects with difficult
conditions, onerous obligations, guarantees, bonds and
adverse cash flow conditions which are monitored by the
relevant Executive Board member and, where appropriate,
in conjunction with the Chief Executive.
• 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 and
treasury, real estate, internal and external communication,
investor relations, information technology network services
and operating systems, human resources, motor fleet 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 whistleblowing policy which sets
out a framework for dealing with any allegations of fraud,
financial misreporting and any whistleblowing notification.
A copy of the policy is available on the Company’s website
at www.interserve.com.
RELATIONSHIP WITH SHAREHOLDERS
The main communications with financial investors are the half-
year and annual results presentations and a capital markets
day. The results presentations are posted on our website and
are available for all investors to view, along with a recording
of the presentations themselves. A live webcast of the capital
markets day was publicised via the Regulatory News Service
(RNS) and copies of the presentations were made available
on the Company’s website.
The Company also encourages two-way communication
with both institutional and private investors to develop an
understanding of the views of major shareholders about
the Company.
The Group Chairman met with six of the Company’s major
shareholders shortly after taking up the role in order to gain
an understanding of their aspirations for the Company and
to afford them the opportunity to give their views. The key
themes emerging from these meetings were then fed back to
the Board.
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GOVERNANCE Strategic Report
Financial Statements
Adrian Ringrose and Tim Haywood attended 34 meetings with
analysts and institutional investors during the year ended
31 December 2016 and, respectively, nine and 50 individual
meetings accompanied by another member of staff.
One-to-one post-results meetings held with institutional
investors tend to focus on such matters as Group strategy,
operational performance, market trends, macro-economic
influences, financial performance, merger and acquisition
ambitions, peer group issues, the political environment and
progress of key bids and key contract renewals. Meetings held
with analysts focus on the foregoing issues and, in addition,
the key factors which influence analysts’ financial forecasts,
with a view to ensuring market consensus is based on accurate
and up-to-date information, properly interpreted.
Having due regard to their importance as stakeholders,
we also undertake regular one-to-one meetings and group
presentations with our bank and private-placement lenders,
in which operational, strategic and market issues are
discussed, together with the implications for our future
financing requirements.
The Group’s annual and half-yearly results, trading updates,
presentations given to analysts and all announcements made
through the RNS are published on the Company’s website at
www.interserve.com.
All shareholders are given at least 21 clear 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 voting results of the AGM are also announced
through the RNS and posted on the Company’s website shortly
after the close of the meeting.
APPROVAL
This report was approved by the Board of Directors on
28 February 2017 and signed on its behalf by:
Glyn Barker
Chairman
28 February 2017
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GovernanceOverview Audit Committee report
INTRODUCTION FROM THE
AUDIT COMMITTEE CHAIR
I am pleased to present, on behalf of the Board, our Audit
Committee Report on our work in relation to the financial year
ended 31 December 2016.
During the year the focus of our normal work programme has
again been upon the trading judgements and estimates which
underpin our revenue and margin recognition on long-term
construction and service contracts, impairment testing of the
value of goodwill, and retirement benefit obligations, as well
as oversight of the Company’s systems of internal control,
assurance and risk management, all of which are covered in
more detail within the body of the report.
In addition to our normal work programme, an area of
particular focus in 2016 was the exceptional losses from
the exited Energy from Waste (EfW) business and from
the strategic review of the Equipment Services business.
We also spent time evaluating the independence of the
external auditor and the effectiveness of both internal and
external audit processes in addition to the Committee itself.
Having reviewed the Annual Report, the Committee considers
that, taken as a whole, it is fair, balanced and understandable
and provides the information necessary to assess the Group’s
strategy, business model, position and performance.
Anne Fahy
Chair of the Audit Committee
Anne Fahy
Chair of the
Audit Committee
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GOVERNANCE Strategic Report
Financial Statements
MEMBERSHIP
The Committee is composed entirely of independent non-
executive directors, in accordance with the provisions of the
UK Corporate Governance Code published in April 2016 (the
Code), and is chaired by Anne Fahy. The directors who have
served on the Committee during the year are:
Name
Date of appointment to Committee
A K Fahy (Chair)
G A Barker
R J King
K L Ludeman
N R Salmon
1 January 2013
1 January 2016
1 September 2014
1 January 2011
1 August 2014
Glyn Barker was appointed to the Committee on
1 January 2016 but retired when he succeeded
Lord Blackwell as Group Chairman on 1 March 2016.
Appointments to the Committee are made by the Board,
on the recommendation of the Nomination Committee
and in consultation with the Committee Chair.
Anne Fahy is a qualified chartered accountant and has recent
and relevant financial experience. The other members of
the Committee all have extensive business and financial
experience. Directors’ biographies are included on pages
40 to 43.
The Company Secretary is secretary to the Committee.
ROLE AND RESPONSIBILITIES
The role and responsibilities of the Committee are set out in
its terms of reference which are available on the Company’s
website at www.interserve.com and on request. These terms
of reference, which include all matters described in the
Code and paragraph 7.1.3 of the Disclosure Guidance and
Transparency Rules, are reviewed at least annually by the
Committee and were last updated in August 2016. They were
reviewed again in December 2016 and no further changes
were necessary.
The principal responsibilities of the Committee are to:
• review with management and the external auditor 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, before submission
to the Board;
• review the annual report and accounts and advise the Board
as to whether, taken as a whole, it is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the Company’s position and
performance, business model and strategy;
• make recommendations to the Board on the appointment
and re-appointment of the external auditor, take
responsibility for reviewing the effectiveness of the
statutory audit and agreement of the fees in respect of both
the statutory audit and non-audit services provided by the
external auditor;
• approve the annual work programme of the internal auditor,
the fees to be paid in connection with that work and review
the effectiveness of the internal audit process; and
• provide an independent overview of the integrity of the
Group’s systems of internal control, fraud prevention,
compliance, whistleblowing, risk management and
financial reporting processes through the co-ordination
and supervision of the quality, independence and
effectiveness of the internal and external auditors,
reviewing the Company’s financial reporting and making
further enquiries as appropriate.
The effectiveness of the Company and the Group’s internal
control and risk management systems is reviewed and
monitored throughout the year by the Board.
A full set of Committee papers is provided to all directors and
the Chair of the Committee reports at the subsequent Board
meeting on the Committee’s work. The Board also receives a
copy of the minutes of each meeting.
MEETINGS
The Committee met five times during the year. The
external auditor was present at three of the meetings and
representatives from PricewaterhouseCoopers LLC (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 also
attended the majority of the meetings by invitation.
The Committee has twice 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. In addition, the Chair met with both parties frequently
to review audit and internal control topics and to ensure open
and continuous dialogue with the Committee.
OVERVIEW OF ACTIVITIES
In relation to the 2016 financial year the Committee:
• investigated, in detail, the circumstances of the Glasgow
EfW contract, including potential financial outcomes;
• reviewed the proposed accounting treatment relating to the
exited EfW business and the strategic review of Equipment
Services’ business at the half year and full year;
• reviewed and approved PwC’s updated internal audit
charter, following their re-appointment in January 2016 as
the Group’s internal auditor;
• received a financial briefing from the divisional finance
director on the Equipment Services business;
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GovernanceOverview Audit Committee report continued
• reviewed the paper prepared by management supporting
the going concern and viability statements and satisfied
itself as to the appropriateness of the underlying
assumptions ensuring consistency with the Group’s longer-
term planning and annual budgeting cycle financing
arrangements and any material contingent risks;
• received a briefing from the Group Finance Director on the
principal judgements made in determining the half-year
review and annual report, reviewed those judgements and,
taking into account the external auditor’s view, satisfied
itself that the judgements and estimates were both
appropriate and robust and in accordance with the Group’s
accounting policies;
• reviewed both the half-year report and annual report and
financial statements. As part of each review the Committee
satisfied itself as to the clarity and completeness of
disclosures in the financial statements and that they
were appropriately contextualised. It also reviewed the
Audit Committee Report, together with the Chairman’s
Statement, Strategic Report and Corporate Governance
statement relating to audit and risk management. As part
of each review the Committee received a report from the
external auditor on their audit of the annual report and
review of the half-year report, respectively;
• reviewed, prior to their consideration by the Board, the
representation letters to be given to the external auditor
in respect of the half-year review and the annual report;
• conducted an assessment of the effectiveness of the
external audit process;
• reviewed the independence and objectivity of the
external auditor;
• reviewed and approved the external auditor’s terms of
engagement for the half-yearly review and for the audit
of the annual report;
• considered and agreed the scope and fees to be paid to
the external auditor for the half-yearly review and the
statutory audit;
• reviewed the Group’s statement of compliance with
the provisions of The Statutory Audit Services for Large
Companies Market Investigation (Mandatory Use of
Competitive Tender Processes and Audit Committee
Responsibilities) Order 2014 made by the Competition
and Markets Authority (the CMA Order);
• received a bi-annual update on the Group’s monitoring
of fraud risk assessment;
• reviewed the external and internal audit risk assessments
and satisfied itself that the audit activities appropriately
addressed those risks;
• reviewed the adequacy of controls across the worldwide
businesses, particularly with regard to entities which are
not controlled by the Group;
• reviewed and updated the Company’s policy on the
provision of non-audit services by the external auditor and
regularly monitored non-audit fees in comparison to the
audit fees in accordance with this policy (as detailed in
Objectivity and Independence on page 58);
• reviewed both the internal audit programme and the
findings and remediation actions, as well as agreeing the
internal audit plan for 2017, ensuring an adequate coverage
of risks;
• received a report at each meeting on the progress and
outcome of the investigation of the 18 whistleblowing
notifications received during the course of the
year, seven of which were upheld and one where
investigations continue;
• established the Committee’s calendar of actions for the
2017 financial year;
• reviewed its terms of reference, particularly in view of
the new EU audit framework, and considered whether
any changes needed to be proposed to the Board; and
• conducted an evaluation exercise to review its
own effectiveness.
SIGNIFICANT ISSUES CONSIDERED
The Committee reviewed the key judgements applied in the
preparation of the consolidated financial statements which
have been prepared in accordance with the accounting
policies and detailed notes to the financial statements on
pages 112 to 161 as well as considering the overall quality
of earnings. The Committee received a paper, prepared by
management, setting out the key judgements and reviewed
and challenged these in the light of its own knowledge, taking
into account the audit findings and views of Grant Thornton
and further enquiry of executive management, as appropriate,
in relation to the following matters:
• Exceptional items – exited businesses
Energy from Waste
During 2016 the Board took the decision to exit business
where the Company takes contractual responsibility
for process risk on the construction of energy from
waste facilities.
The loss of £160 million across the EfW business has
been presented as an exceptional item, reflecting the
materiality and its non-recurring nature.
The Committee’s detailed consideration of the issues
facing the EfW business identified areas for improvement
resulting in a number of significant changes, including
the appointment of a managing director with specific
responsibility for the exited EfW business supported
by dedicated finance, commercial and legal resources;
the appointment of additional and replacement sub-
contractors as well as an enhanced operational, financial
and contractual review to improve the Committee’s and
the Board’s visibility and understanding of the risk profile
and underlying judgements.
The Committee satisfied itself that, consistent with
the Company’s accounting policy, the loss was correctly
presented and disclosed.
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GOVERNANCE
Strategic Report
Financial Statements
The Committee reviewed the audit findings and assessed
management’s judgements and estimates in determining
the provision and the potential impact on banking
covenants, going concern and viability.
Strategic review of Equipment Services
Following a strategic review of Equipment Services, the
Board took the decision to restructure the business and
exit a number of smaller and less attractive markets.
The Committee satisfied itself that the exceptional losses
resulting from this decision were appropriately recorded,
presented and disclosed in the financial statements.
• Revenue and margin recognition
The recognition of revenue and profits on long-term
construction and service contracts requires management
to exercise significant levels of judgement involving a high
degree of discretion and control. For construction-type
contracts the key judgement concerns the recognition
of profits, the recovery of work-in-progress and debtors,
especially on non-certified amounts (including variations
and claims) and forecast outcomes. For service-type
contracts the key accounting risk is that the revenue
and costs are not recognised in the correct period and
provisions are not made for losses when foreseen. For
contracts in the Equipment Services division, where
revenue is recognised on either the sale of equipment or
over the period of an equipment hire, the key accounting
risk relates to whether the appropriate cut-off for sales
and period of hire has been applied and the recoverability
of debtors.
The Committee reviewed the audit findings and
management judgements on a selection of contracts
perceived to carry the highest risk of misstatement.
This review was undertaken against the background
of its familiarity with the challenged contracts, whilst
acknowledging that final outcomes on contracts always
carry uncertainty and exposure to changes in the supply
chain, client’s requirements and circumstances, the
ability to meet technical commissioning and completion
hurdles and other variables. This work also included the
Committee satisfying itself as to the recoverability of long-
dated debtor and work-in-progress balances.
The Committee reviewed the level of provisioning made
by management at both contract level and centrally at
the year end in order to form a view of the completeness
of provisions on loss-making contracts and whether there
was a requirement to include a forward loss provision
on longer-term contracts. The quality of earnings and
movement in provisions during the course of the year was
also reviewed.
•
Carrying value of goodwill and other
intangible assets
The carrying value of goodwill and other intangible assets
on the balance sheet at the year end was £514.0 million,
which included goodwill with a value of £437.0 million.
The Committee reviewed management’s determination of
its principal cash generating units, the key assumptions
used, such as the discount rate and future cash flows in
light of current business performance and that future
projections were consistent with medium-term plans, and
satisfied itself of the appropriateness of management’s
impairment testing, that significant headroom exists and
that any reasonable sensitivity to the assumptions did not
indicate any impairment.
• Retirement benefit accounting
Calculation of the retirement benefit obligation
requires management to make a number of assumptions
including the selection of an appropriate discount rate
and mortality.
The Committee satisfied itself as to the reasonableness
of the assumptions set out in note 29 to the financial
statements, taking into account the independent third-
party confirmations of the pension assets valuation at
the balance sheet date and that pension balances are
accounted for in accordance with relevant accounting
standards and guidance.
FAIR, BALANCED AND UNDERSTANDABLE
FINANCIAL STATEMENTS
The directors are responsible for preparing the annual
report. At the request of the Board the Committee
considered whether the report and accounts, taken as a
whole, was fair, balanced and understandable. In making
that assessment, the Committee took into account whether
the report and accounts provided the necessary information
for shareholders to assess the Company’s position and
performance, business model and strategy.
The Committee was satisfied that, taken as a whole, the
2016 annual report was fair, balanced and understandable
and contained the information set out above and reported
accordingly to the Board. The Board’s statement in this regard
is set out on page 95.
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GovernanceOverview
Audit Committee report continued
EXTERNAL AUDIT
Oversight
The Committee considers and makes recommendations to
the Board as regards audit matters. The Committee manages
the relationship with the Company’s auditor, which includes a
review of the effectiveness of the statutory audit at the end
of the audit cycle, agrees, for and on behalf of the Board,
the statutory audit fees and scope of the statutory audit
and makes a recommendation to the Board as to the auditor
appointment or re-appointment. The Committee also seeks to
ensure co-ordination between the activities of the external
and internal auditors.
Tenure
Grant Thornton was formally appointed as the Company’s
auditor on 13 June 2014 following a competitive tender
exercise involving four audit firms at the end of the 2013
statutory audit and approval by shareholders at the 2014 AGM.
Based upon the review of audit effectiveness the Committee
has recommended to the Board that Grant Thornton be
reappointed for a fourth year as the Company’s independent
auditor for the 2017 financial year. Grant Thornton are
planning for the Audit Engagement Partner succession by
rotating members of the engagement team to facilitate both
continuity and independence in future years.
The Committee will continue to review the auditor
appointment and the need to ensure that the Group complies
with the CMA Order relating to mandatory audit tenders every
ten years and rotation after 20 years.
Objectivity and independence
The Company has an established policy aimed at safeguarding
the independence and objectivity of the Group’s external
auditor. The policy sets out the approach to be taken when
considering engaging the external auditor for non-audit work.
There is no inconsistency between the FRC’s Revised Ethical
Standard 2016 and the Group’s policy.
The external auditor may carry out certain categories of
non-audit work in areas that have been pre-approved by the
Committee up to a monetary limit of £150,000 per transaction.
Any other work for which management may wish to instruct the
external auditor with a value not exceeding £250,000 must be
approved in advance by the Committee or, more normally, by
the Committee Chair on its behalf. Instructions above £250,000
require prior approval of the Board. The pre-approved services
may be summarised as follows:
• assurance services; and
• audit reports required by statute or regulation.
The above policy also prohibits the auditor auditing their
own work, or entering into any arrangement in relation
to audit work whereby a joint interest is created between
the Company and the auditor, without the Committee’s
prior consent.
The Committee received a report at each of its meetings
itemising the fees expended and forecast to be expended
with Grant Thornton for non-audit services. In addition to the
above safeguards, a minimal amount of non-audit services was
delivered by specialists and advisers who were independent
of the audit team.
Non-audit fees incurred for the year were £0.2 million
(18 per cent) compared to audit fees of £1.1 million, the
largest element of which – £93,000 – related to the interim
review. Further details of the audit and non-audit fees paid
to Grant Thornton are included in note 4 to the financial
statements on pages 123 and 124.
The Committee concluded that the safeguards set out above
were sufficient so as not to compromise auditor objectivity
and independence.
Audit quality
The Committee also reviewed Grant Thornton’s audit
effectiveness following the audit of the 2016 annual report
taking into account the partners’ and senior audit staff’s
understanding of the business, the effectiveness of the audit
work in relation to key judgements and how those were
addressed, the quality of suggested control improvements,
the appropriateness of assurance gained over parts of the
Group not audited by Grant Thornton, the appropriateness
and deployment of experts on technical items, the quality
and comprehensibility of the audit findings report, the quality
and clarity of the auditor’s external report and feedback
from senior management on the audit process generally. In
addition, the Committee reviewed the FRC’s 2015/16 Audit
Quality Inspection (AQI) of Grant Thornton and discussed
its findings with the Audit Engagement Partner as well as
satisfying itself as to the adequacy of the firm’s internal
quality assurance processes.
The Audit Engagement Partner has direct access to the Chair
of the Committee and they meet on a regular basis in addition
to the formal committee process.
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GOVERNANCE Strategic Report
Financial Statements
REVIEW
The Committee undertook a review of its own performance in
2016 and concluded that it remained effective in discharging
the obligations entrusted to it by the Board.
The Committee also confirms that it has fulfilled its
responsibilities during the year in relation to, and confirms
the Group is in compliance with, The Statutory Audit Services
for Large Companies Market Investigation (Mandatory
Use of Competitive Tender Process and Audit Committee
Responsibilities) Order 2014.
AGM
The Chair of the Audit Committee will be available at the AGM
to answer questions about the work of the Committee.
APPROVAL
This report was approved by the Board of Directors on
28 February 2017 and signed on its behalf by:
Anne Fahy
Chair of the Audit Committee
28 February 2017
INTERNAL AUDIT
The internal audit function provides an independent and
objective appraisal to the Board, through the Committee,
of the adequacy and effectiveness of the processes
established to manage risk and control the business, makes
recommendations on how the system of internal control
might be improved, assists the Board in meeting its objectives
and discharging its responsibilities and also provides certain
advisory reports on business initiatives in support of
management initiatives.
The annual internal audit plan of work, submitted to the
Committee each December for approval, is risk-based and
designed to provide core assurance against those areas
identified as high risk and deliver cyclical reviews of key
business activities, financial reporting processes and
medium-risk areas. The annual plan may be modified by
exception (subject to agreement of the Committee) based
on changing circumstances.
Specialist subject matter experts are engaged, where
appropriate, across many reviews to address areas such as
engineering and commercial issues, VAT, employment law, IT,
business continuity, culture and behaviour, working capital
and information security.
The Committee received a summary of each internal
audit review undertaken during the year comprising a set
of findings, proposed corrective actions, management’s
responses to those findings and, where appropriate,
recommendations for improvements.
Closure of the agreed corrective actions was tracked
via a web-based system and monitored by management,
with progress reported to the Committee in June 2016,
December 2016 and February 2017.
In addition to the agreed audit programme, and in order
to monitor the level of control across the Group, all material
business units and relevant central and support functions
were required to complete an online self-assessment of
their compliance with key controls covering 16 different
business processes.
The Committee also monitored, reviewed and assessed the
role and effectiveness of internal audit in the overall context
of the Group’s risk management system and review.
The Internal Audit Partner has direct access to the Chair of
the Committee and they meet on a regular basis in addition to
the formal committee process.
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GovernanceOverview Directors’ remuneration report
Keith Ludeman
Chairman of the
Remuneration
Committee
CHAIRMAN’S SUMMARY STATEMENT
Dear Shareholder
On behalf of the Board, I am pleased to present the
Remuneration Committee’s annual report on directors’
remuneration for the year ended 31 December 2016 which
sets out the amounts earned by the directors under the
revised Remuneration Policy approved by shareholders
at the 2015 AGM.
Our Remuneration Policy encourages achievement of our
corporate goals, through an annual bonus linked to achieving
profitable growth and meeting specific strategic objectives
(where appropriate) and long-term incentive awards that only
reward for delivering long-term earnings growth and achieving
above median sector-based total shareholder returns.
2016 has been a challenging year for Interserve, with
disappointing performance in our UK Construction business
including the challenges of exiting from the Energy from
Waste (EfW) sector. Whilst other parts of the Group continued
to perform well in the year, the Committee took the view that
they should apply discretion when considering whether to pay
management incentives for 2016, having regard to the impact
of EfW on the Group’s performance and share price.
2016 REMUNERATION PAYMENTS
Base salaries
Cost of living increases were made to the directors’ base
salaries, broadly in line with those awarded to the general
salaried workforce.
Annual Variable Pay
In line with our Remuneration Policy, the maximum Annual
Variable Pay potential for Steven Dance, Bruce Melizan and
Dougie Sutherland was 100 per cent of basic annual salary,
with Adrian Ringrose and Tim Haywood having an additional
opportunity to earn up to a further 25 per cent of basic annual
salary for delivery of stretching strategic targets.
As in prior years, the financial targets set for bonuses up
to 100 per cent of salary were based on a combination of
normalised EPS1 (up to 80 per cent of the maximum), and the
efficient use of capital employed (up to 20 per cent of the
maximum). For the additional 25 per cent of salary bonus
opportunity applicable to Adrian Ringrose and Tim Haywood,
individually tailored strategic targets were set (including
targeted improvements in business SustainAbilities, health
and safety and financial processes and management).
With regards to the performance achieved against these
targets, while good progress was made against the strategic
targets (including health and safety and SustainAbilities)
which would have resulted in bonuses becoming payable,
the Committee used its discretion to reduce the bonuses
that would have been earned based on an application of the
formula to zero. This was felt appropriate to recognise the
impact of the three deaths in our International business
and the exited EfW businesses on the Group’s performance
and share price.
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GOVERNANCE Strategic Report
Financial Statements
Board changes
As announced on 5 May 2016, Steven Dance stepped down
from the Board and is to retire following serving his
12 months’ notice period. Furthermore, as announced on
14 November 2016, it is expected that Adrian Ringrose will
also leave the Board during 2017. Details of the payments
agreed in connection with cessation of employment of each
individual, which are consistent with our Remuneration
Policy, are included on pages 70 and 71.
Shareholder engagement
The Committee is committed to maintaining an ongoing
dialogue with shareholders on the issue of executive
remuneration and we welcome any further feedback
you may have.
We look forward to your support on the resolution relating
to remuneration at the AGM on 12 May 2017.
On behalf of the Remuneration Committee
Keith Ludeman
Chairman of the Remuneration Committee
Long-term variable pay
The long-term incentive awards granted in 2014 were eligible
to vest based on independent, challenging three-year
normalised EPS2 and relative total shareholder return (TSR)
targets (versus a bespoke group of sector peers).
Despite growth in EPS of 33.5 per cent over the three-year
period, the threshold performance target was not met. With
regards to our relative TSR performance, we were below the
median when compared against the peer group and so this
target was also missed. Accordingly, there will be no vesting
in relation to the 2014 long-term incentive award.
APPLICATION OF 2017 REMUNERATION POLICY
We have made several changes to the application of our
Remuneration Policy for the current financial year to better
align with our 2017 strategic priorities.
Annual Variable Pay
Regarding the Annual Variable Pay scheme, we have refined
the balance between our financial metrics for 2017 (moving to
a 70:30 split between normalised EPS1 and cash metrics from
an 80:20 split in the 2016 financial year). To reflect our strong
focus in 2017 on cash generation, which in turn enables the
reduction of average net debt levels, we are increasing its
weighting in Annual Variable Pay and are adjusting the basis
of measurement. We are replacing average working capital
days which we operated in 2016 with average net debt
reduction targets to recognise our greater focus on cash.
We have also refined the non-financial targets that will apply
in 2017. While we will continue to include targets relating
to delivery against our SustainAbilities agenda and health
and safety for the Chief Executive, we are to set strategic
targets for the Group Finance Director and Dougie Sutherland.
Further details of the targets and weightings to apply to each
individual director are included on page 63.
Long-term variable pay
Consistent with the approach we have taken in prior years,
the long-term incentive awards to be granted in 2017 will be
subject to independent, challenging three-year normalised
EPS2 growth targets (applying to two-thirds of the awards) and
relative TSR versus companies of a comparable size (applying
to one-third of the awards).
Delivering profitable growth and above-average total
shareholder returns remain clear long-term objectives at
Interserve, and continued use of these metrics will ensure
that they are appropriately aligned with our strategy.
1 Normalised EPS is headline EPS adjusted to exclude IAS 36 Impairment of assets and IAS 39 Financial instruments and any unbudgeted “one-off”
contributions to EPS which the Committee exercises its discretion to exclude.
2 Normalised EPS is headline EPS adjusted to reflect growth in underlying value created by (a) removing the impact of IAS 36 Impairment of
assets and IAS 39 Financial instruments; and (b) recognising or removing “one-off” events at the judgement of the Committee.
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GovernanceOverview Directors’ remuneration report continued
In this section:
ANNUAL REPORT ON REMUNERATION
How the Remuneration Policy will be applied in 2017
How the Remuneration Policy was applied in 2016
Governance and operation of the Remuneration Committee
REMUNERATION POLICY (SUMMARY)
Executive directors’ remuneration policy
Terms of appointment and remuneration policy for non-executive directors
ANNUAL REPORT ON REMUNERATION
The Annual Report on Remuneration will be put to an advisory vote at the AGM on 12 May 2017.
Page
62
65
77
79
86
HOW THE DIRECTORS’ REMUNERATION POLICY WILL BE APPLIED FOR THE YEAR ENDING 31 DECEMBER 2017
The directors’ Remuneration Policy was approved by shareholders at the AGM on 12 May 2015. We believe the policy framework
introduced at the 2015 AGM continues to support our strategy. However, as summarised in the Remuneration Committee
Chairman’s summary statement, we have made some modest revisions to the application of the policy for 2017 compared to
2016 to better align our remuneration with current strategy.
A copy of our remuneration strategy and the full Remuneration Policy is set out on pages 76 to 86 of the Company’s Annual
Report and Financial Statements 2014, available on the Company’s website at www.interserve.com/investor-centre/financial-
reports-and-results.
A summary of the policy is set out on pages 79 to 86 of this Annual Report.
EXECUTIVE DIRECTORS’ REMUNERATION
At a glance
The table below sets out an at-a-glance summary of how the key elements of the Remuneration Policy for the executive
directors will be applied during the financial year ending 31 December 2017.
Remuneration element
Remuneration policy
Base salary
Reviewed annually with any increases from 1 July of each year.
Pension
Annual
Variable Pay
15% salary supplement in lieu of pension contributions.
Maximum payment of 125% of salary for the Chief Executive and Group Finance Director.
The maximum applicable to other executive directors is 100% of salary.
The performance targets applying to 100% of Bruce Melizan’s bonus, 80% of the bonuses of the
Chief Executive and Group Finance Director and 75% of Dougie Sutherland’s bonus are as follows:
70% – normalised EPS1 growth
30% – average net debt reduction
The performance targets applying to the remaining portions of the bonuses of the Chief Executive,
Group Finance Director and Dougie Sutherland relate to specific strategic areas which the Board is
targeting in 2017.
For each executive director, an element of any payment in excess of 25% of basic salary is required to
be invested in Company shares and held for a period of three years (full details are set out in the
Remuneration Policy).
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GOVERNANCE Strategic Report
Financial Statements
Remuneration element
Remuneration policy
Performance
Share Plan (PSP)
Maximum value of shares (when awarded) is set at up to 150% of salary. Shares vest subject to remaining
in employment and satisfaction of performance conditions tested over three years:
• Two-thirds: growth in normalised EPS2.
• One-third: Total Shareholder Return (TSR) as measured against the TSR of each company in the FTSE
Small Cap and FTSE 250, excluding investment trusts.
Vested shares from the PSP award are to be held for two years post-vesting (after payment of tax).
Variable Pay arrangements include provisions that enable the recovery of value overpaid (clawback) or
the withholding of pay earned (malus) in the event of misstatement, error or misconduct for a period of
two years after the date on which a payment is made.
200% of salary to be held as shares.
Malus and
clawback
provisions
Shareholding
requirement
1
2
Normalised EPS is headline EPS adjusted to exclude IAS 36 Impairment of assets and IAS 39 Financial instruments and any unbudgeted “one-off”
contributions to EPS which the Committee exercises its discretion to exclude.
Normalised EPS is headline EPS adjusted to reflect growth in underlying value created by (a) removing the impact of IAS 36 Impairment of assets
and IAS 39 Financial instruments; and (b) recognising or removing “one-off” events at the judgement of the Committee.
A more detailed summary of how the policy will be applied during the year ending 31 December 2017 is set out below.
Salaries
Salaries for the executive directors are reviewed annually with increases effective from 1 July of each year. Payroll movement
in the salaried workforce, adjusted on a like-for-like basis (including in-year increases, but excluding starters, leavers and
promotions) and increases awarded to the general salaried workforce, will be taken into account when conducting this review.
Annual Variable Pay
The maximum Annual Variable Pay potential for the year ending 31 December 2017 will remain at 125 per cent of basic salary
for the Chief Executive and Group Finance Director, and 100 per cent of basic salary for the other executive directors.
The financial targets to apply to Annual Variable Pay are designed to provide a balance between incentivising profitable growth,
through targeting improved normalised EPS1 (EPS Targets) and focusing management on generating cash from our activities.
The non-financial targets reflect current strategic priorities.
The targets applicable to each executive director are as follows:
Position
% Salary
Chief Executive
Group Finance Director
Dougie Sutherland
Bruce Melizan
70%
30%
12.5%
12.5%
70%
30%
25%
52.5%
22.5%
25%
70%
30%
Metric
• EPS
• Average net debt reduction
• Deliver the Board’s SustainAbilities agenda
• Achievement of Group Annual Safety Plan targets
• EPS
• Average net debt reduction
• Deliver Board strategic targets
• EPS
• Average net debt reduction
• Deliver Board strategic targets
• EPS
• Average net debt reduction
With regards to the choice of metrics we are to use in 2017, we are continuing with EPS as the primary measure of financial
performance as it is well understood and the metric used internally to measure our success in growing profitably. Given our
increased focus on the generation of cash in 2017, we are increasing its weighting in Annual Variable Pay and adjusted the
basis of measurement vis-à-vis 2016. We are replacing average working capital days which we operated in 2016 with average
net debt reduction.
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GovernanceOverview Directors’ remuneration report continued
Both the EPS and average net debt reduction targets,
consistent with our Remuneration Policy, will operate on
a sliding scale.
With regard to the non-financial targets, where practicable,
this additional Variable Pay is to be earned based on a range
of strategic objectives which are in the process of being
finalised, following recent developments at the Company.
In relation to any payment in connection with the above
targets, the Committee will retain the discretion to reduce
these elements of Variable Pay (to zero) if it considers it
appropriate to do so in light of the Company’s overall financial
performance achieved during the year.
Since disclosure in advance of the specific EPS and average
net debt reduction and non-financial targets in the Annual
Variable Pay scheme is considered commercially sensitive,
disclosure of performance against the targets and the criteria
to determine pay awards will be set out in full retrospectively
in the 2017 Annual Report on Remuneration (subject to any
price sensitivity considerations in which case the targets
would be considered for disclosure the following year).
Performance Share Plan
Awards will be made in 2017 to executive directors (save for
Adrian Ringrose) over shares worth 150 per cent of basic salary
as at the date of grant, subject to the following performance
conditions:
Earnings per share growth
Normalised EPS1 growth of the
Company over the performance period
Vesting percentage of two-thirds
of shares subject to the award
Less than 6%
6% to 30%
0%
25% to 100% (pro-rated)
Greater than 30%
100%
1
Normalised EPS is headline EPS adjusted to reflect growth in underlying
value created by (a) removing the impact of IAS 36 Impairment of assets
and IAS 39 Financial instruments; and (b) recognising or removing “one-
off” events at the judgement of the Committee.
In setting the above targets, the Committee considered the
Company’s internal planning expectations alongside current
consensus market expectations. Having given due regard
to these factors, the Committee is comfortable that the
targets are appropriately demanding, no less challenging
than in previous years, and provide a realistic incentive at
the lower end of the performance range, but with full vesting
requiring exceptional outperformance given the current
commercial environment.
This sliding scale of EPS performance and vesting is shown
graphically below:
d
r
a
w
a
f
o
s
d
r
i
h
t
-
o
w
t
r
o
f
g
n
i
t
s
e
v
e
g
a
t
n
e
c
r
e
P
100%
75%
50%
25%
0%
6%
5%
10%
15%
20%
25%
30%
35%
40%
Adjusted EPS growth over performance period
Growth in normalised EPS will be determined by the
Committee after verifying calculations made internally.
Total shareholder return
Vesting of the other third of an award will be dependent upon
the Company’s performance in terms of TSR, as measured
against the TSR of each company in the FTSE Small Cap and
the FTSE 250, excluding investment trusts.
TSR is calculated as the percentage change in the net return
index from the start to the end of the three-year performance
period commencing on the fi st day of the 2017 financial year1.
This measures the return to an investor on a holding of
Interserve shares.
The TSR performance conditions are set out in the table below:
TSR ranking of the Company compared
to the Comparator Group over the
performance period
Vesting percentage of one-third
of shares subject to the award
Below median ranking
Median ranking (top 50%)
0%
25%
Median to upper quartile ranking 25% to 100% (pro-rated)
Upper quartile ranking (top 25%) 100%
1
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.
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GOVERNANCE
Strategic Report
Financial Statements
This sliding scale of TSR performance and vesting is shown
graphically below:
100% vesting at
Upper Quartile
25% vesting at Median
100%
75%
50%
25%
0%
d
r
a
w
a
f
o
d
r
i
h
t
-
e
n
o
r
o
f
g
n
i
t
s
e
v
e
g
a
t
n
e
c
r
e
P
HOW THE REMUNERATION POLICY WAS APPLIED
FOR THE YEAR ENDED 31 DECEMBER 2016
The salaries for the executive directors are set out in the
table below:
Name
S L Dance1
T P Haywood
B A Melizan
A M Ringrose
Salary as at
1 January 2017
£
Salary as at
1 January 2016
£
Percentage
change
–
378,225
307,500
369,000
357,213
348,500
577,844
563,750
n/a
2.5
2.5
2.5
2.5
Median
Upper Quartile
TSR ranking of the Company
1 Steven Dance resigned on 4 May 2016.
D I Sutherland
315,188
307,500
For the salaried workforce, payroll movement in the period
June 2015 to June 2016, adjusted on a like-for-like basis
(including in-year increases, but excluding starters, leavers
and promotions) was 3.9 per cent.
Cost of living increases of 2.5 per cent were made to the
executive directors’ base salaries broadly in line with
those awarded to the general salaried workforce, with
the increases effective from 1 July 2016 in line with the
Remuneration Policy.
Tim Haywood is a non-executive director of Tarsus Group plc
for which he receives a fee of £54,075 per annum.
Bruce Melizan is an unremunerated director of Safer London.
The table overleaf shows the remuneration paid to each
director. Further details are included on pages 67 to 71.
The Board’s strategy continues to focus on delivering long-
term profitable growth and generating above-market long-
term returns to our shareholders. The ongoing use of EPS
growth targets and relative TSR targets is considered to
provide alignment between the Board’s strategy and the
executive’s long-term reward. The targets are weighted
towards EPS performance since this is the key metric targeted
internally for growth.
Post-tax vested shares must be retained for at least a two-year
holding period after vesting (see policy table on page 81).
Non-executive director fees
The fee levels for the non-executive directors for 2017 are set
out in the table below:
Element
Fee effective
1 January
2017
£
Fee effective
1 January
2016
£
Percentage
change
Fee paid to Group Chairman
170,000
170,000
Base fee paid to other
non-executive directors
Supplementary fees:
– Senior Independent
Director
– Audit Committee
Chairman
51,400
51,400
7,000
7,000
10,000
10,000
– Remuneration Committee
10,000
10,000
Chairman
– Nomination Committee
nil
nil
nil
nil
nil
Chairman
See note1
See note1
n/a
1
The Group Chairman is Chairman of the Nomination Committee
and receives no supplementary fee for chairing this committee.
The Committee and the Board, respectively, resolved
in December 2016 not to increase the fees of the Group
Chairman and the non-executive directors for the
2017 financial year.
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GovernanceOverview
Directors’ remuneration report continued
Remuneration paid to each director (audited information)
Salary
& fees
Taxable
benefits
Annual
Variable Pay
PSP6/7
Pension8
Other
remuneration
Total
–
–
15,9071
–
128,7341
£
Executive directors
S L Dance1
T P Haywood
B A Melizan
A M Ringrose10
D I Sutherland
Sub-total
Non-executive directors
Glyn Barker2
Lord Blackwell3
A K Fahy
R J King
K L Ludeman
N R Salmon
Sub-total
Former directors
L G Cullen4
Total
Year
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
106,0481
303,750
373,613
364,500
352,857
344,250
570,797
556,875
311,344
303,750
1,714,659
6,7791
22,532
19,787
17,623
26,253
28,741
22,306
23,410
17,009
16,9505
92,134
179,949
186,7517
–
–
254,462
225,9247
–
–
203,942
186,7517
–
–
438,767
313,7447
–
–
179,949
186,7517
–
–
1,873,125
109,256
1,257,069
1,099,9217
150,233
–
28,333
165,000
61,400
60,000
58,400
54,460
61,400
60,000
51,400
50,000
411,166
389,460
–
20,754
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,125,825
92,134
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,283,339
109,256
1,257,069
1,099,921
45,563
56,042
54,675
52,929
51,638
85,619
83,531
46,702
45,563
257,199
280,970
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
257,199
280,970
1,2819
739,826
–
449,442
1,2819
918,465
–
432,039
1,2819
816,603
–
678,722
1,2819
1,417,608
–
1,3579
375,055
734,320
–
2,063,992
6,4819
4,626,822
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
150,233
–
28,333
165,000
61,400
60,000
58,400
54,460
61,400
60,000
51,400
50,000
411,166
389,460
–
20,754
2,475,158
6,481
5,037,036
1
Steven Dance resigned from the Board on 4 May 2016. The figures reported above are pro-rated for the period during the year that he was a serving
director (1 January to 4 May 2016). For the period during the year that he received remuneration as a past director, under notice of his employment
contract (5 May to 31 December 2016), his base salary was £201,452; his taxable benefits were £14,006 and his salary supplement in lieu of pension
was £30,218, giving a total of £248,676. During this period, a contribution towards legal fees in connection with his retirement was capped at £500
(excluding VAT).
2 Glyn Barker was appointed on 1 January 2016.
3 Lord Blackwell resigned on 29 February 2016.
4 Les Cullen resigned on 12 May 2015.
5 Re-stated.
6
7
The PSP awards awarded on 13 May 2014 have not met the performance conditions and will not vest. For further information see page 69.
The share price used to calculate the value of shares for the 2013 PSP awards which vested on 9 April 2016 was the market value on the previous
business day (8 April 2016), being 420.50p. The values above also include a dividend equivalent payment of 68.8p per vested share. For the amount
realised on exercise, please refer to the PSP table on page 73.
8 15 per cent salary supplement in lieu of pension.
9
Gains made on the exercise of options under the Sharesave Scheme.
10 Adrian Ringrose received a £10,000 contribution (excluding VAT) towards legal fees in respect of his severance agreement and £20,000 (excluding
VAT) towards outplacement support.
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GOVERNANCE Strategic Report
Financial Statements
Additional notes to the directors’ remuneration table (audited information)
1. Taxable benefits
The table below sets out the constituent elements of the taxable benefits for the executive directors:
Executive director
S L Dance1
T P Haywood
B A Melizan
A M Ringrose
D I Sutherland
Total
Company car
£
Cash allowance
in lieu of
company car
£
Fuel benefit
£
Travel
allowance
£
Medical
insurance
£
4,4431
14,075
12,876
11,420
7982
16,388
-
-
-
-
18,117
41,883
-
-
-
-
12,9862
-
19,192
19,192
13,896
13,896
46,074
33,088
1,9291
6,888
5,665
4,935
-
-
1,429
2,649
1,428
1,485
10,451
15,957
-
-
-
-
10,784
10,784
-
-
-
-
10,784
10,784
4071
1,569
1,246
1,268
1,685
1,569
1,685
1,569
1,685
1,5693
6,708
7,544
Year
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Total
£
6,7791
22,532
19,787
17,623
26,253
28,741
22,306
23,410
17,009
16,950
92,134
109,256
1
2
Steven Dance resigned on 4 May 2016. The figures reported above are pro-rated for the period during the year that he was a serving director
(1 January to 4 May 2016). For the period during the year that he received remuneration as a past director, under notice of his employment
contract (5 May to 31 December 2016), his taxable benefits were as follows: company car: £9,171; fuel benefit: £3,996; medical insurance £839.
Bruce Melizan received a company car benefit-in-kind for the period 1 to 17 January 2016. From 18 January to 31 December 2016 he received a cash
allowance in lieu of company car.
3
Re-stated.
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GovernanceOverview Directors’ remuneration report continued
2. Determination of 2016 Annual Variable Pay
The table below in relation to non-financial targets provides disclosure of the targets (other than where elements of the
targets are considered to remain commercially sensitive) and actual performance against them. We do not expect to provide
any further disclosure in relation to 2016 non-financial performance in future years as certain targets are expected to remain
commercially sensitive. This position will be reviewed when preparing next year’s Remuneration Report.
The Annual Variable Pay for 2016 was to have been determined with reference to performance over the financial year ending
31 December 2016. However, the Committee considered it appropriate to recognise the exceptional charge in respect of the
exited EfW business and, in the case of the Chief Executive, the three fatalities in the International business, and applied its
discretion to award no Annual Variable Pay for 2016. The performance measures and targets, and the performance against
them, are set out below. For completeness, had the Committee not used its discretion to reduce payments to zero, the bonus
awards would have ranged from 35 per cent to 44 per cent of salary.
Metric
Maximum
award as
percentage
of salary
Performance target
Percentage of salary
Extent of achievement
Actual award
as percentage
of salary
(following use
of Committee
discretion)
Targets applicable to all executive directors
Normalised EPS1
80%
Less than 57.9p
0%
57.9p to 64.3p
64.3p to 73.95p
Above 73.95p
Average capital
employed days
20%
Average capital employed
days greater than 19.6
Average capital employed
days less than 19.6
8% to 40% pro rata
40% to 80% pro rata
80%
0%
20%
Personal targets applicable to Adrian Ringrose (Chief Executive)
SustainAbilities
12.5%
Progress against the 2016 targets for the five
high-level outcomes of:
• Places that benefit people
• Public service in the public interest
• More skills more opportunities
• Positive environmental impact; and
• Sustainable growth.
Health and safety 12.5%
Progress against nine health and safety targets
set annually by the Board.
nil
nil
nil
nil
63.3p per share, 98.5% of
budgeted normalised EPS1,
triggering 43.75% of this
target.
22.3 days – target not
achieved.
Good progress made against
the 2016 SustainAbilities
targets – a score of 22 out
of a maximum of 31 on a
balanced scorecard triggering
75% of this target.
On a formula basis 87.5% of
this target was achieved. As a
result of the three accidental
deaths in the workforce in the
Middle East this was reduced
to zero.
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Financial Statements
Metric
Maximum
award as
percentage
of salary
Performance target
Percentage of salary
Extent of achievement
Personal targets applicable to Tim Haywood (Group Finance Director)
SustainAbilities
12.5%
As above.
As above.
Financial
processes and
management
6.25%
6.25%
No more than 20% of Internal Audit reports
to be red/amber: no actions overdue for
longer than six months.
No red reports, with partial
achievement of the remaining
objectives, triggering 3.13% of
this target.
No variance in the monthly working capital in
excess of +/- 10% from the current forecast or
no variance greater than £10 million.
Not met.
Actual award
as percentage
of salary
(following use
of Committee
discretion)
nil
nil
nil
1
Normalised EPS is headline EPS adjusted to exclude IAS 36 Impairment of assets and IAS 39 Financial instruments and any unbudgeted “one-off”
contributions to EPS which the Committee exercises its discretion to exclude.
3. Determination of 2016 Performance Share Plan payments
The analysis below explains how the PSP payments for the performance period ending 31 December 2016 were determined.
The PSP awards granted on 13 May 2014 were based on performance over the three-year period from 1 January 2014 to
31 December 2016 and were subject to the following performance conditions:
The EPS Performance Condition for two-thirds of the 2014 Awards
Normalised EPS1 growth of the Company over the performance period
Vesting percentage of two-thirds of shares subject to the award
Less than 40.46%
40.46% to 83%
Greater than 83%
0%
25% to 50% (pro-rated)
100%
1
Normalised EPS is defined as headline EPS adjusted to reflect growth in underlying value created by (a) removing the impact of IAS 36
Impairment of assets and IAS 39 Financial instruments; and (b) recognising or removing “one-off” events at the discretion of the Committee.
In testing the performance condition, the Committee assessed performance based on the definition of EPS detailed above, made
an adjustment for the change from IAS 19 to IAS 19R Pensions, which ensured the target was no more or less challenging than
the target originally set allowing for this factor. Following adjustment, growth in normalised EPS from 47.4 pence per share to
63.3 pence per share over the three-year performance period for the 2014 award was 33.5 per cent, 6.96 per cent below the
growth required for threshold vesting to occur.
The TSR Performance Condition for one-third of the 2014 Awards
This condition is determined by comparing the Company’s TSR performance to the TSR of each of a defined list of
comparator companies drawn from the Construction and Materials, and Support Services sectors comprising Atkins (WS),
Babcock International, Balfour Beatty, Capita Group, Carillion, Costain Group, Kier Group, MITIE Group, Morgan Sindall,
Rentokil Initial, RPS Group and Serco.
TSR ranking of the Company compared to the Comparator Group over the
performance period
Vesting percentage of one-third of shares subject to the award
Below median ranking
Median ranking (top 50%)
Median to upper quartile ranking
Upper quartile ranking (top 25%)
0%
30%
30% to 100% (pro-rated)
100%
TSR performance was below the median of the comparator group and therefore the TSR part of the awards will not vest.
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GovernanceOverview Directors’ remuneration report continued
The shares purchased by Mr Dance under the Share
Incentive Plan (partnership shares), together with any
dividend shares held, will be transferred to him shortly
after his retirement date.
The 61,908 shares awarded under the PSP 2006 in 2014 will
not vest.
Under the PSP 2015, Mr Dance’s unvested nil-cost share option
awards over 71,784 and 106,425 shares, granted in 2015 and
2016 respectively, will become exercisable at the end of their
respective performance periods, subject to the applicable
performance conditions being satisfied, and subject to time
pro-rating to reflect the period of Mr Dance’s employment
within each of the awards relative to three years. Dividend
equivalents will accrue on the shares that vest in line with
the plan rules.
Any vested awards must be exercised within 12 months of
the vesting date, after which time they will lapse. Any shares
resulting from the 2015 and 2016 awards must be held for
a further two years after vesting and will be subject to the
recovery and withholding provisions of the PSP 2015.
General
All amounts payable to Mr Dance will be subject to such
deductions in respect of tax and national insurance as the
Company is required by law to make. A contribution towards
legal fees in connection with his retirement was capped at
£500 (excluding VAT).
(b) Adrian Ringrose
Salary and benefits
As announced on 14 November 2016, Adrian Ringrose will step
down from the Board and leave the Company after a successor
has been appointed, in order to pursue the next phase of his
career. To facilitate a smooth transition through this process,
he will continue in his current role until this process has been
completed and following an orderly handover.
During this period he will continue to receive his salary and
benefits until such time as his employment is terminated,
at which time, in line with the provisions in his service
agreement and our Remuneration Policy, he may be paid up to
a maximum of one year’s salary and benefits (for the period
he remains in active employment or is placed on gardening
leave) or one year’s basic salary if he receives payment in lieu
of any unexpired notice period (or an appropriate combination
of each, subject to no more than a total payment relating to a
period of 12 months’ notice).
4. Directors’ pension entitlements
Defined Contribution Scheme
During 2016 none of the executive directors were active
participants of the Defined Contribution section of the
Interserve Pension Scheme and, as at 31 December 2016,
all had transferred their deferred benefits out of this section
of the Scheme. All the executive directors receive 15 per
cent salary supplement in lieu of pension contributions.
Non-executive directors’ fees are not pensionable.
Defined Benefit Scheme
Following the benefit changes to the Interserve Pension
Scheme, Adrian Ringrose ceased to accrue any further
benefits in the Defined Benefit section of the Scheme from
31 December 2009. His accrued pension at that date was
£72,337 per annum and his pension will increase up to the
point he draws his benefits broadly in line with price inflation.
5. Payments for cessation of employment
(a) Steven Dance
As announced on 5 May 2016, Steven Dance is to retire from
Interserve on 4 May 2017. As a result of his forthcoming
retirement, he resigned from the Board on 4 May 2016.
The financial payments in connection with his retirement
are detailed below.
Salary and benefits
In line with Mr Dance’s service agreement, he continued to
receive his salary and benefits from 4 May 2016 until
31 December 2016. He will continue to receive his salary
and benefits until he retires on 4 May 2017.
Treatment of Annual Variable Pay
In light of Mr Dance’s retirement with the agreement of the
Company, the Committee used its discretion to treat him as
a “good leaver” for the purposes of the Annual Variable Pay
scheme. As a result, he remained eligible to receive a bonus
payment (subject to the performance targets being applied) at
the conclusion of the relevant financial year, reduced pro-rata
for the proportion of the relevant financial year for which
he was employed. Having first reviewed the achievement
of the performance targets, the Committee considered it
appropriate to recognise the exceptional charge in respect of
the exited EfW business and, in so doing, applied its discretion
to award no Annual Variable Pay for 2016.
Treatment of share awards
Under all schemes operated by the Company, retirement with
the employer’s consent attracts “good leaver” status.
The options granted to Mr Dance under the Sharesave Scheme
on 9 April 2014 and 30 September 2014 will normally become
exercisable on 1 June 2017 and 1 December 2017, respectively.
Under the rules of the Scheme he may continue saving for the
duration of each contract and exercise his options within six
months of retirement.
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GOVERNANCE Strategic Report
Financial Statements
Treatment of Annual Variable Pay
In light of Mr Ringrose’s continuation in active employment, consistent with the Company’s Remuneration Policy, the Committee
used its discretion to treat him as a “good leaver” for the purposes of the Annual Variable Pay scheme for the period of his
active employment. As a result, he will remain eligible to receive a bonus payment (subject to the performance targets being
applied) at the conclusion of the relevant financial year with any bonus reduced pro-rata for the proportion of the relevant
financial year for which he was in active employment. No payment will be received under the scheme in relation to 2016.
Treatment of share awards
The shares purchased by Mr Ringrose under the Share Incentive Plan (partnership shares), together with any dividend shares
held, will be transferred to him shortly after his employment terminates.
In light of Mr Ringrose’s continued employment and, in line with the rules of the PSP 2015 and the Company’s Remuneration
Policy, the Committee resolved to treat him as a “good leaver” under the plan. His unvested nil-cost share option awards over
131,604 and 195,114 shares, granted in 2015 and 2016 respectively, will become exercisable at the end of their respective
performance periods, subject to the applicable performance conditions being satisfied, and subject to time pro-rating to reflect
the period of Mr Ringrose’s employment (which will include the full length of any notice period reflecting the uncertain timing
of the appointment of a successor) relative to three years. Dividend equivalents accrue on the resulting shares that vest in line
with the plan rules.
Any vested awards must be exercised within 12 months of the vesting date, after which time they will lapse. Any shares
resulting from the 2015 and 2016 awards must be held for a further two years after vesting and will be subject to the recovery
and withholding provisions of the plan.
General
All amounts payable to Mr Ringrose will be subject to such deductions in respect of tax and national insurance as the Company
is required by law to make. A contribution towards legal fees, capped at £10,000 (excluding VAT), was made in connection
with his stepping down from the Board, together with a further contribution of £20,000 (excluding VAT) towards provision of
outplacement services.
Performance graph
The graph below shows the value, on 31 December 2016, of £100 invested in Interserve Plc on 31 December 2008 compared with
the value of £100 invested in the companies comprising the Support Services sector of the FTSE All-Share Index. This was chosen
for comparison because it is considered to be the relevant benchmark against which to compare our performance.
Historical TSR Performance
Interserve Plc
FTSE All-Share Support Services
£400
£300
£200
£100
£
–
s
g
n
i
d
l
o
h
l
a
c
i
t
e
h
t
o
p
y
h
f
o
e
u
l
a
V
0%
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: Thomson Reuters Datastream
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GovernanceOverview
Directors’ remuneration report continued
Change in Chief Executive remuneration
The table below provides a summary of the Chief Executive’s remuneration over the last eight years:
Total remuneration (£000)
Annual Variable Pay (% of maximum)
PSP vesting (% of maximum)
2016
679
nil
nil
2015
1,418
77.8%
44.5%
2014
1,797
62.6%
2013
2,054
58.7%
2012
1,928
2011
1,318
2010
543
100.0%
100.0%
30.0%
54.2%
100.0%
100.0%
50.0%
nil
2009
943
98.0%
50.0%
The data for this table was taken from the Directors’ Remuneration Reports for the relevant years and adjusted to take account
of the actual share price on the date of vesting for the PSP.
Percentage change in Chief Executive’s remuneration compared to employees
The table below shows the percentage change in the Chief Executive’s salary, benefits and annual bonus between the financial
years ending 31 December 2015 and 31 December 2016, compared to the percentage increase for UK Senior Management (on a
per capita basis):
Salary
Chief Executive
Senior Management1
Benefits
Chief Executive
Senior Management1
Annual Bonus
Chief Executive
Senior Management1
Percentage change
2.5
6.0
1.1
6.2
(100.0)
(42.2)2
1
2
The comparator group relates to UK Senior Management rather than all Group employees. We have chosen this group because the Committee believes
that it provides a sufficient comparator group to give a reasonable understanding of underlying increases based on similar remuneration constituents
applicable to Senior Management whilst reducing the distortion that would otherwise arise from the changing mix between UK and overseas employees.
This figure is an estimate only of the 2016 bonus. The actual amount will only be known once the March 2017 payroll has been run. To the extent
that there is a material difference this will be disclosed in the 2017 report.
Relative importance of spend on pay
The table below illustrates the change in expenditure by the Company on remuneration paid to all the employees of the Group
against other significant distributions and payments from the financial year ending 31 December 2015 compared to the financial
year ending 31 December 2016:
Overall expenditure on pay
Dividends paid
2016
£million
1,153.7
11.8
2015
£million
1,117.4
35.2
Percentage
change
3.3
(66.5)
Performance Share Plan (audited information)
The following grants were made to the executive directors under the PSP 2015 during the year:
Executive director
S L Dance2
T P Haywood
B A Melizan
A M Ringrose
D I Sutherland
Number of
shares
Face value1
£
106,425
127,711
120,616
195,114
106,425
446,559
535,875
506,105
818,698
446,559
End of
performance period
31 December 2018
31 December 2018
31 December 2018
31 December 2018
31 December 2018
1 Valued using the share price at the date of grant (5 April 2016), being 419.60p per share.
2 Resigned from the Board on 4 May 2016. His award will be subject to a pro-rata reduction and performance targets will apply as detailed on page 74.
72
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GOVERNANCE Strategic Report
Financial Statements
Awards were made in the form of nil-cost options equivalent to 150 per cent of base salary, exercisable between 5 April 2019
and 4 April 2021.
The performance conditions attached to these awards are set out on page 74.
Achievement of the minimum performance over the performance period would result in 25 per cent of the awards vesting on
5 April 2019 together with the corresponding dividend equivalent. Executive directors must retain their post-tax vested shares
for at least a two-year holding period after vesting.
The number of awards over shares in the Company (pursuant to the PSP 2006 and the PSP 2015) held by each person who served
as an executive director of the Company during the financial year, is shown below:
Balance
as at
1 January
2016*
Granted
during
year
Date
granted
Market
price at
date of
award
pence
Vested
during
year
Market
price at
date of
vesting
pence
Market
price at
date of
exercise
pence
Amount
realised
on
exercise #
£
Lapsed
during
year
Balance
as at
31 December
2016*
Executive director
Performance period
S L Dance
09.04.13
85,770
- 466.10 38,167 420.50
416.60
47,603 185,263
-† 01.01.13–31.12.151
13.05.14
61,908
01.06.15
71,784
- 694.00
-
619.50
05.04.16
- 106,425 419.60
-
-
-
n/a
n/a
n/a
n/a
n/a
n/a
-
-
-
n/a
n/a
n/a
61,908† 01.01.14–31.12.162
71,784† 01.01.15–31.12.173
106,425† 01.01.16-31.12.184
T P Haywood 09.04.13 103,761
- 466.10 46,173 420.50
416.60 57,588 224,124
- 01.01.13–31.12.151
13.05.14
74,893
01.06.15
86,140
- 694.00
-
619.50
05.04.16
- 127,711
419.60
-
-
-
n/a
n/a
n/a
n/a
n/a
n/a
-
-
-
n/a
n/a
n/a
74,893 01.01.14–31.12.162
86,140 01.01.15–31.12.173
127,711 01.01.16-31.12.184
B A Melizan
09.04.13
85,770
- 466.10 38,167 420.50
416.60
47,603 185,263
- 01.01.13–31.12.151
13.05.14
61,908
01.06.15
81,355
- 694.00
-
619.50
05.04.16
- 120,616 419.60
-
-
-
n/a
n/a
n/a
n/a
n/a
n/a
-
-
-
n/a
n/a
n/a
61,908 01.01.14–31.12.162
81,355 01.01.15-31.12.173
120,616 01.01.16-31.12.184
A M Ringrose 09.04.13 144,094
- 466.10 64,121 420.50
416.60 79,973 311,423
- 01.01.13–31.12.151
13.05.14 104,005
01.06.15 131,604
- 694.00
-
619.50
05.04.16
- 195,114
419.60
-
-
-
n/a
n/a
n/a
n/a
n/a
n/a
-
-
-
n/a
n/a
n/a
104,005 01.01.14–31.12.162
131,604 01.01.15-31.12.173
195,114 01.01.16-31.12.184
D I Sutherland 09.04.13
85,770
- 466.10 38,167 420.50
416.60
47,603 185,263
- 01.01.13–31.12.151
13.05.14
61,908
01.06.15
71,784
- 694.00
-
619.50
05.04.16
- 106,425 419.60
-
-
-
n/a
n/a
n/a
n/a
n/a
n/a
-
-
-
n/a
n/a
n/a
61,908 01.01.14–31.12.162
71,784 01.01.15–31.12.173
106,425 01.01.16-31.12.184
# Steven Dance, Tim Haywood, Bruce Melizan and Adrian Ringrose exercised their 2013 awards on 11 April 2016. The share price used to calculate the
amount realised on exercise was 416.60p, being the closing price on that date. Dougie Sutherland exercised his 2013 awards on 19 April 2016. The
share price used to calculate the amount realised on exercise was also 416.60p, being the closing price on that date. The amount realised for each
executive director also includes a dividend equivalent payment of 68.80p per vested share.
† As at 4 May 2016, when Steven Dance resigned from the Board.
* The maximum number of shares that could be receivable by the executive if performance conditions set out below are fully met:
1 The EPS Performance Condition for the 2013 Awards
Normalised EPS growth of the Company over the performance period
Vesting percentage of two-thirds of shares subject to the award
Less than 49%
49% to 58%
58% to 75%
Greater than 75%
0%
25% to 50% (pro-rated)
50% to 100% (pro-rated)
100%
The 2013 PSP awards were granted in the form of nil-cost options, exercisable between 9 April 2016 and 8 April 2018.
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GovernanceOverview Directors’ remuneration report continued
2 The EPS Performance Condition for the 2014 Awards
Normalised EPS growth of the Company over the performance period
Vesting percentage of two-thirds of shares subject to the award
Less than 40.46%
40.46% to 83%
Greater than 83%
0%
25% to 100% (pro-rated)
100%
The 2014 PSP awards were granted in the form of nil-cost options, exercisable between 13 May 2017 and 12 May 2019.
1/2 The TSR Performance Condition for the 2013 and 2014 Awards
This condition is determined by comparing the Company’s TSR performance to the TSR of each of a defined list of comparator
companies drawn from the Construction and Materials, and Support Services sectors comprising Atkins (WS), Babcock
International, Balfour Beatty, Capita Group, Carillion, Costain Group, Kier Group, May Gurney Integrated Services (not after
2013), MITIE Group, Morgan Sindall, Rentokil Initial, RPS Group and Serco.
TSR ranking of the Company compared to the Comparator Group over
the performance period
Vesting percentage of one-third of shares subject to the award
Below median ranking
Median ranking (top 50%)
Median to upper quartile ranking
Upper quartile ranking (top 25%)
0%
30%
30% to 100% (pro-rated)
100%
3 The EPS Performance Condition for the 2015 Awards
Normalised EPS growth of the Company over the performance period
Vesting percentage of two-thirds of shares subject to the award
Less than 18%
18% to 32%
32% to 58%
Greater than 58%
0%
25% to 65% (pro-rated)
65% to 100% (pro-rated)
100%
The 2015 PSP awards were granted in the form of nil-cost options, exercisable between 1 June 2018 and 31 May 2020.
4 The EPS Performance Condition for the 2016 Awards
Normalised EPS growth of the Company over the performance period
Vesting percentage of two-thirds of shares subject to the award
Less than 16.7%
16.7% to 37%
37% to 65%
Greater than 65%
0%
25% to 65% (pro-rated)
65% to 100% (pro-rated)
100%
The 2016 PSP awards were granted in the form of nil-cost options, exercisable between 5 April 2019 and 4 April 2021.
3/4 The TSR Performance Condition for the 2015 and 2016 Awards
This condition is determined by comparing the Company’s TSR performance to the TSR of each company in the FTSE 250,
excluding investment trusts.
TSR ranking of the Company compared to the Comparator Group over
the performance period
Vesting percentage of one-third of shares subject to the award
Below median ranking
Median ranking (top 50%)
Median to upper quartile ranking
Upper quartile ranking (top 25%)
0%
25%
25% to 100% (pro-rated)
100%
74
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GOVERNANCE Strategic Report
Financial Statements
Share options (audited information)
No options were granted to, or exercised by, the executive directors during the year pursuant to an executive share option
scheme and none remain outstanding. The aggregate gain made on the exercise of options was £nil (2015: £598,873). The
market price of the shares as at 31 December 2016 was 341.75p. The highest and lowest market prices of the shares during the
financial year were 518.50p and 221.25p respectively.
Sharesave Scheme (audited information)
No grants were made to the executive directors under the Interserve Sharesave Scheme 2009 during the year. All eligible
employees are entitled to apply for options under the Sharesave Scheme. The maximum monthly savings amount is set annually
by the Remuneration Committee within HMRC limits. There are no performance conditions attached to the options.
Under the scheme rules, the exercise price is calculated by taking the average of the mid-market closing share price for the five
dealing days immediately preceding the invitation date less a discount set by the Remuneration Committee of between 0 per
cent and a maximum of 20 per cent.
The number of options over 10p ordinary shares in the Company (pursuant to the Sharesave Scheme) held by each person who
served as an executive director of the Company during the financial year, is shown below:
Balance
as at
1 January
2016
Granted
during
year
Date
granted
Market
price at
date of
award
pence
Exercise
price
pence
Exercised
during
year
Market
price at
date of
exercise
pence
Amount
realised
on
exercise
£
Balance
as at
31 December
2016
Lapsed
during
year
Executive director
Exercise period
S L Dance
04.04.13
09.04.14
30.09.14
T P Haywood 04.04.13
09.04.14
30.09.14
14.10.15
B A Melizan
04.04.13
09.04.14
30.09.14
14.10.15
A M Ringrose
n/a
D I Sutherland 04.04.13
09.04.14
226
352
340
226
352
340
385
226
352
340
385
–
226
352
– 469.50 398.00
– 696.50
511.00
– 599.50 529.00
– 469.50 398.00
– 696.50
511.00
– 599.50 529.00
– 592.50 467.00
– 469.50 398.00
– 696.50
511.00
– 599.50 529.00
– 592.50 467.00
–
n/a
n/a
– 469.50 398.00
– 696.50
511.00
1 As at 4 May 2016, when Steven Dance resigned from the Board.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
–
–
–
226
–
–
–
226
–
–
–
–
226
–
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
2261 01.06.16–30.11.16
3521
01.06.17–30.11.17
3401
01.12.17–31.05.18
– 01.06.16–30.11.16
352
01.06.17–30.11.17
340
01.12.17–31.05.18
385 01.12.18–31.05.19
– 01.06.16–30.11.16
352
01.06.17–30.11.17
340
01.12.17–31.05.18
385 01.12.18–31.05.19
–
n/a
– 01.06.16–30.11.16
352
01.06.17–30.11.17
Shareholding guidelines
Executive directors are expected to build up over time a shareholding equivalent to 200 per cent of their base salary. Further
details of the shareholding guidelines are set out in the executive directors’ remuneration policy table on page 82.
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GovernanceOverview Directors’ remuneration report continued
Shareholdings of directors (audited information)
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, together with details of the
extent to which the executive directors have met the requirement to hold shares to the value of 200 per cent of salary:
Executive directors
S L Dance
T P Haywood
B A Melizan
A M Ringrose
D I Sutherland
Non-executive directors
G A Barker
Lord Blackwell
A K Fahy
R J King
K L Ludeman
N R Salmon
31 December 2016
Beneficially owned
31 December 2015
Beneficially owned
Outstanding
vested
PSP awards
% shareholding
requirement
(% of salary/fee)
% actual
shareholding
(% of salary/fee)1
31 December 2016
106,3522
162,164
109,551
563,325
149,145
5,670
10,9954
8,000
3,000
4,990
5,000
102,082
115,643
104,157
510,525
144,758
5,6703
10,995
8,000
3,000
4,990
5,000
–
–
–
–
–
–
–
–
–
–
–
n/a
200%
200%
200%
200%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
143%
102%
325%
158%
n/a
n/a
n/a
n/a
n/a
n/a
1 Using a share price of 332.88p, being the three-month average to 31 December 2016.
2 As at 4 May 2016, when Steven Dance resigned from the Board.
3 As at 1 January 2016, when Glyn Barker was appointed to the Board.
4 As at 29 February 2016, when Lord Blackwell resigned from the Board.
The above figures include shares held in trust pursuant to the Share Incentive Plan (SIP).
Between the year end and the date of this report, Tim Haywood, Bruce Melizan and Adrian Ringrose have each purchased
additional shares pursuant to the SIP, as shown below:
Director
T P Haywood
B A Melizan
A M Ringrose
Date of
purchase
09.01.2017
09.02.2017
09.01.2017
09.02.2017
09.01.2017
09.02.2017
Purchase
price
pence
Number of
shares
acquired
Beneficial
holding as at
28 February 2017
319.75
334.91
319.75
334.91
319.75
334.91
47
44
47
45
39
38
162,255
109,643
563,402
There have been no further changes in the shareholdings of the directors who held office at the year end.
Dilution 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 (14,571,412 shares) under all its share schemes. At 31 December 2016 there remained headroom
equivalent to 3,119,358 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 the PSP 2006 and PSP 2015 will be satisfied by
newly-issued shares.
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GOVERNANCE Strategic Report
Financial Statements
GOVERNANCE AND OPERATION OF THE REMUNERATION COMMITTEE
Role and membership
The 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:
Name
K L Ludeman (Committee Chairman)
G A Barker
Lord Blackwell1
A K Fahy
R J King
N R Salmon
1 Lord Blackwell resigned on 29 February 2016.
Number of meetings attended out of potential maximum
10/10
9/10
2/2
10/10
10/10
10/10
The Committee meets as often as is necessary to discharge its duties and met ten times during the year ended
31 December 2016. 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.
Advisers
In determining the executive directors’ remuneration, the Committee consulted with and received recommendations
from Adrian Ringrose, the Chief Executive. The Committee also received advice from New Bridge Street (NBS), a trading
name of Aon Hewitt (a subsidiary of Aon plc), and Trevor Bradbury, the Company Secretary, which materially assisted the
Committee in relation to the 2016 financial year. Executives are not present when matters affecting their own remuneration
arrangements are decided.
Aon plc also provides insurance broking services to the Company through a separate business division to Aon Hewitt. The
Committee has been advised that NBS operates as a distinct business within the Aon Group and that there is a robust separation
between the business activities and management of NBS and all other parts of Aon Hewitt and the wider Aon Group. The
Committee is satisfied that these additional services in no way compromised the objectivity and independence of advice
provided by NBS.
The fee paid to NBS in respect of its services to the Committee during the year was £21,861 (2015: £29,718). The fees relate
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:
• performance monitoring of the TSR element of the 2013 PSP awards;
• review of vesting documentation for the PSP;
• assistance with the drafting of the Directors’ Remuneration Report; and
• the provision of updates on developments in remuneration practice.
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An additional fee of £5,750 (2015: £6,728) was paid to NBS in respect of its services to the Company during the year, the
majority of which related to assisting the Company with a benchmark review of eight senior roles and providing an IFRS 2
valuation of the 2016 long-term incentive awards.
Any fees for major projects would normally be negotiated in advance of such a project being undertaken.
The terms of NBS’s appointment and their performance is reviewed regularly by the Committee.
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 relevance to the Company or if there are specific pieces of
work which the Committee requires to be undertaken.
NBS is a signatory to the Remuneration Consultants’ Code of Conduct and has confirmed its compliance with the Code.
During the last quarter of 2016 the Committee issued invitations to five, and received proposals from four, remuneration
consultants for the provision of independent advice to the Committee on remuneration matters. Korn Ferry was appointed to
provide these services for a period of three years commencing on 1 January 2017. Korn Ferry is a signatory to the Remuneration
Consultants’ Code of Conduct and has confirmed its compliance with the Code.
Statement of shareholder voting at AGM
At the AGM held on 10 May 2016, the Annual Report on Remuneration received the following votes from shareholders:
Resolution
Votes
for
Annual Report on Remuneration
95,719,243
% for
99.1
Votes
against
861,490
Total votes cast
(excluding
votes withheld)
Votes
withheld
% against
0.9
96,580,733
1,237,848
The directors’ Remuneration Policy did not require a shareholder vote in 2016.
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GOVERNANCE Strategic Report
Financial Statements
REMUNERATION POLICY
In this section we set out our Remuneration Policy for executive and non-executive directors which was approved by
shareholders for up to three years at the AGM on 12 May 2015. The policy remains unchanged and therefore does not require a
shareholder vote in 2017.
Our Remuneration Policy continues to be underpinned by remuneration packages which are designed to retain and motivate
stable leadership teams who understand and are able to apply the core skills and control framework of the business into
adjacent markets in order to grow the business.
A copy of our remuneration strategy and the full remuneration policy is set out on pages 76 to 86 of the Company’s Annual
Report and Financial Statements 2014, available on the Company’s website at www.interserve.com/investor-centre/financial-
reports-and-results.
EXECUTIVE DIRECTORS’ REMUNERATION POLICY (APPROVED ON 12 MAY 2015)
The following table summarises the main elements of the executive directors’ remuneration policy, the key features of each
element, their purpose and linkage to our strategy. Details of the remuneration arrangements for the non-executive directors
are set out on page 86.
How operated in practice (including framework for assessing performance)
Maximum opportunity
Element of pay
Base salary
Purpose and link
to strategy
To recruit and
retain executives of
a suitable calibre
for the role and
duties required.
Reflects the
market rate for
the individual
and their role.
Reviewed annually with any changes generally taking effect
from 1 July.
Salaries are determined taking into account:
• the experience, responsibility, effectiveness and market
value of the executive;
• the pay and conditions in the workforce;
• pay relativities within the Group;
• broadly the median position in light of remuneration within
other similar companies and the rest of the Company; and
• affordability, given the profits of the Company.
Normally paid monthly in cash.
There is no prescribed
maximum annual
increase. The
Committee is guided by
the general increase for
the broader workforce
but recognises that
higher increases may be
appropriate where an
individual is promoted,
changes role, where
the size, composition
and/or complexity of
the Group changes or
where an individual
is materially below
market comparators or
is appointed on a below
market salary with the
expectation that his/
her salary will increase
with experience
and performance.
The value of benefits
may vary from year to
year depending on the
cost to the Company.
Additional benefits may
be provided and the
range of those benefits
may vary taking
into account market
practice, the relevant
circumstances and
the requirements of
the executive.
Benefits
To provide benefits
commensurate
to the market in
which the Company
operates and/or the
market in which the
director is based
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.
Relocation expenses, allowance for disruption and ongoing
expatriate benefits.
Directors’ and officers’ liability insurance.
Reasonable personal use of mobile telephone.
Small tokens with a value not exceeding £1,000 to mark
significant events (e.g. long service, retirement etc).
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Element of pay
Pension
Purpose and link
to strategy
To provide benefits
commensurate
to the market in
which the Company
operates.
Annual
Variable Pay
To incentivise the
achievement of
annual targets,
rewarding strong
operational
performance in
line with and in
excess of targeted
performance and
which promote the
long-term success of
the Company.
How operated in practice (including framework for assessing performance)
Maximum opportunity
Employer’s defined
contribution and/
or pension cash
supplement up to a
total maximum of 15%
of base salary.
Maximum opportunity:
125% of basic salary for
the Chief Executive and
Group Finance Director
and 100% of basic
salary for the remaining
executive directors.
Entry level
performance:
No more than 10% of
basic salary in relation
to financial targets.
A graduated scale
of targets operates
between entry
level and maximum
performance.
Where non-financial
targets are set, it may
not always be possible
to set a graduated scale
of targets with some
elements requiring a
subjective assessment
of the level of
performance achieved.
A Company contribution calculated at up to 15% of base salary for
executive directors provided they are making the maximum 8%
employee contribution.
Employees whose pension provision exceeds HMRC limits are
permitted to opt out of making pension contributions and
instead receive the Company contribution as a non-enhanceable
salary supplement.
Employees who elect to take the cash allowance still benefit from
the life cover of four times base salary provided to members of
the pension scheme and death-in-service cover.
Employees who have not chosen to opt out of making pension
contributions are eligible to participate 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.
Targets are set by the Committee with reference to stretching
targets that are set annually by the Board.
For Variable Pay earned up to 100% of salary, a majority (if not
all) of the Variable Pay will be based on financial targets and
a minority (if at all) of the Variable Pay may be based on other
performance metrics linked to the business strategy.
For Variable Pay above 100% of salary (i.e. for the Chief
Executive and Group Finance Director), in order to maintain
a common set of targets across the executive team,
supplementary stretching non-financial targets are applied to
the additional Variable Pay opportunity beyond 100% of salary.
Although Annual Variable Pay is deliverable in cash, an element
of any payment in excess of 25% of basic salary is required
to be invested in Company shares in accordance with the
arrangements stated below:
• for the balance of any Annual Variable Pay received between
25% and 50% of basic salary, 30% of the net Variable Pay must
be invested in Company shares and 70% may be retained; and
• for the balance of any Annual Variable Pay received between
50% and 100% of basic salary or, in the case of the Chief
Executive and Group Finance Director, between 50% and 125%
of basic salary, 50% of the net Variable Pay must be invested
in Company shares and 50% may be retained.
Company shares so acquired must be held for three years and
dividends will accrue on deferred shares.
The Committee has the overriding discretion to adjust the
Variable Pay outcome up or down (subject to the overall
maximum set out in the adjacent column) to ensure the
payment is fair and appropriate in all the circumstances.
The Annual Variable Pay arrangements include provisions that
enable the Committee to recover value overpaid (clawback) or
to withhold future Variable Pay awards (malus) in the event of
misstatement, error or misconduct for a period of two years
after the date on which a payment is made.
Annual Variable Pay is not pensionable.
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Financial Statements
Element of pay
Performance
Share Plan
(PSP)
Purpose and link
to strategy
To provide a longer
term incentive to
incentivise the
executive directors
to achieving the
Group’s longer-term
objectives and
promote the long-
term success of the
Company.
To provide
alignment with
shareholders and
provide a retention
tool.
How operated in practice (including framework for assessing performance)
Maximum opportunity
Maximum: 150% of
basic salary (at the
date of grant) for the
executive directors,
save in exceptional
circumstances in
relation to recruitment
or retention where an
award of up to 200%
of basic salary (at the
date of grant) may be
made.
No more than 25%
of any part of a
performance condition
can vest for achieving
the threshold
performance level.
PSP awards may be granted each year to senior executives.
Awards will be made in the form of nil-cost options.
The awards will usually 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 (commencing on 1 January in the year of the award).
Post-tax vested shares must be retained for at least a two-year
holding period after vesting.
Dividends notionally accrue on awards from the date of award
(up to the earlier date of exercise of the nil-cost option or the
conclusion of a holding period of up to two years from vesting)
and an equivalent cash sum will become payable on settlement
to the extent that the shares ultimately vest.
The PSP includes provisions that enable the Committee
to recover value overpaid on vesting (clawback) or to
withhold future variable pay awards (malus) in the event of
misstatement, error or misconduct for a period of two years
after the date on which an award vests.
Long-term incentive awards vest based on three-year
performance against a challenging range of EPS and,
separately, relative TSR performance targets.
EPS performance targets are set after having due regard to
internal planning and market expectations for the Company’s
performance and relative TSR performance is measured against
an appropriate comparator group.
No more than 25% of each part of an award may vest for
achieving the threshold performance levels with full vesting
for achieving the maximum performance targets under each
element (e.g. upper quartile TSR performance) with graduated
scales operating between performance points. No awards vest
for below threshold performance levels.
The Committee will review the performance conditions
each year prior to awards being made (e.g. to determine
whether the TSR comparator group continues to remain
appropriate, whether the range of EPS performance targets
remains appropriate and, more generally, in light of the
Company’s long-term strategy and growth aspirations) and
may make appropriate revisions in light of developments in
the Company’s strategy. Should there be a material change
in the proposed performance conditions (e.g. introducing an
additional performance metric) appropriate dialogue with the
Company’s major shareholders would take place along with
a full explanation in the Annual Report on Remuneration to
support any such change.
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Element of pay
All-
employee
share
schemes
Purpose and link
to strategy
To support and
encourage share
ownership by
employees at all
levels.
How operated in practice (including framework for assessing performance)
Maximum opportunity
The executive
directors are entitled
to participate in both
schemes on the same
terms as all other
eligible employees.
Maximum opportunity
is the same for all
participants as defined
within the terms of the
scheme and prescribed
by HMRC.
The Company currently provides two all-employee HMRC tax-
advantaged share schemes for its employees, the Interserve
Sharesave Scheme 2009 (the Sharesave Scheme) and the
Interserve Share Incentive Plan 2009 (the SIP).
Under the Sharesave Scheme, eligible employees may enter
into a savings contract for a minimum fixed term of three
years and at the end of the savings period they have the
option to buy shares in the Company at an exercise price
fixed at the start of the savings contract.
Under the SIP, eligible employees are offered the opportunity
to invest pre-tax earnings (subject to HMRC limits per tax
year) in Company shares under a regular monthly share
purchase plan or by up to two lump sum payments per tax
year (or 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.
The SIP rules also provide for matching shares and free shares
(up to certain prescribed limits) to be given to participants.
Dividend payments on SIP shares are reinvested in dividend
shares and must be held in the trust for three years.
Shareholding
Guidelines
Under the Shareholding Guidelines executive directors are expected to build up over time a shareholding
equivalent to 200% of their base salary. Shares purchased under the Annual Variable Pay arrangements, the
2002 Executive Share Option Scheme, vested awards under the PSP (whether or not exercised), the Sharesave
Scheme and the SIP also count toward this limit. Share options, whether or not vested, do not count towards
satisfying these Guidelines.
The Remuneration Committee retains the discretion to adjust the requirement to invest Annual Variable Pay in
Company shares and retain share awards on vesting in appropriate circumstances.
Notes to the table
With regards to performance conditions, the Committee will continue to select financial and, if appropriate, non-financial strategic measures as
targets for Annual Variable Pay that are key performance indicators for the business over the short term.
For the long-term incentives, the Committee will continue to select a combination of measures that provide a good focus on the outcomes of the
Company’s strategy together with sustainable improvements in long-term profitability together with appropriate and demanding targets in the context
of the Company’s trading environment and strategic objectives.
There are no performance conditions for the Sharesave Scheme and SIP as they are all-employee share plans aimed at encouraging wider employee
share ownership.
The 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, such as the higher Variable Pay
maxima for the Chief Executive and Group Finance Director and Variable Pay targets weighted 70 per cent on divisional and 30 per cent on Group
performance, which the Committee believes is 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.
Specifically, benefits provided to executive directors (with the provision of a cash allowance and/or company car benefit the element that is
considered significant in value terms and limited to £30,000) are aligned with those provided to senior managers across the Group, as is participation
in the PSP, which is limited to the top 130 or so senior employees. Senior employees below Executive Board level are provided with lower levels of
awards that may only have an EPS-based performance condition.
The Shareholding Guidelines are not applicable other than to the executive directors.
When approving this directors’ Remuneration Policy, authority was given to the Company to honour any commitments entered into with current or
former directors (such as the payment of a pension or the vesting or exercise of past share awards) that have either been set out in the previously
approved Remuneration Policy or remuneration reports or disclosed to and approved by shareholders and in respect of outstanding share awards as
detailed on pages 73 to 75 of the Annual Report on Remuneration. Details of any payments to former directors will be set out in the Annual Report on
Remuneration as they arise.
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GOVERNANCE Strategic Report
Financial Statements
Discretion retained by the Committee
Remuneration payments can only be made if they are consistent with the approved Remuneration Policy, the relevant plan rules
or are otherwise approved by ordinary resolution of the members of the Company.
The Committee will operate the Company’s incentive plans according to their respective rules and consistent with normal
market practice, the Listing Rules and HMRC rules, where relevant, including flexibility and discretion in a number of respects
and as set out in the respective plan rules. In particular, but without limitation, the Committee has flexibility regarding: the
testing of a performance condition over a shortened performance period; how to deal with a change of control or restructuring
of the Group (as set out in more detail on page 85); determination of a good/bad leaver for incentive plan purposes; and
adjustments required in certain circumstances (e.g. rights issues, corporate restructuring, events and special dividends).
The Committee also retains the discretion to:
• adjust the targets and/or set different measures and alter weightings for the Annual Variable Pay arrangements and PSP, or to
remove the effects of “one-off” events in relation to the PSP, if events occur that cause it to determine that the metrics are
no longer appropriate and amendment is required so they can achieve their original intended purpose; and
• waive some or all of the Shareholding Guidelines or the requirement to invest Annual Variable Pay in Company shares and
retain share awards on vesting in exceptional circumstances.
Service contracts and policy on payments for loss of office
All newly-appointed executive directors will have contracts terminable at any time on up to one year’s notice. Under the terms
of the contract, should notice be served by either party, the executives can continue to receive basic salary, benefits and
pension for the duration of their notice period during which time the Company may require the individual to continue to fulfil
their current duties or may assign a period of garden leave.
Contracts also contain the ability, at the Company’s discretion, to make a payment in lieu of notice of up to one year’s basic
annual salary.
Details of the current executive directors’ service contracts are summarised below. Each contract has an indefinite unexpired
term and a notice period of one year.
Name
T P Haywood
B A Melizan
A M Ringrose
D I Sutherland
Date of contract
30 November 2010
10 January 2008
13 December 2001
1 January 2011
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.
The table overleaf summarises the policy on payments to executive directors for loss of office. The overriding principle will be
to honour contractual remuneration entitlements and determine on an equitable basis the appropriate treatment of deferred
and performance-linked elements of the package, taking account of the circumstances.
Payments for loss of office can only be made if they are consistent with the approved Remuneration Policy or are otherwise
approved by ordinary resolution of the members of the Company. Failure will not be rewarded.
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Element
Resignation1
Departure on agreed terms2
Nil
Salary (after
cessation of
employment)
For existing directors up to one year’s basic
salary. Newly-appointed executive directors
can continue to receive basic salary for the
duration of their notice period of one year.
The Company will have the discretion to
make a payment in lieu of notice (PILON)
comprising up to 12 monthly instalments
of base salary which would be mitigated
proportionate to income received through
alternative employment.
Good leaver3
Nil
Pension
and benefits
Nil
For existing directors up to one year’s
benefits and pension.
Nil
Annual
Variable Pay
Performance
Share Plan
Nil if the executive
departs before the
payment date unless
the Remuneration
Committee
determines otherwise.
All awards, including
those which have
vested but are
unexercised will
lapse immediately
upon cessation of
employment.
For newly-appointed directors up to one
year’s benefits and pension as part of
the PILON as detailed above.
May be payable at the discretion of the
Committee based upon performance and
pro-rated for the proportion of the financial
year worked. No payment will be made in
respect of any period of notice not worked.
Awards will lapse upon cessation of
employment unless the Committee decides
otherwise in which case awards may be
exercised within 12 months of the vesting date.
Where employment ends before the vesting
date, awards may only be exercised to the
extent that the performance conditions
have been satisfied, but will be reduced
pro-rata based upon the period of time
after the grant date and ending on the
date of cessation of employment relative
to the three-year performance period
unless the Committee, acting fairly and
reasonably, decides that such a reduction is
inappropriate in any particular case.
May be payable at the discretion of
the Committee based on performance
pro-rated for the proportion of the
financial year worked.
Awards may be exercised within
12 months of the vesting date.
Where employment ends before
the vesting date, awards may only
be exercised to the extent that the
performance conditions have been
satisfied, but will be reduced pro-rata
based upon the period of time after
the grant date and ending on the date
of cessation of employment relative
to the three-year performance period
unless the Committee, acting fairly and
reasonably, decides that such a reduction
is inappropriate in any particular case.
In accordance with the scheme rules.
All-employee
share schemes
(Sharesave
and SIP)
Other
payments
Nil
Depending upon circumstances the
Committee may consider payments in respect
of any statutory entitlements, outplacement
support and assistance with legal fees.
Nil
1 For example, normal resignation from the Company or termination for cause (e.g. gross misconduct).
2
3
This may cover a range of circumstances such as business reorganisation, changes in reporting lines, change in need for the role, termination
as a result of a failure to be re-elected at an AGM.
For compassionate reasons such as death, injury or disability, retirement with the agreement of the employer. Should a compromise agreement
be reached with an individual, in terms of quantum it will be within the maximum amounts set out above.
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GOVERNANCE Strategic Report
Financial Statements
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. The Annual Variable Pay scheme does not include any provision
entitling early or any payment to be made on a change in control of the Company.
In the event of change of control, PSP awards would be eligible to vest based on (i) the extent to which performance targets
had been met, as assessed by the Committee, over the shortened performance period and (ii) subject to a pro-rata reduction
for time (which the Committee retains discretion to disapply if it considers it appropriate to do so). As an alternative, and in
agreement with an acquiring company, the awards may be replaced with equivalent awards in the acquiring company’s shares.
The Sharesave Scheme provides that if a change in control of the Company occurs, any options may be exercised within a month
(or such longer period as the Board may permit up to a maximum of six months). There are also rollover provisions similar to
those under the PSP explained above.
Recruitment remuneration
In cases where the Company recruits a new executive director, the Committee will follow the policy set out below to
determine his/her ongoing remuneration package. In arriving at a total package and in considering quantum for each element
of the package, the Committee will take into account the skills and experience of the candidate, the market rate for a
candidate of that experience as well as the importance of securing the preferred candidate. The remuneration package for a
new executive director would be set in accordance with the terms of the Company’s approved remuneration policy in force at
the time of appointment.
Element
Salary
Pension
and benefits
Annual
Variable Pay
General policy
Specifics
At a level required to attract the most
appropriate candidate.
In line with Company policies.
In line with existing schemes.
Maximum opportunity 100% of base salary
or in the case of a Chief Executive or Group
Finance Director, 125% of base salary.
Performance
Share Plan
In line with Company policies and PSP
rules.
Other share
awards or
remuneration1
Maximum award up to 200% of basic salary
(at the date of grant) may be made.
The Committee may make an incentive
award to replace remuneration forfeited
on an executive leaving a previous
employer, where to do so would be in the
commercial interests of the Company.
Discretion to pay a lower basic salary with increases at a rate
above inflation over two to three years as the new appointee
becomes established in the role.
Where appropriate, relocation expenses/arrangements may
be provided.
Specific targets could be introduced for an individual where
necessary for the first year of appointment if it is appropriate
to do so to reflect the individual’s responsibilities and the
point in the year in which they joined the Board.
An award may be made in the year of joining or, alternatively,
the award can be delayed until the following year. Targets
would be the same as for other directors.
Awards would, where possible, take into account the awards
forfeited in terms of vesting periods, expected value and
performance conditions.
For unvested performance-related awards, awards of broadly
similar quantum (allowing for the impact of any performance
targets), with appropriate performance conditions.
1
The Committee may make use of the fl xibility provided in the Listing Rules to make such awards if deemed appropriate in terms of replacing
forfeited variable pay.
In the case of an internal appointment, any variable pay element awarded in respect of the prior role may be allowed to pay
out according to its terms on grant, adjusted as relevant to take into account the appointment. In addition, any other ongoing
remuneration obligations existing prior to appointment may continue as appropriate.
External directorships
The Board is comfortable with the principle of executive directors sitting on another company board as a non-executive in order
to assist with their development, subject to the prior approval of the Chief Executive and the Board. Any fees earned in that
capacity may be retained by the executive director.
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GovernanceOverview Directors’ remuneration report continued
TERMS OF APPOINTMENT AND REMUNERATION POLICY FOR NON-EXECUTIVE DIRECTORS
Terms of appointment
Non-executive directors are appointed initially until the first AGM of the Company following appointment, when they are
required to stand for election by shareholders. 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 dates of appointment of the non-executive directors are set out below:
Name
G A Barker
G M Edwards1
A K Fahy
R J King
K L Ludeman
N R Salmon
Date first appointed
1 January 2016
1 February 2017
1 January 2013
1 September 2014
1 January 2011
1 August 2014
Date last elected/re-elected
10 May 2016
n/a
10 May 2016
10 May 2016
10 May 2016
10 May 2016
1 Gareth Edwards will be proposed for election by shareholders at the forthcoming AGM on 12 May 2017.
Remuneration Policy (approved on 12 May 2015)
The following table summarises the non-executive directors’ Remuneration Policy:
Element
Fees
Purpose and
link to strategy
To recruit and
maintain non-
executives of a
suitable calibre
for the role and
duties required.
Maximum opportunity
There is no prescribed
maximum annual
increase. The
Committee is guided
by the general
increase in the non-
executive director
market and for the
broader employee
population but on
occasions may need
to recognise, for
example, an increase
in the scale, scope
or responsibility of
the role.
How operated in practice
The Group Chairman’s fee is reviewed by the Committee (without the
Group 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 the Senior Independent Director
and for those non-executive directors who chair the primary Board
committees (i.e. Audit and Remuneration Committees). Other fees
may be introduced if considered appropriate, for example in the
event of exceptional levels of additional time being required, or new
responsibilities being assigned in response to corporate developments.
The non-executive directors and the Group Chairman do not currently
receive benefits, but the Board retains a discretion to introduce such
benefits if considered appropriate (e.g. paying reasonable travel
expenses incurred undertaking Company business to keep individuals
whole on a net of tax basis). Small tokens with a value not exceeding
£1,000 may be made to mark significant events (e.g. long service,
retirement etc).
The fees of the non-executive directors are determined by the
Board taking into account amounts paid by other similar-sized
listed companies, the time commitment of the individual, role and
responsibilities. Fees are reviewed in detail biennially with
an annual interim review.
APPROVAL
The Directors’ Remuneration Report was approved by the Board of Directors on 28 February 2017 and signed on its behalf by:
Keith Ludeman
Chairman of the Remuneration Committee
28 February 2017
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GOVERNANCE
Strategic Report
Financial Statements
Directors’ report
Information required to be disclosed under Listing Rule 9.8.4R
can be found in the following locations:
Section of
LR 9.8.4R
Topic
Location
(4)
(12)
(13)
Details of long-term
incentive schemes
Directors’
Remuneration Report
Shareholder waivers
of dividends
Shareholder waivers
of future dividends
Directors’ Report
Directors’ Report
The remaining disclosures required by Listing Rule 9.8.4R
are not applicable to the Company.
All the information cross-referenced above is hereby
incorporated by reference into this Directors’ Report.
Disclosure of financial risk management objectives and
policies is made on page 34 of the Strategic Report.
THE COMPANY
Legal form
The Company is incorporated in the United Kingdom with
company number 00088456. Related undertakings are listed
on pages 179 to 186.
Branches
The Company, through various subsidiaries, has established
branches in a number of different countries in which the
Group operates.
Amendment of the Articles of Association
The Company’s constitution, known as the articles
of association (the Articles), is essentially a contract
between the Company and its shareholders, governing
the management of the Company. A copy of the Articles
can be obtained on request from the Company Secretary.
Amendments to the Articles must be approved by at
least 75 per cent of those voting in person or by proxy
at a general meeting of the Company.
FINANCIAL RESULTS
The Group’s Consolidated Income Statement set out on
page 106 shows Group loss before taxation of £94.1 million
(2015: profit of £79.5 million). The detailed results of the
Group are given in the financial statements on pages 106 to
161 and further comments on divisional results are given in
the Operational Review on pages 14 to 25.
There have been no post-balance sheet events that require
adjustment in the financial statements.
The directors of Interserve Plc (the Company) present their
report and the audited consolidated financial statements
for the year ended 31 December 2016.
SCOPE OF REPORTING
For the purposes of compliance with paragraphs 4.1.5R(2)
and 4.1.8R of the Disclosure Guidance and Transparency
Rules (DTRs) of the Financial Conduct Authority (FCA),
the required content of the “management report” can be
found in the Strategic Report and this Directors’ Report
(including the sections of the Annual Report and Financial
Statements incorporated by reference).
The directors’ responsibility for the preparation of the
Annual Report and Financial Statements, which forms part
of this report, and the statement by the auditors about
their reporting responsibilities, are set out on pages 95,
and 98 to 105, respectively, of this Annual Report.
A review of the development of the Group and its future
prospects is included in the Chairman’s Statement, which is
incorporated into this Directors’ Report by reference. The
Group’s business model and strategy are summarised in the
Strategic Report.
The DTRs also require certain information to be included in
a corporate governance statement in the Directors’ Report.
Information that fulfils the requirements of the corporate
governance statement can be found in the Corporate
Governance Report and the Audit Committee Report, which
are incorporated into this Directors’ Report by reference.
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Trevor BradburyCompany Secretary GovernanceOverview Directors’ report continued
DIVIDENDS
An interim dividend of 8.1p per 10p ordinary share (2015:
7.9p) was paid on 21 October 2016. The directors are not
recommending the payment of a final dividend, making a
total distribution for the year ended 31 December 2016 of
8.1p per 10p ordinary share (2015: 24.3p).
Capita Trustees Limited, the trustee of the Interserve
Employee Benefit Trust (the Trust), has waived its rights to
receive dividends on any shares held by the Trust in the name
of Capita IRG Trustees (Nominees) Limited. It waived its right
to receive a dividend over 996,261 shares held by the Trust in
respect of the dividend paid in May 2016 (May 2015: 1,570,068
shares) and 501,512 shares in respect of the dividend paid in
October 2016 (October 2015: 366,703 shares).
DIRECTORS AND DIRECTORS’ INTERESTS
The following have served as directors during the year:
Glyn Barker*1 (Group Chairman from 1 March 2016)
Lord Blackwell*2 (Group Chairman until 29 February 2016)
Adrian Ringrose (Chief Executive)
Russell King* (Senior Independent Director)
Steven Dance3
Anne Fahy*
Tim Haywood
Keith Ludeman*
Bruce Melizan
Nick Salmon*
Dougie Sutherland
*Non-executive director
1 Appointed to the Board on 1 January 2016
2 Resigned from the Board on 29 February 2016
3 Resigned from the Board on 4 May 2016
Since the year end, Gareth Edwards was appointed to the
Board on 1 February 2017 as a non-executive director.
The biographical details of the directors of the Company are
given on pages 40 to 43.
The powers of the directors, and their service contracts
and terms of appointment, are described in the Corporate
Governance report.
The directors’ beneficial interests in, and options to acquire,
ordinary shares in the Company, are set out on pages 72 to 76
of the Directors’ Remuneration Report.
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.
APPOINTMENT AND REPLACEMENT OF DIRECTORS
The Board must comprise of not less than three and no
more than twelve directors. Directors may be appointed by
shareholders (by ordinary resolution) or by the Board.
Under the Company’s Articles, 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. Gareth Edwards will therefore be
standing for election at the AGM on 12 May 2017.
The Articles also require one-third of the directors to retire
by rotation at each AGM. Any director who has not retired
by rotation must retire at the third AGM after his or her last
appointment or re-appointment. However, in accordance
with the UK Corporate Governance Code, the Board has again
decided that all the directors will be subject to election or
re-election at this year’s AGM.
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
Companies Act 2006 (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.
DIRECTORS’ INDEMNITIES AND INSURANCE
As permitted by the Company’s Articles, 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 in defending
any criminal or civil proceeding or in connection with any
application under section 661(3) or 1157 of the 2006 Act on
terms which require repayment by the director of amounts
so advanced upon conviction of final judgment being given
against him or her. 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.
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GOVERNANCE Strategic Report
Financial Statements
On 26 September 2007 the rules of the Interserve Pension
Scheme were amended in order to provide the directors of
Interserve Trustees Limited, the corporate trustee of the
Interserve Pension Scheme, with a qualifying pension scheme
indemnity to the extent that insurance has not been taken out
by the trustee to cover its liabilities, or such liabilities cannot
be paid from the proceeds of any insurance taken out by the
trustee. That qualifying pension scheme indemnity remains in
force at the date of this report and is available for inspection
by shareholders at the Company’s registered office.
In January 2011 an indemnity was given to the trustees of the
Douglas Group Compass Pension Plan for any claim, costs, loss,
damages and expenses which may be made against them or
which they may pay or incur (save as a consequence of breach
of trust committed knowingly and intentionally or as a result
of negligence) in connection with the administration of the
Plan and the winding-up of the Plan. Two of the trustees were
also directors of one or more Group subsidiary companies.
This Plan was formally wound up on 7 January 2011 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 31 January 2012
but the indemnity remains in force.
EMPLOYEES
The average number of persons, including directors, employed
by the Group and their remuneration, is set out in note 6
to the consolidated financial statements. A breakdown of
employee diversity, as required by the 2006 Act, can be
viewed on page 23 of the Strategic Report. The Group’s
statement with regard to its employees, including its
disclosure on employee consultation, equal opportunities,
human rights and diversity, is set out within the Strategic
Report on pages 22 and 23.
GREENHOUSE GAS EMISSIONS
In this section we report on greenhouse gas (GHG) emissions
in accordance with the Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013.
A range of approaches can be taken to determine the
boundaries of an organisation for the purposes of GHG
reporting including “financial control”, “operational control”
or “equity share”. We report using the financial control
approach to define our organisational boundary.
On this basis, we are including emissions associated with our
owned and controlled businesses but not the emissions from
our associate companies. GHG emissions from our leased
vehicles when used on company business are not reported.
Were we to have adopted the operational control approach,
the GHG emissions associated with the use of those same
vehicles for both private and company business would have
been reported.
Summary table
Global GHG emissions data for 1 January 2016 to
31 December 2016, with comparable data for 2015 and 2014,
is as follows:
Emissions from:
- Combustion of fuel and
operation of facilities
Tonnes CO2e
2016
2015
2014
57,9521
39,107
39,231
- Electricity, heat, steam
15,488
17,289
14,294
and cooling purchased for
own use
Intensity measurement:
- Emissions reported above,
normalised to tonnes CO2e
per £m revenue
22.63
17.63
18.37
1
Increase predominantly relates to the consumption of 6 million litres
of gas oil/diesel associated with specific contracts undertaken by
The Oman Construction Company LLC and Adyard Abu Dhabi LLC.
We have reported on all of the emissions sources required
under the Companies Act 2006 (Strategic Report and
Directors’ Report) Regulations 2013. These sources fall
within our consolidated financial statements.
We have used the “Environmental Reporting Guidelines:
including mandatory greenhouse gas emissions reporting
guidance” (June 2013) issued by DEFRA and the “UK
Government GHG Conversion Factors for Company Reporting”
(June 2016) to calculate our emissions based on data
gathered from each of our business units.
Additional information relating to the Group’s GHG emissions
and some of the actions being taken to mitigate our impact
on the environment are set out within the Strategic Report.
POLITICAL DONATIONS
The Group made no political donations and incurred no
political expenditure during the year (2015: £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.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Group’s exposure to and management of capital, liquidity,
credit, interest rate and foreign currency risk are set out
within the Financial Review section of the Strategic Report
on page 34.
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GovernanceOverview Directors’ report continued
SHARE CAPITAL AND STRUCTURE
General
The Company’s issued share capital as at 31 December 2016
comprised a single class of ordinary shares. All shares rank
equally, are fully paid up and are quoted on the London Stock
Exchange. No person holds shares carrying special rights with
regard to control of the Company.
During the year 506,643 shares were issued at par fully paid
to the nominee account of Capita Trustees Limited (as trustee
of the Interserve Employee Benefit Trust) in order to satisfy
the awards granted to participants of the Performance Share
Plan 2006 (PSP 2006) in April 2013, which vested in
April 2016.
As a result of the foregoing allotment, the Company’s issued
share capital at the end of the year stood at 145,714,120 (2015:
145,207,477) ordinary shares of 10p each (£14,571,412.00)
(2015: £14,520,747.70). No further shares have been issued
since the year end. The issued share capital at the date of this
report therefore stands at 145,714,120 ordinary shares of 10p
each (£14,571,412.00).
Details of outstanding awards and options over shares in the
Company as at 31 December 2016 are set out in notes 26 and
28 to the consolidated financial statements on pages 149 and
151 respectively.
Issue of shares
Section 551 of the 2006 Act provides that the directors may
not allot shares unless empowered to do so by shareholders.
A resolution giving such authority was passed at the AGM held
on 10 May 2016. The AGM authorities were only used in 2016
in relation to the issue of shares pursuant to the satisfaction
of awards granted to participants of the PSP 2006, as
described above.
The directors propose resolution 16 set out in the Notice of
AGM to renew the authority granted to them at the 2016 AGM
to allot shares up to an aggregate nominal value of one-third
of the Company’s issued share capital and, in accordance
with the Investment Association’s Share Capital Management
Guidelines, the directors again propose to extend this by 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). In March 2015, the Pre-Emption Group issued
a revised Statement of Principles for the disapplication
of pre-emption rights (the Principles). In addition to the
standard annual disapplication of pre-emption rights up to
a maximum equal to five per cent of issued ordinary share
capital, the Pre-Emption Group is now supportive of extending
the general disapplication authority for an additional five per
cent in connection with an acquisition or specified capital
investment. In line with the Principles, the directors are again
seeking approval at the 2017 AGM for the disapplication of
pre-emption rights up to an aggregate nominal value of no
more than five per cent of the Company’s issued ordinary
share capital on an unrestricted basis (resolution 17) and an
additional five per cent in connection with an acquisition or
specified capital investment (resolution 18). In accordance
with recommended best practice, the Company has this year
split the section 561 resolution into two separate resolutions.
Further information is set out in the Notice of AGM.
The Principles also require 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. Pursuant to its employee share schemes,
the Company issued 0.3 per cent of its issued share capital
on a non-pre-emptive basis in 2016 and 2.6 per cent in the
period 2014 to 2016 (calculated by reference to the Company’s
closing issued share capital at 31 December 2016).
Save for issues of shares in respect of various employee share
schemes, the directors have no current plans to make use of
the renewed authorities sought by resolutions 16, 17 and 18
although they consider their renewal appropriate in order
to retain maximum flexibility to take advantage of business
opportunities as they arise.
Purchase of own shares
The Company has authority under a shareholders’ resolution
passed at the 2016 AGM to repurchase up to 14,520,747 of
the Company’s ordinary shares in the market. This authority
expires at the conclusion of the forthcoming AGM on
12 May 2017. No shares have been repurchased by the
Company under the authority granted at the 2016 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 expected earnings per share
and would be for the benefit of shareholders generally.
The authority sets the minimum and maximum prices at
which the shares may be bought and it will be limited to
a maximum of 10 per cent of the Company’s issued share
capital calculated at the latest practicable date prior to
the publication of the Notice of AGM. 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.
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GOVERNANCE Strategic Report
Financial Statements
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.
SHAREHOLDERS’ RIGHTS
General
The rights attaching to the ordinary shares are set out in the
2006 Act and the Company’s Articles.
A shareholder whose name appears on the register of
members may choose whether those shares are evidenced
by share certificates (certificated form) or held in electronic
form (uncertificated) in CREST.
Voting
Subject to the restrictions set out below, a shareholder
is entitled to attend (or appoint another person as his
representative (a proxy) to attend) and to exercise all or
any of his rights to speak, ask questions and vote at any
general meeting of the Company. A shareholder may also
appoint more than one proxy, provided that each proxy is
appointed to exercise the rights attached to a different share
or shares held by that shareholder. A proxy need not be a
shareholder of the Company.
The right to appoint a proxy does not apply to a person who
has been nominated under section 146 of the 2006 Act to
enjoy information rights (a Nominated Person). He/she may,
however, have a right under an agreement with the registered
shareholder by whom he/she was nominated, 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 2017 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 or statutes, on a vote on a resolution
at a general meeting on a show of hands every shareholder
present in person, every proxy present who has been duly
appointed by one or more shareholders entitled to vote on
the resolution and every authorised representative of a
corporation which is a shareholder of the Company entitled
to vote on the resolution, shall have one vote. If a proxy has
been duly appointed by more than one shareholder and has
been instructed by one or more of those shareholders to vote
for the resolution and by one or more of those shareholders to
vote against it, that proxy shall have one vote for and one vote
against the resolution. On a poll, every shareholder present in
person or by proxy shall have one vote for every share held.
If a person fails to comply with 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. Unless the information required
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 until the information required by the section 793
notice has been provided.
The Company operates a number of employee share schemes.
Under some of these arrangements, shares are held by
trustees on behalf of employees. The employees are not
entitled to exercise directly any voting or other control rights.
The trustees abstain from voting on these shares.
As permitted by the Company’s Articles and in line with
practice increasingly adopted by UK public companies, voting
at the 2017 AGM will (as last year) be conducted by way of a
poll rather than a show of hands. Voting by poll is considered
to be a more transparent and equitable method of voting
because it includes the votes of all shareholders, including
those cast by proxies in advance of the meeting, rather than
just the votes of those shareholders who attend the meeting.
As soon as practicable following the AGM, the results of the
poll will be published via the Regulatory News Service and
on the Company’s website at www.interserve.com.
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GovernanceOverview Directors’ report continued
General meetings
No business may be transacted at a general meeting unless a
quorum is present consisting of not less than two shareholders
present in person or by proxy or by two duly authorised
representatives of a corporation. Two proxies of the same
shareholder or two duly authorised representatives of the
same corporation will not constitute a quorum.
An AGM must be called on at least 21 days’ clear notice. All
other general meetings are also required to be held on at least
21 days’ clear notice unless the Company offers shareholders
an electronic voting facility and a special resolution reducing
the period of notice to not less than 14 days has been passed.
The directors are proposing resolution 20 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 five per cent of the total voting rights of all the
shareholders who have a right to vote at the AGM or at least
100 shareholders who have that right and who hold shares in
the Company on which there has been paid up an average sum
per shareholder of at least £100, may require the Company to
include an item in the business to be dealt with at the AGM.
Dividends
Subject to the provisions of the 2006 Act, the Company may,
by ordinary resolution, declare a dividend to be paid to the
shareholders but the amount of the dividend may not exceed
the amount recommended by the directors. The directors may
also pay interim dividends on any class of shares on any dates
and in any amounts and in respect of any periods as appear
to the directors to be justified by the distributable profits of
the Company.
Liquidation
If the Company is wound up the liquidator may, with the
sanction of a special resolution of the Company, and any other
sanction required by law, divide amongst the shareholders
the whole or any part of the assets of the Company. He may,
for such purposes, set such value as he deems fair upon any
property to be divided and may determine how such division
shall be carried out as between the shareholders or different
classes of shareholders. The liquidator may also transfer the
whole or any part of such assets to trustees to be held in
trust for the benefit of the shareholders. No shareholder can
be compelled to accept any shares or other securities which
would give him any liability.
Modification of rights
If at any time the capital of the Company is divided into
different classes of shares, the rights attached to any
class or any of such rights may be modified, abrogated,
or varied either:
(a) with the consent of the holders of 75 per cent of the
issued shares of that class; or
(b) with the sanction of a special resolution passed at a
separate general meeting of the holders of the shares
of the class.
The rights attached to any class of shares shall not (unless
otherwise provided by the terms of issue of the shares of
that class or by the terms upon which such shares are for
the time being held) be deemed to be modified or varied
by the creation or issue of further shares ranking pari
passu therewith.
The Company may by ordinary resolution, convert any paid-up
shares into stock, and reconvert any stock into paid-up shares
of any denomination.
Transfer of shares
There are no specific restrictions on the transfer of securities
in the Company, or on the size of a shareholder’s holding,
which are both governed by the Articles and prevailing
legislation. In accordance with the EU Market Abuse
Regulation (which came into effect on 3 July 2016), 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 its
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.
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GOVERNANCE Strategic Report
Financial Statements
SUBSTANTIAL SHAREHOLDINGS
As at 31 December 2016 the Company had been notified,
pursuant to paragraph 5 of the DTRs, of the following
notifi ble voting rights in its ordinary share capital:
AUDITOR
Resolutions to re-appoint Grant Thornton UK LLP as the
Company’s auditor and to authorise the directors to determine
their remuneration will be proposed at the forthcoming AGM.
Name of holder
Number of
ordinary shares
Percentage
of total
voting rights1
Henderson Group Plc
7,717,067
Aberdeen Asset
Managers Ltd
Old Mutual Plc
Mondrian Investment
Partners Ltd
Standard Life
Investments
(Holdings) Ltd
7,295,030
7,238,006
7,212,846
6,347,380
5.3
5.0
5.0
4.9
4.4
Nature
of holding
Indirect
Indirect
Indirect
Indirect
Direct and
indirect
1
Calculated according to the number of total voting rights as at
31 December 2016.
No notifications have been received between the year end
and the date of this report (being a date not more than one
month prior to the date of the AGM Notice).
SIGNIFICANT AGREEMENTS –
CHANGE OF CONTROL PROVISIONS
The following significant agreements contain provisions
entitling the counterparties 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 34 of the Strategic Report, 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.
• Under the terms of the Note Purchase Agreement in relation
to the US private placement detailed on page 34 of the
Strategic Report, upon a change of control the Company is
required to make an offer to all noteholders to prepay the
entire unpaid principal amount of the notes, together,
with interest.
• 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. These are set out on
page 85 of the Directors’ Remuneration Report.
Statement of disclosure of information to auditor
The directors in office at the date of approval of this report
confirm that:
(a) so far as they are each aware, there is no relevant
audit information of which the Company’s auditor is
unaware; and
(b) they have each made such enquiries of their fellow
directors and of the Company’s auditor and have each
taken such other steps as were required by their duty
as a director of the Company to exercise due care, skill
and diligence in order to make themselves aware of
any relevant audit information and to establish that the
Company’s auditor is aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of section 418 of the 2006 Act.
ANNUAL GENERAL MEETING
The resolutions to be proposed at the AGM to be held on
12 May 2017, together with the explanatory notes, appear
in the separate Notice of AGM accompanying this Annual
Report. The Notice is also available on our website at
www.interserve.com.
APPROVAL
This report was approved by the Board of Directors on
28 February 2017 and signed on its behalf by:
Trevor Bradbury
Company Secretary
28 February 2017
Interserve House
Ruscombe Park
Twyford
Reading
Berkshire
RG10 9JU
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GovernanceOverview Directors’ report continued
CAUTIONARY STATEMENT
The Strategic Report, Directors’ Report and Directors’ Remuneration Report have been prepared solely for existing members
of the Company in compliance with UK company law and the Listing, Prospectus, and DTRs of the FCA. The Company, the
directors and employees accept no responsibility to any other person for anything contained in the Strategic Report, Directors’
Report and Directors’ Remuneration Report. The directors’ liability for the Strategic Report, Directors’ Report and Directors’
Remuneration Report is limited, as provided in the 2006 Act.
The Company’s auditor provides an opinion on:
(a) whether the information given in the Strategic Report and the Directors’ Report is consistent with the financial statements;
(b) whether the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements;
(c) whether in the light of the knowledge and understanding of the Company and its environment obtained in the course of the
audit, the auditor has identified material misstatements in the Strategic Report and the Directors’ Report and, if applicable,
gives an indication of the nature of each of those misstatements;
but neither the Strategic Report nor the Directors’ Report are audited.
Statements made in the Strategic Report, Directors’ Report and Directors’ Remuneration Report reflect the knowledge and
information available at the time of their preparation. The Strategic Report and the Directors’ Report contain forward-looking
statements in respect of the Group’s operations, performance, prospects and financial condition. By their nature, these
statements involve uncertainty. In particular, outcomes often differ from plans or expectations expressed through forward-
looking statements, and such differences may be significant. Assurance cannot be given that any particular expectation will be
met. No responsibility is accepted to update or revise any forward-looking statement, resulting from new information, future
events or otherwise. Liability arising from anything in this Annual Report and Financial Statements shall be governed by English
law. Nothing in this Annual Report and Financial Statements should be construed as a profit forecast.
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GOVERNANCE Strategic Report
Financial Statements
Directors’ responsibility statement
The directors are responsible for preparing the Annual
Report and 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), including the requirements of FRS 101
Reduced disclosure framework.
Under company law the directors must not approve the
financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Group and
parent company and of their profit or loss 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 the 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 Group’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 parent
company’s transactions and disclose with reasonable accuracy
at any time the financial position of the parent company
and enable them to ensure that the financial statements
comply with the Companies Act 2006 and Article 4 of the IAS
Regulations. They are also responsible for safeguarding the
assets of the Group and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the directors are
also responsible for preparing a Strategic Report, Directors’
Report, Directors’ Remuneration Report and Corporate
Governance statement that comply with that law and
those regulations.
The directors confirm that, to the best of their knowledge:
(a) the parent company and Group financial statements in this
Annual Report, which have been prepared in accordance
with UK GAAP, including the requirements of FRS 101
Reduced disclosure framework and IFRS, respectively,
give a true and fair view of the assets, liabilities, financial
position and profit of the parent company and of the
Group taken as a whole;
(b) the management report required by paragraph 4.1.8R of
the FCA’s Disclosure Guidance and Transparency Rules
(contained in the Strategic Report and the Directors’
Report) includes a fair review of the development and
performance of the business and the position of the parent
company and the Group taken as a whole, together with
a description of the principal risks and uncertainties that
they face; and
(c) the Annual Report and Financial Statements, taken as a
whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess
the Group’s position and performance, business model
and strategy.
By order of the Board
Adrian Ringrose
Chief Executive
Tim Haywood
Group Finance Director
28 February 2017
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GovernanceOverview
BREATHING NEW LIFE
INTO HISTORIC BUILDINGS
During the year we completed several projects to regenerate, modernise
and rejuvenate historic buildings throughout the UK.
We completed a scheme to transform
the iconic Grade II listed former
Co-Operative department store building
in Newcastle city centre from a state of
disrepair into a vibrant commercial hub
complete with a new 184-bed Premier
Inn, which opened last year.
First developed in the late 1800s, a
huge proportion of the building had
been left untouched for many years
and required significant renovation.
The building was stripped back to
reveal original architectural features
which we worked collaboratively with
partners, including the local history
society, to protect and document.
We also completed work to improve
and refurbish the historic Kirkgate
Market in Leeds. Located in the heart
of the city, the Grade I listed market
building attracts more than 35,000
shoppers every week. Working with
English Heritage and a conservation
team we replaced roofs, built a
new covered market, event space,
restaurant area as well as adding new
entrances and signage.
Both developments provided a boost to
the local economies of Newcastle and
Leeds; creating hundreds of jobs and
supporting local businesses of all sizes.
96
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Overview
Strategic Report
Governance
Financial Statements
Independent auditor’s report
98
Consolidated financial statements 106
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company financial
statements
Related undertakings
Five-year analysis
Shareholder information
112
162
164
179
187
189
Financial
Statements
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97
97
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FINANCIAL STATEMENTS
Independent auditor’s report
to the members of Interserve Plc
Our opinion on the financial statements is unmodified
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at
31 December 2016 and of the Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union;
the parent company financial statements have been properly prepared in accordance with applicable law and United
Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 101 Reduced
disclosure framework; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and,
as regards the Group financial statements, Article 4 of the IAS Regulation.
Who we are reporting to
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.
What we have audited
Interserve Plc’s financial statements for the year ended 31 December 2016 comprise the Consolidated Income Statement, the
Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Balance Sheets, the Consolidated
Statement of Changes in Equity, the Consolidated Cash Flow Statement and the related notes.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law
and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of
the parent company financial statements is United Kingdom Generally Accepted Accounting Practice including FRS 101 Reduced
disclosure framework.
98
Strategic Report
Financial Statements
Overview of our audit approach
Key audit risks were identified as revenue recognition and contract accounting, the accounting
treatment of exceptional items, including the exited Energy from Waste (EfW) businesses,
impairment of non-current assets, and defined benefit pension schemes.
Overall Group materiality is £5.0 million which represents approximately 4.6 per cent of the
Group's profit before tax excluding exceptional items and amortisation of acquired intangible
assets.
We performed full-scope procedures at all operating locations in the United Kingdom,
Guernsey and certain Group entities in the United Arab Emirates (UAE) and Spain. We
performed targeted procedures over component locations in Oman, Qatar, the UAE, Spain,
Saudi Arabia, Australia, Hong Kong, the Philippines and the United States of America.
Our assessment of risk
At the outset of our audit, we identified the risks and matters that would need to be considered in dispensing our
responsibilities. The following graph illustrates the risks we identified and our assessment of those risks from our audit planning
process and which were presented to the Audit Committee along with our audit approach on 5 December 2016. There were no
changes to the audit risks as a result of our audit procedures.
Summary of identified audit risks
Significant risks
Other risks
Other areas of focus
Revenue
recognition and
contract
accounting
Derivatives
Employee
remuneration
RMD hire fleet
and inventory
Impairment of
non-current assets
Pension
liability
Exceptional items
including Energy
from Waste
International &
trade receivables
Provisions
(non-contract)
Operating
costs
PFI
Investments
Management
override of controls
Taxation
Going concern
h
g
H
i
*
*
y
t
i
l
i
b
a
b
o
r
P
w
o
L
Low
Impact*
High
* Impact the identified risk would have on the Group or Company’s financial statements
** Probability that the identified risk could occur during the year under review if not properly controlled
99
GovernanceOverview
Independent auditor’s report continued
to the members of Interserve Plc
In arriving at our opinions set out in this report, we highlight the following risks that, in our judgement, had the greatest effect
on our audit:
Audit risk
How we responded to the risk
Revenue recognition and contract accounting
See note 1 on page 115, and page 57 of the Audit Committee
report.
Revenue is recognised throughout the Group as the fair
value of consideration receivable in respect of provision of
service and construction contracts and the rental and sale of
equipment. Provision is made for expected contract losses as
soon as they are foreseen.
Determining the amount of revenue to be recognised requires
management to make significant judgements and estimates
including the cost to complete, and the identification of any
other costs that might arise, the probability of customer
acceptance of claims and variations and the recoverability of
work-in-progress and receivables balances.
We therefore identified revenue recognition and contract
accounting as a significant risk.
Our audit work included, but was not restricted to:
•
•
•
testing certain key controls within the Construction
division over contract execution, certification, invoicing,
collections, cost approvals and cost allocations;
selecting a sample of contracts in progress determined
by reference to materiality and other risk factors
including loss-making contracts and contracts with aged
work-in-progress and debtor balances;
testing management's application of the contractual
terms and conditions, recalculating revenue recognised
under the percentage of completion method based on
costs incurred to date (where applicable) and testing
a sample of costs recorded on projects to source
documents;
• challenging management's assertions relating to the
expected costs to complete by reference to supporting
documentation such as customer certifications, forecast
models and comparing previous cost estimates against
actual results and examining variation and claim
agreements;
• agreeing revenues to contracted amounts and reconciled
differences to variations that were submitted during the
period;
•
•
•
testing a sample of revenue items for non-contract
revenue, covering both hire and sale revenue, agreeing
items selected for testing through to documentation
supporting existence;
reviewing management's assessment of forward loss
provisions recorded on longer-term contracts, including
challenging management on the judgements inherent
within their contract forecasts, understanding the basis
for projected claims income and cost savings, review of
historical experience and comparing against expected
outcomes; and
investigating the recovery of work-in-progress balances,
by reference to certifications and correspondence
from customers and examining the Group's historical
experience of recovery.
100
Strategic Report
Financial Statements
Audit risk
How we responded to the risk
In addition to the procedures noted above relating to
revenue recognition and contract accounting, our audit work
included, but was not restricted to:
• assessing management’s determination of exceptional
items and the adequacy of disclosures;
• challenging management’s measurement of the
loss provision in relation to the exited business,
performing detailed contract reviews on each of the six
EfW contracts, with a particular focus on the terminated
contract for the Glasgow Recycling and Renewable
Energy project;
•
re-performing the calculations relating to the
presentation of exited businesses as an exceptional item
for both 2015 and 2016;
• assessing the impact of exited businesses on other areas
of the annual report, particularly on management’s
assessment of going concern and continued compliance
with banking covenants;
•
•
testing expenditure related to the strategic review
of the Equipment Services division and determining
whether accruals of expenses were appropriate and
accounted for correctly; and
reviewing non-routine transactions throughout the
audit to assess that the presentation and disclosure of
exceptional items is complete.
Accounting treatment of exceptional items,
including Energy from Waste (EfW)
See note 5 on page 125, and page 56 of the Audit Committee
report.
The Group has separately presented certain items on the
face of the Consolidated Income Statement as exceptional.
Transactions and items that are non-recurring and significant
in size or in nature have been classified as exceptional.
During 2016, management announced that it would no longer
be undertaking EfW contracts where Interserve would take
on the contractual responsibility for process risk. Management
has grouped the six such contracts together and has classified
these as an exited business. The Group has recorded a loss of
£160.0 million in relation to the exited business.
Additionally, management has also undertaken a strategic
review of the Equipment Services division during the year.
This has resulted in the decision to restructure the division
and exit operations in a number of geographies. To date
management has recorded a loss on the year of £10.7 million
in respect of this exceptional event.
Exceptional items are not defined by IFRSs as adopted by
the European Union. Consequently, management has written
an accounting policy to define exceptional items in the
financial statements, which is set out in note 1. In applying
this accounting policy, management exercises significant
judgement in respect of what it determines as an exceptional
transaction. In making this assessment, management has
identified significant non-recurring transactions that by their
size or nature require separate presentation. Management has
also reviewed underlying presentation, restating comparative
information where appropriate. Management has taken into
account the Financial Reporting Council’s (FRC) guidance
issued in December 2013 in respect of disclosures of such
transactions.
We therefore identified the presentation of exceptional items,
including the exited businesses, in the income statement as a
significant risk.
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GovernanceOverview
Independent auditor’s report continued
to the members of Interserve Plc
Audit risk
How we responded to the risk
Impairment of non-current assets
See notes 12 and 13 on pages 130 to 132, and page 57 of the
Audit Committee report.
The directors are required to make an annual assessment
to determine whether the Group's goodwill and intangible
assets, which stand at £437.0 million and £77.0 million,
respectively, are impaired.
The process for assessing whether impairment exists under
International Accounting Standard (IAS) 36 Impairment of
assets is complex. The process of determining the value in
use, through forecasting cash flows related to cash generating
units (CGUs) and the determination of the appropriate
discount rate and other assumptions to be applied can be
highly judgemental and can significantly impact the results of
the impairment review.
We therefore identified the goodwill and intangible assets
impairment review as a significant risk.
Defined benefit pension schemes
See note 29 on page 153, and page 57 of the Audit Committee
report.
The Group has a number of defined benefit pension schemes
that provide benefits to a significant number of current and
former employees. At 31 December 2016 the defined benefit
pension schemes' net deficit was £52.4 million. The gross
value of pension scheme liabilities and assets which form
the net deficit amount to £1,044.6 million and £992.2 million
respectively.
The measurement of the pension liabilities in accordance with
IAS 19 Employee benefits involves significant judgement and
their valuation is subject to complex actuarial assumptions.
Small variations in those actuarial assumptions can lead
to a materially different defined benefit pension scheme
asset or liability being recognised within the Group financial
statements.
We therefore identified defined benefit pension schemes,
including their valuation, as a significant risk.
Our audit work included, but was not restricted to:
• obtaining management's assessment of the relevant
CGUs used in the impairment calculation and comparing
those to our understanding of the business units and
operating structure of the Group and recalculating the
arithmetical accuracy of those calculations including the
sensitivity analyses;
•
testing the assumptions utilised in the impairment
models, including growth rates, discount rates and
terminal values. This included utilising our internal
valuation specialists to consider whether the
assumptions used were appropriate to the relevant CGU's
circumstances and, where possible, benchmarked these
assumptions against available industry data;
• challenging management assessment of impairment
indicators relating to intangible assets;
• comparing current market capitalisation to carrying
value of net assets and calculated value in use for the
Group; and
•
testing the accuracy of management's forecasting
through a comparison of budget to actual data and
historical variance trends and reviewing the cash flows
for exceptional or unusual items or assumptions.
Our audit work included, but was not restricted to:
• utilising the expertise of our actuarial specialists in order
to review the assumptions used, such as discount rates,
growth rates and mortality rates for reasonableness
and the methods employed in the calculation of the
obligation;
•
testing the accuracy of underlying membership data
utilised by the Group's actuaries for the purpose of
calculating the scheme liabilities by selecting a sample
of employees and agreeing pertinent data such as date
of birth, gender, date of membership to underlying
records and testing a sample of net movements in that
data since it was last formally prepared; and
• directly confirming the existence of pension scheme
assets with all asset managers and testing the valuation
of specific material pension assets including the
purchased insurance contracts.
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Strategic Report
Financial Statements
Our application of materiality and an overview of the scope of our audit
Materiality
We define materiality as the magnitude of a misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature,
timing and extent of our audit work and in evaluating the results of that work.
We determined materiality for the Group financial statements as a whole to be £5.0 million, which was set at the same level
as for the previous year of 4.5 per cent of Group profit before tax excluding exceptional items and amortisation of acquired
intangible assets at the planning stage of our audit, based upon an estimate of the full-year result. This reflects approximately
4.6 per cent of the final result. This benchmark is considered the most appropriate because this is a key performance measure
used by the Board of Directors to report to investors on the financial performance of the Group. We chose not to revise our
materiality threshold during the course of the audit once the final profit before tax was known as the result was not significantly
different to the projected result.
We use a different level of materiality, performance materiality, to drive the extent of our testing and this was set at
75 per cent of financial statement materiality for the audit of the Group financial statements. The percentage used is the same
as that set last year, which reflects our assessment of the risk inherent in the audit. We determine a lower level of materiality
for certain specific areas such as directors’ remuneration and related party transactions.
We determined the threshold at which we will communicate misstatements to the Audit Committee to be £249,000. In addition,
we communicate misstatements below that threshold that, in our view, warrant reporting on qualitative grounds.
Overview of the scope of our audit
A description of the generic scope of an audit of financial statements is provided on the FRC’s website at
www.frc.org.uk/auditscopeukprivate.
We conducted our audit in accordance with International Standards on Auditing (ISAs) (UK and Ireland). Our responsibilities
under those standards are further described in the ‘Responsibilities for the financial statements and the audit’ section of our
report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Group in accordance with the Auditing Practices Board’s Ethical Standards for Auditors, and we have
fulfilled our other ethical responsibilities in accordance with those Ethical Standards.
Our audit approach was based on a thorough understanding of the Group’s business and is risk-based. An interim visit was
conducted before the year end at all significant components of the Group to complete advance substantive audit procedures
and to evaluate the Group’s internal controls environment including its IT systems. The components of the Group were
evaluated by the Group Audit Team based on a measure of materiality considering each as a percentage of total Group
assets, liabilities, revenues and profit before taxes, to assess the significance of the component and to determine the planned
audit response. For those components that were evaluated as significant, either a full-scope or targeted audit approach was
determined based on their relative materiality to the Group and our assessment of the audit risk. For significant components
requiring a full-scope approach we evaluated and tested controls over the financial reporting systems identified as part of our
risk assessment, reviewed the accounts production process and addressed critical accounting matters. We sought, wherever
possible, to rely on the effectiveness of the Group’s internal controls in order to reduce substantive testing. We then undertook
substantive testing on significant transactions and material account balances.
In order to address the audit risks described above as identified during our planning procedures, we performed a full-scope
audit of the financial statements of the parent company, Interserve Plc, and of the Group’s operations throughout the United
Kingdom, Guernsey and certain Group entities in the UAE and Spain. The operations that were subject to full-scope audit
procedures made up 86.5 per cent of consolidated revenues and 63.6 per cent of headline profit before tax. Statutory audits of
subsidiaries, where required by local laws, were performed to lower materiality where applicable.
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GovernanceOverview Independent auditor’s report continued
to the members of Interserve Plc
While the majority of the operations are located within the United Kingdom, the Group has material operations spanning the
globe, particularly in the Equipment Services and Construction divisions. Through an analysis of these operations we determined
that targeted audit procedures were to be carried out in fourteen entities located in Oman, Qatar, the UAE, Spain, Saudi Arabia,
Australia, Hong Kong, the Philippines and the United States of America. These targeted procedures addressed the significant
risks described above. Those components subjected to targeted audit procedures comprise 11.2 per cent of total revenues
and 33.3 per cent of total headline profit before tax of the Group. The joint ventures and associates which were subjected to
targeted audit procedures contributed 16.5 per cent of total profit before tax of the Group. All of the items that are presented
as exceptional have been tested under a comprehensive approach.
Revenue
Headline profit before tax
Full Scope
Targeted
Analytical
Full Scope
Targeted
Analytical
The remaining operations of the Group were subjected to analytical procedures over the balance sheet and income statements
of the related entities with a focus on applicable risks identified above and the significance to the Group’s balances.
Detailed audit instructions were issued to the auditors of the reporting components where a full-scope or targeted audit
approach had been identified. The instructions detailed the significant risks that were to be addressed through the audit
procedures and indicated the information that we required to be reported back to the Group Audit Team. The Group Audit Team
performed site visits in Oman, Qatar and the UAE, which included a review of the work performed by the component auditors.
Where targeted components outside of the UK were not physically visited a review of working papers was conducted remotely.
The Group Audit Team communicated with all component auditors throughout the planning, fieldwork and concluding stages of
the local audits.
Other reporting required by regulation
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the Strategic Report and the Directors' Report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
•
the Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the Group and parent company and its environment obtained in the course
of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report.
Matters on which we are required to report by exception
Under the Companies Act 2006 we are required 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
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Strategic Report
Financial Statements
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Under the Listing Rules, we are required to review:
•
•
the directors’ statements in relation to going concern and longer-term viability, set out on page 36; and
the part of the Corporate Governance statement relating to the Company’s compliance with the provisions of the UK
Corporate Governance Code specified for our review.
Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course
of performing our audit; or
• otherwise misleading.
In particular, we are required to report to you if:
• we have identified any inconsistencies between our knowledge acquired during the audit and the directors’ statement that
they consider the annual report is fair, balanced and understandable; or
•
the annual report does not appropriately disclose those matters that were communicated to the Audit Committee which we
consider should have been disclosed.
We have nothing to report in respect of any of the above matters.
We also confirm that we do not have anything material to add or to draw attention to in relation to:
•
•
•
•
the directors’ confirmation in the annual report that they have carried out a robust assessment of the principal risks facing
the Group including those that would threaten its business model, future performance, solvency or liquidity;
the disclosures in the annual report that describe those risks and explain how they are being managed or mitigated;
the directors’ statement in the financial statements about whether they have considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their identification of any material uncertainties to the Group’s ability to
continue to do so over a period of at least twelve months from the date of approval of the financial statements; and
the directors’ explanation in the annual report as to how they have assessed the prospects of the Group, over what period
they have done so and why they consider that period to be appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over
the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or
assumptions.
Responsibilities for the financial statements and the audit
What the directors are responsible for:
As explained more fully in the Directors’ Responsibility Statement set out on page 95, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view.
What we are responsible for:
Our responsibility is to audit and express an opinion on the 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.
Simon Lowe
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
28 February 2017
105
GovernanceOverview Consolidated income statement
for the year ended 31 December 2016
Year ended 31 December 2016
Year ended 31 December 2015
Before
exceptional
items and
amortisation
of acquired
intangible
assets
£million
Exceptional
items and
amortisation
of acquired
intangible
assets
£million
Notes
Before
exceptional
items and
amortisation
of acquired
intangible
assets #
£million
Exceptional
items and
amortisation
of acquired
intangible
assets #
£million
Total
£million
Total
£million
2
2
5
15
4
7
8
9
11
3,589.9
95.3
3,685.2
3,479.0
149.9
3,628.9
(440.6)
-
(440.6)
(424.3)
-
(424.3)
3,149.3
95.3
3,244.6
3,054.7
149.9
3,204.6
(2,713.7)
(253.1)
(2,966.8)
(2,612.4)
(169.5)
(2,781.9)
435.6
(157.8)
277.8
(334.0)
–
(334.0)
101.6
22.6
-
22.6
(12.9)
(29.8)
(42.7)
(346.9)
(29.8)
(376.7)
(200.5)
(98.9)
-
(0.1)
(0.1)
22.6
(0.1)
22.5
124.2
(200.6)
(76.4)
5.6
(23.3)
-
-
106.5
(200.6)
(12.2)
4.7
5.6
(23.3)
(94.1)
(7.5)
94.3
(195.9)
(101.6)
442.3
(319.9)
-
(319.9)
122.4
22.6
-
22.6
145.0
4.7
(21.1)
128.6
(17.8)
110.8
92.2
2.1
94.3
(195.9)
(103.7)
-
2.1
(195.9)
(101.6)
109.5
1.3
110.8
(71.2p)
(71.2p)
(19.6)
422.7
1.6
(31.0)
(29.4)
(49.0)
-
(0.1)
(0.1)
(49.1)
-
-
(49.1)
8.5
(40.6)
(40.6)
-
(40.6)
(318.3)
(31.0)
(349.3)
73.4
22.6
(0.1)
22.5
95.9
4.7
(21.1)
79.5
(9.3)
70.2
68.9
1.3
70.2
47.5p
47.2p
Continuing operations
Revenue including share of associates
and joint ventures
Less: Share of associates and joint ventures
Consolidated revenue
Cost of sales
Gross profit
Administration expenses
Amortisation of acquired intangible assets
Total administration expenses
Operating profit/(loss)
Share of result of associates and joint ventures
Amortisation of acquired intangible assets
Total share of result of associates and joint ventures
Total operating profit/(loss)
Investment revenue
Finance costs
Profit/(loss) before tax
Tax (charge)/credit
Profit/(loss) for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Earnings per share
Basic
Diluted
# restated (note 1)
106
Strategic Report
Financial Statements
Consolidated statement of comprehensive income
for the year ended 31 December 2016
Profit/(loss) for the year
Items that will not be reclassified subsequently to profit or loss:
Actuarial (losses)/gains on defined benefit pension schemes
Deferred tax on above items taken directly to equity
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations
Gains on cash flow hedging instruments (excluding joint ventures)
Recycling of cash flow hedge reserve to profit and loss account
Deferred tax on above items taken directly to equity
Net impact of Items relating to joint-venture entities
Other comprehensive income/(loss) net of tax
Total comprehensive income/(loss)
Attributable to:
Equity holders of the parent
Non-controlling interests
Notes
29
9
9
Year ended
31 December
2016
£million
Year ended
31 December
2015
£million
(101.6)
70.2
(90.2)
15.3
(74.9)
67.7
42.0
(48.4)
0.9
(5.3)
56.9
(18.0)
(119.6)
(122.0)
2.4
(119.6)
5.6
(1.1)
4.5
7.4
19.8
(10.8)
(1.8)
(9.1)
5.5
10.0
80.2
78.8
1.4
80.2
107
GovernanceOverview
Consolidated balance sheet
at 31 December 2016
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interests in joint-venture entities
Interests in associated undertakings
Retirement benefit surplus
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and deposits
Total assets
Current liabilities
Bank overdrafts
Trade and other payables
Current tax liabilities
Short-term provisions
Net current assets
Non-current liabilities
Borrowings
Trade and other payables
Long-term provisions
Retirement benefit obligation
Total liabilities
Net assets
Equity
Share capital
Share premium account
Capital redemption reserve
Merger reserve
Hedging and revaluation reserve
Translation reserve
Investment in own shares
Retained earnings
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Notes
12
13
14
15/31
15
29
16
17
19
21
20
20
22
25
20
23
25
29
26
31 December
2016
£million
31 December
2015
£million
31 December
2014
£million
437.0
77.0
250.4
41.6
85.3
-
18.6
909.9
36.5
724.4
67.1
113.3
941.3
428.6
91.6
218.1
40.9
91.0
17.2
1.3
888.7
40.1
774.9
25.1
86.1
926.2
427.1
117.3
194.7
42.7
77.2
-
1.7
860.7
48.6
679.4
5.3
82.1
815.4
1,851.2
1,814.9
1,676.1
(11.1)
(899.3)
(2.6)
(21.8)
(934.8)
6.5
(449.4)
(16.6)
(42.9)
(52.4)
(561.3)
(15.5)
(788.0)
(6.1)
(27.4)
(837.0)
89.2
(406.1)
(15.9)
(43.3)
-
(465.3)
(5.5)
(754.0)
(1.0)
(35.7)
(796.2)
19.2
(362.8)
(14.8)
(33.5)
(4.8)
(415.9)
(1,496.1)
(1,302.3)
(1,212.1)
355.1
512.6
464.0
14.6
116.5
0.1
121.4
(8.8)
109.7
(1.9)
(9.4)
342.2
12.9
355.1
14.5
116.5
0.1
121.4
2.0
42.3
(1.5)
205.2
500.5
12.1
512.6
14.4
115.3
0.1
121.4
3.9
35.0
(3.0)
165.3
452.4
11.6
464.0
These financial statements were approved by the Board of Directors on 28 February 2017.
Signed on behalf of the Board of Directors
A M Ringrose
Director
108
T P Haywood
Director
Strategic Report
Financial Statements
Consolidated statement of changes in equity
for the year ended 31 December 2016
Share
capital
£million
Share
premium
£million
Capital
redemption
reserve
£million
Merger
reserve1
£million
Hedging and
revaluation
reserve2
£million
Translation
reserve
£million
Investment
in own
shares3
£million
Attributable
to equity
holders of
the parent
£million
Non-
controlling
interests
£million
Retained
earnings
£million
Total
£million
Balance at
1 January 2015
14.4
115.3
0.1
121.4
Profit for the year
Other comprehensive
income
Total comprehensive
income
Dividends paid
Shares issued
Acquisition
Company shares used
to settle share-
based payment
obligations
Share-based payments
Transactions with
owners
Balance at
-
-
-
-
-
-
-
-
0.1
1.2
-
-
-
-
-
-
0.1
1.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3.9
-
(1.9)
(1.9)
-
-
-
-
-
-
35.0
-
7.3
7.3
-
-
-
-
-
-
(3.0)
-
-
-
-
-
-
1.5
-
1.5
165.3
68.9
452.4
68.9
11.6
1.3
464.0
70.2
4.5
9.9
0.1
10.0
73.4
(33.7)
-
-
78.8
(33.7)
1.3
-
1.4
(1.0)
-
0.1
80.2
(34.7)
1.3
0.1
(0.6)
0.8
0.9
0.8
-
-
0.9
0.8
(33.5)
(30.7)
(0.9)
(31.6)
31 December 2015
14.5
116.5
0.1
121.4
2.0
42.3
(1.5)
205.2
500.5
12.1
512.6
Profit/(loss) for
the year
Other comprehensive
income
Total comprehensive
income
Dividends paid
Shares issued
Purchase of Company
shares
Company shares used
to settle share-
based payment
obligations
Share-based payments
Transactions with
owners
Balance at
-
-
-
-
0.1
-
-
-
0.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(10.8)
67.4
(10.8)
67.4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(0.4)
(103.7)
(103.7)
2.1
(101.6)
(74.9)
(18.3)
0.3
(18.0)
(178.6)
(122.0)
2.4
(119.6)
(35.5)
(35.5)
(1.6)
(37.1)
-
-
0.1
(0.4)
-
-
-
-
0.1
(0.4)
(0.5)
-
-
-
(0.5)
(0.5)
-
-
(0.4)
(36.0)
(36.3)
(1.6)
(37.9)
31 December 2016
14.6
116.5
0.1
121.4
(8.8)
109.7
(1.9)
(9.4)
342.2
12.9
355.1
1 The £121.4 million merger reserve represents £16.4 million premium on the shares issued on the acquisition of Robert M. Douglas Holdings Plc in 1991, £32.6 million
premium on the shares issued on the acquisition of MacLellan Group Plc in 2006 and £72.4 million premium on the shares placed to partially fund the acquisition of
Initial Facilities in 2014.
2 The hedging and revaluation reserve includes £19.9 million relating to the revaluation of available-for-sale financial assets within the joint ventures
(2015: £18.2 million).
3 The investment in own shares reserve represents the cost of shares in Interserve Plc held by the trustees of the Interserve Employee Benefit Trust. The number of
shares held at 31 December 2016 was 473,920 (2015: 494,748), with the market value of these shares at 31 December 2016 being £1.6 million (2015: £2.6 million).
109
GovernanceOverview
Consolidated cash flow statement
for the year ended 31 December 2016
Operating activities
Total operating profit/(loss)
Adjustments for:
Amortisation of acquired intangible assets
Amortisation of capitalised software development
Depreciation of property, plant and equipment
Pension contributions in excess of the income statement charge
Share of results of associates and joint ventures
Charge relating to share-based payments
Gain on disposal of plant and equipment - hire fleet
Gain on disposal of plant and equipment - other
Operating cash flows before movements in working capital
(Increase)/decrease in inventories
(Increase)/decrease in receivables
Increase/(decrease) in payables
Cash generated by operations before changes in hire fleet
Capital expenditure - hire fleet
Proceeds on disposal of plant and equipment - hire fleet
Cash generated by operations
Cash used by operations - Energy from Waste exited business
Cash used by operations - strategic review of Equipment Services
Cash generated by operations - ongoing business
Taxes paid
Net cash from operating activities
Investing activities
Interest received
Dividends received from associates and joint ventures
Proceeds on disposal of plant and equipment - non-hire fleet
Capital expenditure - non-hire fleet
Investment in joint-venture entities
Proceeds on disposal of investments
Receipt of loan repayment - investments
Net cash from/(used in) investing activities
Year ended
31 December
2016
£million
Year ended
31 December
2015
£million
Notes
(76.4)
95.9
13
13
14
28
14
15a
13/14
15b
15b
29.8
1.4
37.6
(19.5)
(22.5)
(0.2)
(16.0)
-
(65.8)
9.4
80.8
75.6
100.0
(30.9)
21.6
90.7
(116.9)
(7.7)
215.3
(10.2)
80.5
4.5
34.1
8.6
(38.3)
(9.8)
4.6
-
3.7
31.0
1.3
34.8
(16.1)
(22.5)
0.5
(12.7)
(0.2)
112.0
8.8
(97.9)
37.4
60.3
(37.5)
15.9
38.7
(10.4)
(2.6)
51.7
(6.8)
31.9
4.4
13.6
1.6
(31.2)
(6.7)
-
0.1
(18.2)
110
Overview
Strategic Report
Governance
Financial Statements
Financing activities
Interest paid
Dividends paid to equity shareholders
Dividends paid to non-controlling interests
Proceeds from issue of shares and exercise of share options
Purchase of own shares
Increase in bank loans
Movement in obligations under finance leases
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of foreign exchange rate changes
Cash and cash equivalents at end of period
Cash and cash equivalents comprise
Cash and deposits
Bank overdrafts
Reconciliation of net cash flow to movement in net debt
Net increase/(decrease) in cash and cash equivalents
Increase in bank loans
Movement in obligations under finance leases
Change in net debt resulting from cash flows
Effect of foreign exchange rate changes
Movement in net debt during the period
Net cash/(debt) - opening
Net cash/(debt) - closing
Year ended
31 December
2016
£million
Year ended
31 December
2015
£million
(23.3)
(35.5)
(1.6)
0.1
(0.4)
(5.0)
2.2
(63.5)
20.7
70.6
10.9
102.2
113.3
(11.1)
102.2
20.7
5.0
(2.2)
23.5
10.9
34.4
(308.8)
(274.4)
(21.1)
(33.7)
(1.0)
2.1
-
32.5
1.4
(19.8)
(6.1)
76.6
0.1
70.6
86.1
(15.5)
70.6
(6.1)
(32.5)
(1.4)
(40.0)
0.1
(39.9)
(268.9)
(308.8)
Notes
10
20
111
Notes to the consolidated financial statements
for the year ended 31 December 2016
1. Basis of preparation and accounting policies
Basis of preparation
The Interserve Plc consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) and comply with the IFRS and related Interpretations (SIC and IFRIC interpretations) as adopted by the
European Union.
(a) Adoption of new and revised standards
At the date of authorisation of these Group financial statements, the following Standards and Interpretations were in issue but
not yet effective, and therefore have not been applied in these Group financial statements:
IFRS 9 Financial instruments
The impact of the sections of IFRS 9 currently issued, which will become effective for accounting periods on or after
1 January 2018, at the earliest, will result in the Group’s project finance interests that are currently treated by the joint-venture
companies as being available-for-sale, being treated as a debt carried at “fair value through profit or loss” or “amortised cost”.
As a result, movements in the fair value will no longer be taken to “Other comprehensive income”.
IFRS 15 Revenue from contracts with customers
The new standard will replace IAS 18 Revenue and IAS 11 Construction contracts. It will become effective for accounting periods
on or after 1 January 2018, at the earliest. The main impact of the standard will be to require the recognition and disclosure of
revenue to be based around the principle of disaggregation of discrete performance obligations.
IFRS 16 Leases
The new standard will replace IAS 17 Leases. It will become effective for accounting periods on or after 1 January 2019, at the
earliest. It will require nearly all leases to be recognised on the balance sheet as liabilities, with corresponding assets being
created.
In advance of the adoption of IFRS 9, IFRS 15 and IFRS 16, the Group will conduct a systematic review to ensure that the impact
and effect of the new standards are fully understood, and changes to the current accounting procedures are highlighted and
acted upon. Any impact is not known at this time.
Except for IFRS 9, IFRS 15 and IFRS 16 noted above, the directors do not currently anticipate that the adoption of any other
standard and interpretation that has been issued but is not yet effective will have a material impact on the financial statements
of the Group in future periods.
(b) Critical accounting judgements and key sources of estimation and uncertainty
In the preparation of the consolidated financial statements management makes certain judgements and estimates that impact
the financial statements. While these judgements are continually reviewed the facts and circumstances underlying these
judgements may change resulting in a change to the estimates that could impact the results of the Group. In particular:
Revenue and margin recognition
Determining the amount of any revenue to be recognised, costs to complete and assessment of any other costs arising, the
impact of any changes in scope of work, together with the level of recoverable work-in-progress and receivables requires
significant management judgements and estimates. The policy for revenue recognition on long-term construction and service
contracts is set out in notes 1(d) and (e). As acknowledged in note 1(e), no margin is recognised on construction contracts until
the outcome of the contract can be assessed with reasonable certainty - this assessment in itself is highly judgemental (and is
generally not achieved until the project has achieved substantial progress). This assessment is aided by the use of benchmark,
but rebuttable, assumptions that are used to aid consistency but remain subject to regular management challenge and review
for appropriateness.
Further judgements are made on an ongoing basis with regard to the recoverability of amounts due from customers and other
relevant parties, liabilities arising and the requirement for forward loss provisions. Regular forecasts are compiled on the
outcomes of these types of contracts (including variations and claims), which require assessments and judgements relating to
the value of work performed, changes in work scopes, contract programmes and maintenance obligations. In the current period
a particular focus has been judgements of this nature relating to estimates made in respect of our exited Energy from Waste
business (see note 5).
112
Overview
Strategic Report
Governance
Financial Statements
For contracts in the Equipment Services division, where revenue is recognised on either the sale of equipment or over the
period of an equipment hire, the key accounting judgements and estimates relate to whether the appropriate cut-off for sales
and period of hire has been applied and the recoverability of receivables.
PFI financial assets and derivative financial instruments
The Group’s interests in PFI/PPP investments are classified as “available-for-sale” financial assets by the joint-venture entities.
The fair value of these financial assets is measured at each balance sheet date by discounting the future cash flows allocated
to the financial asset. The discount rate used is based on long-term LIBOR plus a margin to reflect the risk associated with each
project.
The Group’s PFI/PPP joint-venture and associate companies use derivative financial instruments to manage the interest rate risk
to which the concessions are exposed within their long-term contractual agreements. These derivatives are initially recognised
as assets and liabilities at their fair value and subsequently remeasured at each balance sheet date at their fair value. The fair
value of derivatives, assessed by discounting future cash flows, constantly changes in response to prevailing market conditions.
Measurement of impairment of goodwill and intangible assets
As set out in notes 1(b) and (h) the carrying value of goodwill and intangible assets is reviewed for impairment at least annually.
In determining whether goodwill is impaired an estimation of the value in use of the cash generating unit (CGU) to which the
goodwill has been allocated is required. This calculation of value in use requires estimates to be made relating to the timing and
amount of future cash flows expected from the CGU, and suitable discount rates based on the Group’s weighted average cost of
capital adjusted to reflect the specific economic environment of the relevant CGU.
Retirement benefit obligations
In accordance with IAS 19 Employee benefits, the Group has disclosed in note 29 the assumptions used in calculating the defined
benefit obligations. In the calculation a number of assumptions around future salary increases, increase in pension benefits,
mortality rates, inflation and discount rates have been made. Small changes in these assumptions can lead to significant changes
to the overall scheme liabilities, as disclosed in note 29.
Judgement is also exercised in establishing the fair value of retirement benefit assets, most notably the valuation of the buy-in
contract to insure some of the benefits of a subset of the pension membership of the scheme provided by the insurer. This
requires judgement of the proportion of the buy-in contract that exactly matches the amount and timing of benefits payable
and the choice of an appropriate valuation technique in accordance with IFRS 13.
The Group has assessed that no further liability arises under IFRIC 14 IAS 19 — The limit on a defined benefit asset, minimum
funding requirements and their interaction. This conclusion was reached because the trustees of the Interserve Pension
Scheme and the Landmarc Pension Scheme, which together represented 97% of the Group’s total defined benefit obligations
at 31 December 2016, do not have a unilateral power to wind up the schemes and the schemes’ rules allow the Group an
unconditional right to refunds assuming the gradual settlement of plan liabilities over time until all members have left the
scheme.
Property, plant and equipment
The rental fleet in Equipment Services has a significant carrying value (see note 14). The great majority of equipment in the
rental fleet is depreciated on a straight-line basis to a residual value of 30% of cost over 10 years. Asset lives are reviewed
regularly in light of technological change, prospective utilisation and the physical condition of the assets. Due to the
transportable nature of the rental fleet, the review for potential impairment is performed on the worldwide fleet (not country
by country) but it is on an asset by asset basis.
Carrying value of trade and other receivables
Allowance for doubtful debt and provisions against other receivables, including amounts due on construction contracts and
carrying value of accrued income, are made on a specific basis, based on estimates of irrecoverability determined by market
knowledge and past experience.
Acquisition accounting
A number of judgements and estimates are necessary in establishing the opening net asset position, obligations in place at
acquisition, fair value adjustments and the value of intangible assets in respect of businesses acquired. These include estimates
of future revenue, growth rates, customer retention rates and discount rates.
113
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
1. Basis of preparation and accounting policies continued
(b) Critical accounting judgements and key sources of estimation and uncertainty continued
Exceptional items
IAS 1 requires material items to be disclosed separately in a way that enables users to assess the quality of a company’s
profitability. In practice, these are commonly referred to as “exceptional” items, but this is not a concept defined by IFRS and
therefore there is a level of judgement involved in determining what to include in headline profit. We consider items which are
non-recurring and significant in size or in nature to be suitable for separate presentation (see note 5).
(c) Restatement of comparatives
The construction of Energy from Waste facilities, where there was contractual responsibility taken for process risk, and business
streams exited as a result of the strategic review of Equipment Services, along with directly associated costs, are considered to
be exited businesses. Exited businesses are presented as exceptional items (see note 5) and are excluded from the calculation
of headline earnings per share (see note 11). The presentation of comparative information has been restated to be consistent
with this presentation. There is no impact on comparative net assets or statutory profit before taxation.
Accounting policies
Interserve Plc (the Company) is a company incorporated in the United Kingdom and bound by the Companies Act 2006. The
consolidated financial statements comprise the Company and its subsidiaries (together referred to as the Group) and the Group's
interest in joint ventures and associates. These financial statements are presented in pounds sterling which is the currency
of the primary economic environment in which the Group operates. Foreign operations are included in accordance with the
policies set out below.
These financial statements have been prepared on a historical cost basis, except for the revaluation of certain financial
instruments.
The financial statements are prepared on a going concern basis. As disclosed on page 36 the directors believe that the Group
has adequate resources to continue in operational existence for the foreseeable future.
The significant accounting policies adopted by the directors are set out below and have been applied consistently in dealing
with items which are considered material to the Group's financial statements.
(a) Basis of consolidation
The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company
(its subsidiaries). The results, assets and liabilities of associates and joint-venture entities are accounted for under the equity
method of accounting. The results of subsidiaries acquired or disposed of during the year are included from the effective date
of acquisition or until the effective date of disposal respectively.
Non-controlling interests in the net assets of the consolidated subsidiaries are identified separately from the Group’s equity
interest therein. Non-controlling interests consist of those interests at the date of the original business combination and the
minority’s share of the changes in equity since the date of the combination.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Where necessary, adjustments are made to the financial statements of the associates, joint ventures and any newly acquired
subsidiaries to bring their accounting policies into line with those used by the Group. When an entity has an accounting
reference date other than 31 December, due to the influence of a co-shareholder or customer requirements, the consolidation
includes management accounts, prepared using these Group accounting policies, drawn up for the year ended 31 December.
Where a Group company is party to a jointly-controlled operation, that company proportionately accounts for its share of
the income and expenditure, assets, liabilities and cash flows on a line-by-line basis. Such arrangements are reported in the
consolidated financial statements on the same basis.
114
Strategic Report
Financial Statements
(b) Business combinations
Business combinations are accounted for using the acquisition accounting method. The cost of the acquisition is measured at the
aggregate of the fair values, at the date of acquisition, of assets given, liabilities incurred or assumed and equity instruments
issued by the Group in exchange for control of the acquired company. The acquired company's identifiable assets, liabilities
and contingent liabilities are recognised at their fair value as at the acquisition date. Before the adoption of IFRS 3 (revised),
the cost of acquisition included any costs directly attributable to the business combination. Costs incurred on acquisitions
completed since 1 January 2010, the date of adoption of the revision to IFRS 3, are expensed.
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of
the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as an asset and reviewed
for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently
reversed.
On disposal of a subsidiary, associate or jointly-controlled entity, the attributable amount of goodwill is included in the
determination of the profit or loss on disposal.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP value at that
date, subject to being subsequently tested for impairment. Goodwill written off to reserves under UK GAAP prior to 1998
has not been reinstated and is not included in determining any subsequent profit or loss on disposal. Goodwill arising on the
acquisition of shares in associated undertakings is included within investments in associated undertakings.
The level of non-controlling interests in the acquired company is initially measured at the minorities' proportion of the net fair
value of the assets, liabilities and contingent liabilities recognised.
(c) Foreign currency
Transactions denominated in foreign currency are translated at the rates ruling at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the rates ruling at
that date. These translation differences are dealt with in the profit for the year.
The financial results and cash flows of foreign subsidiaries, associated undertakings and joint ventures are translated into
sterling at the average rate of exchange for the year. The balance sheets are translated into sterling at the closing rate of
exchange, and the difference arising from the translation of the opening net assets and financial results for the year at the
closing rate is taken directly to other comprehensive income.
(d) Revenue
Revenue is measured at the fair value of the consideration received or receivable for goods and services provided, net of trade
discounts, value added and similar sales based taxes, after eliminating revenue within the Group.
Revenue is recognised as follows:
• Construction contracts - by reference to services performed to date as a percentage of total services to be performed
(see note 1(e)).
• Service contracts – the value of work carried out during the year as services are provided, including amounts not invoiced.
Service contracts are billed as work is performed on either a fixed monthly fee plus additional services performed during
the month (on a schedule of rates), or hours worked/tasks performed, again on a schedule of rates basis, in the month. As
service contracts may be based on hours of work performed, and this information is processed from timesheets, accruing of
income at the period end is necessary with invoicing occurring shortly afterwards. Some client billing arrangements do not
coincide with month end or we are contractually entitled to invoice in advance and such income is deferred and recognised
in the period in which it is earned.
• Equipment sales – at the time of delivery.
• Equipment hire – on a straight-line basis over the hire period in accordance with contractual arrangements.
115
GovernanceOverview Notes to the consolidated financial statements continued
for the year ended 31 December 2016
1. Basis of preparation and accounting policies continued
(e) Construction contract accounting
Where the outcome of a contract can be estimated reliably, revenue and costs are recognised by reference to the stage of
completion of the contract activity at the balance sheet date (determined by surveys of work performed by quantity surveyors
in conjunction with clients). Where the outcome of a contract cannot be estimated reliably, revenue is only recognised to the
extent that it is probable that it will be recoverable. Revenue in respect of variations to contracts and incentive payments is
recognised when it is probable it will be agreed by the customer. Revenue in respect of claims is recognised when negotiations
have reached an advanced stage such that it is probable that the customer will accept the claim and the probable amount
can be measured reliably. Profit is only recognised on a construction contract when the final outcome can be assessed with
reasonable certainty. Expected losses are recognised immediately.
(f) Other intangible assets
Intangible assets acquired as part of an acquisition of a business are stated at fair value less accumulated amortisation and any
impairment losses, provided that the fair value can be measured reliably on initial recognition.
Operating software acquired as part of a related item of hardware is capitalised within property, plant and equipment along
with the hardware acquired. Other software licences acquired are capitalised, along with the cost to bring the software into
use, within intangible assets.
Other intangible assets are amortised over their useful economic lives on a straight-line basis, typically between three and ten
years.
(g) Property, plant and equipment
(i)
Owned property, plant and equipment - tangible fixed assets are carried at historical cost less any accumulated
depreciation and any impairment losses. Properties in the course of construction are carried at cost less any recognised
impairment loss. Depreciation is charged so as to write off the cost of assets to their presumed residual value over their
expected useful lives.
Depreciation is provided on a straight-line or reducing-balance basis at rates ranging between:
Freehold land
Freehold buildings
Leasehold property
Straight line
Nil
2% to 7%
Over the period of the lease
Reducing balance
-
-
-
Plant and equipment
10% to 50%
11.5% to 38%
(ii) Property, plant and equipment held under finance leases are capitalised and depreciated over their expected useful lives.
The finance charges are allocated over the primary period of the lease in proportion to the capital element outstanding.
(h) Impairment of tangible and other intangible assets
The Group reviews, at least annually, the carrying amounts of its tangible and intangible assets compared to their recoverable
amounts to determine whether those assets have suffered an impairment loss (see note 12). Where an impairment loss
subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so
that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment
loss been recognised for the asset in prior years.
(i)
Investments
Investments are held at fair value at the balance sheet date. Investments are financial assets and are classified as fair value
through the profit or loss. Gains or losses arising from the changes in fair value are included in the income statement in the
period in which they arise.
116
Strategic Report
Financial Statements
(j)
Inventories
Inventories are stated at the lower of cost and net realisable value. The cost of inventories is calculated using the weighted
average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to
be incurred in marketing, selling and distribution.
(k) Borrowing costs
Project-specific finance costs are capitalised until the asset becomes operational. All other borrowing costs are recognised in
the income statement using the effective interest method.
(l) PFI bid costs and other pre-contract costs
In the case of PFI bid costs, on financial close of the project the Group recovers bid costs by charging a fee to the relevant
project company. If the fee exceeds the amount held by the Group as an asset, the excess is credited to the balance sheet as
deferred income and is released to the income statement over the construction and early start-up period. If the agreed fee is
less than the amount held by the Group as an asset, the loss is recognised as soon as it is anticipated.
Other pre-contract costs are recognised as expenses as incurred, except that directly attributable costs are recognised as
an asset when it is virtually certain that a contract will be obtained and the contract is expected to result in future net cash
inflows. Virtual certainty of a contract award is a subjective assessment, but normally arises on appointment as preferred
bidder or notification from the prospective customer of their intent to appoint Interserve.
(m) Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all risks and rewards of ownership
to the lessee. All other leases are classified as operating leases.
Finance leases are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present
value of the minimum lease payments. Lease payments are apportioned between the finance charges and the reduction of the
lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are reflected
in the income statement.
Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.
(n) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. 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.
(o) Financial instruments
Trade receivables
Trade receivables are initially measured at fair value. Appropriate allowances for estimated irrecoverable amounts are
recognised in the income statement where there is objective evidence that the asset is impaired. Trade receivables are financial
assets and classified as loans and receivables.
Cash and deposits
Cash and deposits comprise cash on hand and demand deposits and other short-term, highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Cash and deposits are
financial assets and are classified as loans and receivables.
Borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges,
including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the
income statement and are added to the carrying amount of the instrument to the extent that they are not settled in the period
in which they arise. Borrowings are measured at amortised cost.
117
GovernanceOverview Notes to the consolidated financial statements continued
for the year ended 31 December 2016
1. Basis of preparation and accounting policies continued
(o) Financial instruments continued
Trade payables
Trade payables are other financial liabilities initially measured at fair value and subsequently measured at amortised cost using
the effective interest rate method.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Derivative financial instruments and hedge accounting
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the
contractual provisions of the instrument.
Transactions in derivative financial instruments are for risk management purposes only. The Group uses derivative financial
instruments to hedge its exposure to interest rate and foreign currency risk. To the extent that such instruments are matched to
underlying assets or liabilities, they are accounted for using hedge accounting.
Derivatives are initially recognised at fair value at the date a derivative contract is taken out and subsequently remeasured at
fair value at each balance sheet date. Changes in fair value of derivative instruments that are designated as, and effective as,
hedges of future cash flows and net investments are recognised directly in the other comprehensive income statement. Any
ineffective portion is recognised immediately in the income statement.
Amounts deferred in other comprehensive income 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 other comprehensive
income are transferred from other comprehensive income 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 other comprehensive
income at that time is retained in other comprehensive income until the forecast transaction occurs. If a hedged transaction is
no longer expected to occur, any cumulative gain or loss recognised in other comprehensive income is transferred to the income
statement for the period.
Changes in fair value of derivative instruments that do not qualify for hedge accounting, or have not been designated as hedges,
are recognised in the income statement as they arise. These derivative instruments are designated as fair value through the
profit or loss (FVTPL).
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their
economic risks and characteristics are not closely related to those of the host contracts and the host contracts are not carried
at fair value.
(p) Share-based payments
The Group has applied the requirements of IFRS 2 Share-based payment.
The Group issues share-based payments to certain employees. The fair value determined at the grant date is expensed on
a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. Fair value
is measured by use of an appropriate valuation model. The Black-Scholes option pricing model has been used to value the
Sharesave Scheme. A stochastic model has been used to value the Performance Share Plan.
(q) PFI projects
Treatment on consolidation
The Group's investments in PFI jointly-controlled entities ("Joint ventures - PFI Investments") are accounted for under the equity
method.
Treatment in the underlying joint-venture entity
The joint-venture entities have determined the appropriate treatment of the principal assets of, and income streams from, PFI
and similar contracts. The balance of risks and rewards derived from the underlying assets is not borne by the entities, and
therefore the asset provided is accounted for as a financial asset and is classified as available-for-sale.
118
Strategic Report
Financial Statements
Income is recognised on PFI projects both as operating revenue and interest income: a proportion of total cash receivable is
allocated to operating revenue by means of a margin on service costs taking account of operational risks, and interest income
on the financial asset is recognised in the income statement using the effective interest method. The residual element is
allocated to the amortisation of the financial asset.
The fair value of the financial asset is measured at each balance sheet date by computing the discounted future value of the
cash flow allocated to the financial asset. Discount rates are determined using long-term interest rates, subject to a floor, plus
risk factors specific to individual projects.
Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised directly in other
comprehensive income until the asset is disposed of or is determined to be impaired, at which time the cumulative gain or loss
previously recognised in other comprehensive income is included in the income statement for the period.
(r) Pensions
The Group has both defined benefit and defined contribution pension schemes for the benefit of permanent members of staff.
For the defined benefit schemes the cost of providing benefits is determined using the projected unit credit method, with
actuarial valuations being carried out at each balance sheet date.
Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised directly in other
comprehensive income and presented in the statement of comprehensive income.
For defined contribution schemes, the amount recognised in the income statement is equal to the contributions payable to the
schemes during the year.
(s) Taxation
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or
substantively enacted by the balance sheet date. The Group's research and development activities allow it to claim R&D tax
credits from HMRC in respect of qualifying expenditure; these credits are reflected in the income statement in cost of sales.
Deferred tax assets and liabilities are calculated at the rates at which they are likely to reverse in the tax jurisdiction to which
they relate.
Deferred tax is provided in full on temporary differences which arise between the carrying value of an asset or liability and its
tax base. Deferred tax assets are recognised to the extent that it is probable that there will be sufficient profits in the future
to enable the assets to be utilised and reviewed at least annually. Deferred tax liabilities are normally recognised for all taxable
temporary differences. Deferred tax assets and liabilities are not discounted.
Deferred tax is charged/credited to the income statement except to the extent that the underlying asset or liability is credited/
charged to equity in which case the deferred tax follows that treatment to equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current
tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
(t) Exceptional items
Exceptional items are those that the Group considers to be non-recurring and significant in size or nature. Exceptional items
include, but are not limited to: transaction and integration costs relating to the acquisition of businesses, earnout arrangements
that are accounted for as remuneration for post-combination services, non-recurring results of exited businesses and costs
associated with significant strategic reviews.
(u) Assets classified as held for sale
Assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs
to sell.
Assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction
rather than continuing for use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal
group) is available for immediate sale in its present condition. Management must be committed to the sale which should be
expected to qualify for recognition as a completed sale within one year from the date of classification.
119
GovernanceOverview Notes to the consolidated financial statements continued
for the year ended 31 December 2016
2. Revenue
An analysis of the Group’s revenue for the year is as follows:
Continuing operations
Provision of services
Revenue from construction contracts
Equipment sales and leasing income
3. Business and geographical segments
(a) Business segments
Revenue including share
of associates and joint ventures
Consolidated revenue
2016
£million
2015
£million
2016
£million
2015
£million
2,045.9
1,384.6
254.7
3,685.2
2,100.2
1,294.1
234.6
3,628.9
1,957.2
1,032.7
254.7
3,244.6
1,989.6
980.4
234.6
3,204.6
The Group is organised into three operating divisions, as set out below. Information reported to the Executive Board for the
purposes of resource allocation and assessment of segment performance is based on the products and services provided.
- Support Services: provision of outsourced support services to public- and private-sector clients, both in the UK and
internationally.
- Construction: design, construction and maintenance of buildings and infrastructure, both in the UK and internationally.
- Equipment Services: design, hire and sale of formwork, falsework and associated access equipment.
Costs of central services, including the financial impact of our PFI investments, are shown in "Group Services".
120
Strategic Report
Financial Statements
Support Services - UK
Support Services - International
Support Services
Construction - UK
Construction - International
Construction
Equipment Services
Group Services
Inter-segment elimination
Revenue including share of
associates and joint ventures
Consolidated revenue
Result
2016
£million
2015 #
£million
2016
£million
2015 #
£million
1,798.4
1,881.5
1,775.0
1,834.4
267.9
224.3
211.9
170.4
2,066.3
2,105.8
1,986.9
2,004.8
971.4
296.9
894.9
279.0
971.4
894.9
-
-
1,268.3
1,173.9
971.4
894.9
224.1
81.3
(50.1)
207.0
53.9
(61.6)
224.1
17.0
(50.1)
207.0
9.6
(61.6)
2016
£million
80.8
6.2
87.0
(3.1)
16.9
13.8
48.6
(25.2)
-
2015 #
£million
92.2
8.2
100.4
10.7
13.0
23.7
44.5
(23.6)
-
Exceptional items and amortisation of acquired intangible
assets (note 5)
95.3
149.9
95.3
149.9
(200.6)
(49.1)
Revenue/total operating profit/(loss)
3,685.2
3,628.9
3,244.6
3,204.6
(76.4)
95.9
3,589.9
3,479.0
3,149.3
3,054.7
124.2
145.0
Investment revenue
Finance costs
Profit/(loss) before tax
Tax
Profit/(loss) for the year
# restated (note 1)
Support Services - UK
Support Services - International
Support Services
Construction - UK
Construction - International
Construction
5.6
(23.3)
(94.1)
(7.5)
(101.6)
4.7
(21.1)
79.5
(9.3)
70.2
Segment assets
Segment liabilities
Net assets/(liabilities)
2016
£million
372.4
128.6
501.0
255.4
63.6
319.0
2015
£million
402.0
112.1
514.1
266.1
62.1
328.2
2016
£million
2015
£million
2016
£million
(383.5)
(344.2)
(11.1)
(73.4)
(57.1)
(456.9)
(401.3)
55.2
44.1
(434.6)
(318.7)
(179.2)
-
-
63.6
2015
£million
57.8
55.0
112.8
(52.6)
62.1
(434.6)
(318.7)
(115.6)
9.5
Equipment Services
290.8
262.3
(64.4)
(48.2)
Group Services, goodwill and acquired intangible assets
553.9
609.0
1,110.8
1,104.6
(955.9)
(92.2)
(768.2)
(136.1)
1,664.7
1,713.6
(1,048.1)
(904.3)
Net debt
Net assets (excluding non-controlling interests)
226.4
154.9
461.7
616.6
214.1
336.4
472.9
809.3
(274.4)
(308.8)
342.2
500.5
121
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
3. Business and geographical segments continued
(a) Business segments continued
Support Services - UK
Support Services - International
Support Services
Construction - UK
Construction - International
Construction
Equipment Services
Group Services
(b) Geographical segments
Depreciation and amortisation
Additions to property, plant and equipment
and intangible assets
2016
£million
12.4
4.5
16.9
3.1
-
3.1
17.8
37.8
31.1
68.9
2015
£million
12.0
3.7
15.7
2.6
-
2.6
17.2
35.5
31.7
67.2
2016
£million
29.5
2.1
31.6
3.7
-
3.7
28.4
63.7
5.5
69.2
2015
£million
15.7
3.9
19.6
3.6
-
3.6
36.0
59.2
9.4
68.6
The Support Services and Construction divisions are located in the United Kingdom and the Middle East. Equipment Services has
operations in all of the geographic segments listed below.
The following table provides an analysis of the Group’s sales by geographical market, irrespective of the origin of the goods/
services:
United Kingdom
Rest of Europe
Middle East & Africa
Australasia
Far East
Americas
Group Services
Inter-segment elimination
Revenue including share
of associates and joint ventures
Consolidated revenue
Total operating profit
2016
£million
2015 #
£million
2016
£million
2015 #
£million
2,738.0
2,751.6
2,714.6
2,704.5
54.1
675.4
29.4
26.0
35.8
81.3
47.9
612.1
24.1
23.6
27.4
53.9
54.1
322.5
29.4
26.0
35.8
17.0
47.9
279.2
24.1
23.6
27.4
9.6
(50.1)
(61.6)
(50.1)
(61.6)
2016
£million
80.6
3.1
45.6
6.4
11.7
2.0
(25.2)
-
2015 #
£million
108.5
0.7
46.1
3.8
9.7
(0.2)
(23.6)
-
3,589.9
3,479.0
3,149.3
3,054.7
124.2
145.0
Exceptional items and amortisation of acquired intangible
assets (note 5)
95.3
149.9
95.3
149.9
(200.6)
(49.1)
3,685.2
3,628.9
3,244.6
3,204.6
(76.4)
95.9
# restated (note 1)
122
Strategic Report
Financial Statements
United Kingdom
Rest of Europe
Middle East & Africa
Australasia
Far East
Americas
Group Services, goodwill and acquired intangible assets
Retirement benefit surplus
Deferred tax asset
Non-current assets
2016
£million
124.8
4.9
186.6
17.9
17.8
34.1
505.2
891.3
-
18.6
909.9
2015
£million
108.7
3.5
177.4
13.4
12.7
26.4
528.1
870.2
17.2
1.3
888.7
Included in consolidated revenue above are revenues of approximately £106 million (2015: £105 million) which arose from sales
to the Group’s largest contract customer.
4. Profit for the year
Profit for the year has been arrived at after charging/(crediting):
Depreciation of property, plant and equipment:
On owned assets
On assets held under finance leases
Amortisation of capitalised software development
Gain on disposal of plant and equipment - hire fleet
Gain on disposal of plant and equipment - other
Amortisation of acquired intangible assets (subsidiary undertakings)
Amortisation of acquired intangible assets (associated undertakings)
Rentals under operating leases:
Hire of plant and machinery
Other lease rentals
Cost of inventories recognised in cost of sales
Staff costs
Auditors’ remuneration for audit services (see overleaf)
Notes
14
14
13
13
15
6
2016
£million
36.8
0.8
1.4
(16.0)
-
29.8
0.1
43.5
44.4
36.3
1,153.7
1.1
2015
£million
34.4
0.4
1.3
(12.7)
(0.2)
31.0
0.1
46.5
29.8
40.2
1,117.4
1.0
123
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
4. Profit for the year continued
A more detailed analysis of auditors’ remuneration on a worldwide basis is provided below:
Fees payable to the Company's auditors for the audit of the Company's annual accounts
The audit of the Company's subsidiaries pursuant to legislation
Total audit fees
Audit-related assurance services
Other services
Total non-audit fees
Total fees paid to the Company's auditors
2016
£million
2015
£million
0.2
0.9
1.1
0.1
0.1
0.2
1.3
0.2
0.8
1.0
0.1
-
0.1
1.1
An explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the
auditors is set out in the Audit Committee Report on page 58.
124
Strategic Report
Financial Statements
5. Exceptional items and amortisation of acquired intangible assets
2016
2015
Exited businesses1
Exited businesses1
Strategic
review of
Equipment
Services
£million
Transaction
and
integration
costs
£million
Amortisation
of acquired
intangible
assets
£million
Total
£million
Energy from
Waste
£million
Strategic
review of
Equipment
Services
£million
Transaction
and
integration
costs
£million
Amortisation
of acquired
intangible
assets
£million
Consolidated revenue
Cost of sales
Gross profit/(loss)
Administration expenses
Amortisation of acquired
intangible assets
Transaction costs on acquisitions
Integration costs on acquisitions
Earnout arrangements on
the acquisition of Paragon
Management UK Ltd
Total administration expenses
Energy from
Waste
£million
91.0
(251.0)
(160.0)
-
-
-
-
-
-
4.3
(2.1)
2.2
(12.9)
-
-
-
-
(12.9)
Operating profit/(loss)
(160.0)
(10.7)
Amortisation of acquired
intangible assets of associates
-
-
Total operating profit/(loss)
(160.0)
(10.7)
Tax on exceptional items
On exited business
Amortisation of acquired
intangible assets
Transaction costs on acquisitions
Integration costs on acquisitions
Earnout arrangements on
the acquisition of Paragon
Management UK Ltd
Tax on exceptional items
-
-
-
-
-
-
-
-
-
-
-
-
Profit/(loss) after taxation
(160.0)
(10.7)
-
-
-
-
95.3
145.9
(253.1)
(167.4)
(157.8)
(21.5)
4.0
(2.1)
1.9
(12.9)
10.9
(4.5)
(29.8)
(29.8)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(29.8)
(42.7)
10.9
(29.8)
(200.5)
(10.6)
(4.5)
(2.6)
Total
£million
149.9
(169.5)
(19.6)
6.4
-
-
-
-
(31.0)
(31.0)
-
-
-
(0.2)
(2.8)
(1.8)
(31.0)
(29.4)
-
-
-
-
-
(0.2)
(2.8)
(1.8)
(4.8)
(4.8)
(31.0)
(49.0)
(0.1)
(0.1)
-
-
-
(0.1)
(0.1)
(29.9)
(200.6)
(10.6)
(2.6)
(4.8)
(31.1)
(49.1)
-
-
2.1
4.7
4.7
-
-
-
-
-
-
-
-
-
-
4.7
4.7
2.1
-
-
-
-
-
-
-
-
-
0.6
-
0.6
-
5.8
-
-
-
5.8
2.1
5.8
-
0.6
-
8.5
(25.2)
(195.9)
(8.5)
(2.6)
(4.2)
(25.3)
(40.6)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 The construction of Energy from Waste facilities, where there was contractual responsibility taken for process risk, and business streams exited as a result of the
strategic review of Equipment Services, along with directly associated costs, are considered to be exited businesses. Exited businesses are presented as exceptional
items and are excluded from the calculation of headline earnings per share (reflecting their material and non-recurring nature). The exited businesses do not meet
the definition of discontinued operations as stipulated by IFRS 5 Non-current assets held for sale and discontinued operations because the business has not been
disposed of and there are no assets classified as held for sale. Accordingly the disclosures within exceptional items differ from those applicable for discontinued
operations.
125
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
5. Exceptional items and amortisation of acquired intangible assets continued
Exit from Energy from Waste
During the year we took the decision to exit business where we take contractual responsibility for process risk on the
construction of Energy from Waste facilities. This Exited Business comprises six contracts with aggregate whole-life revenues of
£430 million that we entered into between mid-2012 and early 2015. We expect to complete substantially all of our works during
2017 and that the impact of these contracts will be contained within the £160 million exceptional loss recognised in the year.
These contracts, most notably the project in Glasgow, have been impacted by issues relating to the design, procurement and
installation of the gasification plant. Progress on these issues was adversely affected by sub-contractor insolvencies and the
consequential impacts on project timing and costs. On 15 November 2016, we announced that we had been served notice of
termination on the Glasgow project. The termination, along with a detailed review of operational developments on the other
contracts, are the main reasons for the increase in the loss over the £70 million recognised in the half-year statements.
The exceptional loss of £160 million reflects costs incurred to date, estimates of costs to complete, and damages. It is stated
net of expectations for further contractual income entitlements from our customers and recoveries from professional indemnity
insurance policies on a number of separate issues relating to design. Cash outflows of c£60 million are expected during 2017
as the income statement charge is utilised, the majority of which is included within accruals at the year end. The amounts
recognised are inherently judgemental but are based on legal and professional advice received and reflect our current best
estimates of the most probable net outflows. We will vigorously pursue our legal entitlements in closing these contracts out.
Managing the challenges of exiting from these complex projects remains the sole priority for the large, experienced team of
commercial, operational and legal experts we have deployed and will remain an area of critical focus for the Board during 2017.
Strategic review of Equipment Services
In October 2016, we announced the conclusion of a strategic review of our Equipment Services operations. The review
concluded that Interserve remains the best owner of the business and that it was to remain a core part of the Group but with an
updated strategy.
As a direct result of the updated strategy, these results include £10.7 million of exceptional losses relating to decisions made
in that review which include the exit from a number of smaller and less attractive markets and the cessation of a number
of less profitable product lines. The results of markets in the process of being exited are treated as exceptional (as are their
comparatives) along with closure costs, legal and professional fees and impairment charges on exited product lines.
Further closure costs (of approximately £7 million) resulting from the review are anticipated that, as at the end of 2016, do
not yet meet the requirements for recognition under IAS 37 Provisions, contingent liabilities and contingent assets and will be
recognised in 2017.
126
Strategic Report
Financial Statements
6. Staff costs
The average number of full-time equivalent employees within each division during the year, including executive directors, was:
Support Services
Construction
Equipment Services
Group Services
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Share-based payments
Other pension costs (see below)
Defined benefit scheme current service costs (note 29)
Other UK - defined contribution
Other overseas - defined contribution
Pension costs
2016
Number
41,825
2,587
1,444
390
46,246
2015
Number
42,942
2,546
1,387
341
47,216
2016
£million
2015
£million
1,038.6
1,006.5
88.3
(0.4)
27.2
82.8
0.3
27.8
1,153.7
1,117.4
5.7
20.2
1.3
27.2
7.2
19.5
1.1
27.8
Detailed disclosures of directors’ aggregate and individual remuneration and share-based payments are given in the Directors’
Remuneration Report on pages 62 to 76 and should be regarded as an integral part of this note.
7.
Investment revenue
Bank interest
Interest income from joint-venture Investments
Net return on defined benefit pension assets (note 29)
Other interest
8. Finance costs
Borrowings and overdrafts
2016
£million
2015
£million
3.1
0.7
1.1
0.7
5.6
2016
£million
(23.3)
3.1
1.2
0.3
0.1
4.7
2015
£million
(21.1)
127
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
9. Tax
Current tax - UK
Current tax - overseas
Deferred tax (note 16)
Tax charge for the year
Tax charge before prior period adjustments
Prior period adjustments - charges/(credits)
Profit/(loss) before tax
Subsidiary undertakings' profit before tax, excluding one-offs
Non-tax-effected exceptional costs - exited businesses
Non-tax-deductible exceptional costs - transaction costs
Group share of profit after tax of associates and joint ventures
A
A
B
Effective tax rate, excluding one-offs, on subsidiary profits before tax
A/B
2016
£million
2015
£million
2.1
6.4
(1.0)
7.5
7.2
0.3
7.5
54.1
(170.7)
-
22.5
(94.1)
13.9%
7.0
5.9
(3.6)
9.3
9.4
(0.1)
9.3
59.8
(2.6)
(0.2)
22.5
79.5
15.6%
UK corporation tax is calculated at 20.0% (2015: 20.25%) of the estimated taxable profit for the year. Taxation for other
jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.
The total charge for the year can be reconciled to the profit per the income statement as follows:
Profit/(loss) before tax
Tax at the UK income tax rate of 20.0% (2015: 20.25%)
Tax effect of expenses not deductible in
determining taxable profit
Non-tax-effected exceptional items
Tax effect of share of results of associates
Effect of overseas tax rates and unrelieved losses
Effect of change in rate of deferred tax
Prior period adjustments
b
Tax charge and effective tax rate for the year
b
2016
£million
(94.1)
(18.8)
1.2
34.1
(4.5)
(4.2)
(0.6)
0.3
7.5
2015
%
£million
%
20.0%
(1.3%)
(36.2%)
4.8%
4.5%
0.6%
(0.3%)
(8.0%)
79.5
16.1
0.5
0.4
(3.2)
(4.4)
-
(0.1)
9.3
20.2%
0.6%
0.5%
(4.0%)
(5.5%)
0.0%
(0.1%)
11.7%
128
Strategic Report
Financial Statements
In addition to the income tax charged to the income statement, the following deferred tax charges/(credits) have been recorded
directly to other comprehensive income and to statement of changes in equity in the year:
Tax on actuarial losses/gains on pension liability
Tax on movements in cash flow hedging instruments
Tax on exchange movements on hedged financial instruments
Tax on the intrinsic value of share-based payments
10. Dividends
Final dividend for the year ended 31 December 2014
Interim dividend for the year ended 31 December 2015
Final dividend for the year ended 31 December 2015
Interim dividend for the year ended 31 December 2016
Amount recognised as distribution to equity holders in the period
11. Earnings per share
Calculation of earnings per share is based on the following data:
Earnings
2016
£million
(15.3)
6.4
(7.3)
0.1
(16.1)
2016
£million
-
-
23.7
11.8
35.5
2016
£million
Dividend
per share
pence
15.5
7.9
16.4
8.1
Net profit attributable to equity holders of the parent (for basic and diluted basic earnings per share)
(103.7)
Adjustments:
Exceptional items and amortisation of acquired intangible assets (note 5)
Headline earnings (for headline and diluted headline earnings per share)
195.9
92.2
# restated (note 1)
2015
£million
1.1
4.0
(2.2)
0.9
3.8
2015
£million
22.2
11.5
-
-
33.7
2015 #
£million
68.9
40.6
109.5
129
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
11. Earnings per share continued
Number of shares
Weighted average number of ordinary shares for the purposes of basic and
headline earnings per share
Effect of dilutive potential ordinary shares:
Share options and awards1
2016
Number
2015
Number
145,606,147
144,936,757
291,221
942,442
Weighted average number of ordinary shares for the purposes of diluted basic1 and
diluted headline earnings per share
145,897,368
145,879,199
Earnings per share
Basic earnings per share
Diluted basic earnings per share
Headline earnings per share
Diluted headline earnings per share
2016
pence
(71.2)
(71.2)
63.3
63.2
2015 #
pence
47.5
47.2
75.6
75.1
1 Due to basic earnings per share being a loss in 2016 these adjustments are anti-dilutive and are therefore ignored in calculating diluted basic earnings per share
for 2016
# restated (note 1)
12. Goodwill
Cost
At 1 January
Exchange movements
At 31 December
Accumulated impairment
At 1 January and 31 December
Carrying amount
At 31 December
130
2016
£million
488.6
8.4
497.0
2015
£million
487.1
1.5
488.6
60.0
60.0
437.0
428.6
Strategic Report
Financial Statements
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected
to benefit from that business combination as follows:
At 1 January 2015
Exchange movements
At 31 December 2015
Exchange movements
At 31 December 2016
Construction
£million
Support Services
£million
Equipment Services
£million
11.9
-
11.9
-
11.9
414.3
1.5
415.8
8.3
424.1
0.9
-
0.9
0.1
1.0
Total
£million
427.1
1.5
428.6
8.4
437.0
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.
The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in
use calculations are those regarding the discount rates, cash flows, growth rates and margins during the period. Management
estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks
specific to the CGUs. The revenue growth rates and margins are based on current Board-approved budgets and forecasts based
on prevailing market conditions and expert forecasts. The Group produces three-year plans and then projects a further year
based on growth rates of 2.5%, followed by a terminal value based on a perpetuity calculated at a nominal 2.5% growth which
does not exceed current market growth rates.
The rates used to discount the future cash flows range from 8.4% for Support Services (2015: 7.8%) to 9.4% for Construction and
Equipment Services (2015: 8.8%) and are based on the Group's pre-tax weighted average cost of capital.
As part of this annual review a sensitivity analysis was performed on the impairment test of each CGU, including an increase in
the discount rate of up to 2.0%. No impairment in the carrying value of the goodwill in Support Services, Equipment Services or
Construction would occur as a result of adopting this sensitivity.
131
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
13. Other intangible assets
Cost
At 1 January 2015
Additions
Exchange movements
At 31 December 2015
Additions
Exchange movements
At 31 December 2016
Accumulated amortisation
At 1 January 2015
Charge for the year
Exchange movements
At 31 December 2015
Charge for the year
Exchange movements
At 31 December 2016
Carrying amount
At 31 December 2016
At 31 December 2015
At 1 January 2015
Acquired
Computer
software
£million
Customer
relationships
£million
Other
£million
15.2
6.4
-
21.6
16.2
-
37.8
10.0
1.3
-
11.3
1.4
-
12.7
25.1
10.3
5.2
175.5
-
0.5
176.0
-
2.0
178.0
64.6
30.7
0.3
95.6
29.5
1.7
126.8
51.2
80.4
110.9
3.0
-
-
3.0
-
0.4
3.4
1.8
0.3
-
2.1
0.3
0.3
2.7
0.7
0.9
1.2
Total
£million
193.7
6.4
0.5
200.6
16.2
2.4
219.2
76.4
32.3
0.3
109.0
31.2
2.0
142.2
77.0
91.6
117.3
Useful lives
5 years
5-10 years
3-5 years
The useful life and amortisation period of each group of intangible assets varies according to the underlying length of benefit
expected to be received.
132
Strategic Report
Financial Statements
14. Property, plant and equipment
(a) Movements
Cost
At 1 January 2015
Additions
Disposals
Exchange differences
At 31 December 2015
Additions
Disposals
Exchange differences
At 31 December 2016
Accumulated depreciation
At 1 January 2015
Charge for the year
Eliminated on disposals
Exchange differences
At 31 December 2015
Charge for the year
Eliminated on disposals
Exchange differences
At 31 December 2016
Carrying amount
At 31 December 2016
At 31 December 2015
At 1 January 2015
Land and
buildings
£million
26.0
7.4
(0.7)
0.1
32.8
2.3
(8.1)
3.5
30.5
11.8
1.8
(0.7)
0.1
13.0
1.7
(0.8)
2.0
15.9
14.6
19.8
14.2
Hire
fleet
£million
252.3
37.5
(18.0)
(1.5)
270.3
30.9
(24.6)
38.8
Other
plant and
equipment
£million
114.5
17.3
(7.6)
2.7
126.9
19.8
(13.6)
17.1
Total
£million
392.8
62.2
(26.3)
1.3
430.0
53.0
(46.3)
59.4
315.4
150.2
496.1
116.7
17.2
(14.8)
(1.5)
117.6
18.1
(19.0)
12.9
129.6
185.8
152.7
135.6
69.6
15.8
(6.2)
2.1
81.3
17.8
(12.3)
13.4
100.2
50.0
45.6
44.9
198.1
34.8
(21.7)
0.7
211.9
37.6
(32.1)
28.3
245.7
250.4
218.1
194.7
The carrying amount of the Group’s plant and equipment includes an amount of £4.6 million (2015: £2.3 million) in respect of
assets held under finance leases. Details of property, plant and equipment held under finance leases are shown in note 24.
133
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
14. Property, plant and equipment continued
(b) Carrying amount of land and buildings
Freehold:
Land at cost
Buildings at cost less depreciation
Leaseholds under 50 years at cost less depreciation
(c) Future capital expenditure not provided for in the financial statements
Committed
15. Interests in associates and joint-venture entities
(a) Results of joint-venture entities and associated undertakings
The aggregate results of joint-venture entities and associated undertakings were as follows:
31 December
2016
£million
31 December
2015
£million
3.3
7.2
10.5
4.1
14.6
9.5
6.0
15.5
4.3
19.8
31 December
2016
£million
31 December
2015
£million
0.5
4.9
Year ended 31 December 2016
Year ended 31 December 2015
Joint ventures
£million
Associates
£million
Total
£million
Joint ventures
£million
Associates
£million
Total
£million
Revenues
157.7
794.7
952.4
130.8
797.8
928.6
Operating profit
Net interest receivable
Taxation
Profit after tax
Less: Profit after tax attributable to non-Group interests
Profit after tax attributable to the Group
Group amortisation of acquired intangible assets
Contribution to Group total operating profit
Dividends paid to the Group
2.0
1.9
(1.0)
2.9
(1.7)
1.2
-
1.2
(0.4)
44.3
0.3
(1.5)
43.1
(21.7)
21.4
(0.1)
21.3
(33.7)
46.3
2.2
(2.5)
46.0
(23.4)
22.6
(0.1)
22.5
(34.1)
Retained result for the period attributable to the Group
0.8
(12.4)
(11.6)
2.8
2.1
(0.9)
4.0
(2.4)
1.6
-
1.6
(0.9)
0.7
42.0
0.1
(1.0)
41.1
(20.1)
21.0
(0.1)
20.9
(12.7)
8.2
44.8
2.2
(1.9)
45.1
(22.5)
22.6
(0.1)
22.5
(13.6)
8.9
134
Strategic Report
Financial Statements
(b) Joint-venture entities
(i) Results and net assets
The aggregate results of joint ventures were as follows:
Year ended 31 December 2016
Year ended 31 December 2015
Support
Services
£million
Group
Services
£million
Total
£million
Support
Services
£million
Group
Services
£million
Total
£million
Revenues
13.7
144.0
157.7
19.6
111.2
130.8
Operating profit
Net interest receivable
Taxation
Profit after tax
Less: Profit after tax attributable to non-Group interests
Profit after tax attributable to the Group
Group amortisation of acquired intangible assets
Contribution to Group total operating profit
Dividends paid to the Group
Retained result for the period attributable to the Group
0.6
-
-
0.6
(0.3)
0.3
-
0.3
(0.3)
-
1.4
1.9
(1.0)
2.3
(1.4)
0.9
-
0.9
(0.1)
0.8
2.0
1.9
(1.0)
2.9
(1.7)
1.2
-
1.2
(0.4)
0.8
1.4
-
-
1.4
(0.7)
0.7
-
0.7
(0.7)
-
1.4
2.1
(0.9)
2.6
(1.7)
0.9
-
0.9
(0.2)
0.7
2.8
2.1
(0.9)
4.0
(2.4)
1.6
-
1.6
(0.9)
0.7
There are no significant restrictions on the ability of joint ventures to pay dividends or repay loans if agreed by the shareholders.
The net assets of joint-venture entities were as follows:
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Less: Net assets attributable to non-Group interests
Net assets attributable to the Group
Goodwill
Acquired intangible assets
Carrying value of net assets and goodwill
Year ended 31 December 2016
Year ended 31 December 2015
Support
Services
£million
-
2.3
(2.3)
Group
Services
£million
225.0
300.3
(23.5)
Total
£million
225.0
302.6
(25.8)
Support
Services
£million
0.1
3.1
(3.2)
Group
Services
£million
322.6
282.7
(21.6)
Total
£million
322.7
285.8
(24.8)
-
-
-
-
-
-
-
(409.8)
(409.8)
92.0
(50.4)
92.0
(50.4)
41.6
41.6
-
-
-
-
41.6
41.6
-
-
-
-
-
-
-
(491.2)
(491.2)
92.5
(51.6)
40.9
-
-
92.5
(51.6)
40.9
-
-
40.9
40.9
The liabilities of the joint-venture entities principally relate to the non-recourse debt within those businesses as part of funding
the construction of the underlying asset.
135
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
15. Interests in associates and joint-venture entities continued
(b) Joint-venture entities continued
(ii) Movements in the year
At 1 January 2015
Acquisitions and advances
Repayments to the Group
Fair value adjustment to financial instruments and derivatives
Share of retained profits
At 31 December 2015
Acquisitions and advances
Repayments to the Group
Disposals
Fair value adjustment to financial instruments and derivatives
Share of retained profits
At 31 December 2016
Shares
£million
Loans
£million
-
0.1
-
-
-
0.1
-
-
-
-
-
0.1
28.0
6.6
(0.1)
-
-
34.5
9.8
-
(4.0)
-
-
40.3
Share of
reserves
£million
14.7
-
-
(9.1)
0.7
6.3
-
-
(0.6)
(5.3)
0.8
1.2
Total
£million
42.7
6.7
(0.1)
(9.1)
0.7
40.9
9.8
-
(4.6)
(5.3)
0.8
41.6
Further details of the Group’s investment in PPP/PFI schemes are included in note 31.
At 31 December 2016 the Group had a commitment for additional investment in joint-venture entities of £32.7 million
(2015: £29.3 million).
(c) Associated undertakings
(i) Results and net assets
The aggregate results of the Group’s various associated undertakings were as follows:
Year ended 31 December 2016
Year ended 31 December 2015
Construction
£million
Support
Services
£million
Total
£million
Construction
£million
Support
Services
£million
Total
£million
Revenues
636.2
158.5
794.7
600.1
197.7
797.8
Operating profit
Net interest receivable
Taxation
Profit after tax
39.3
0.3
(1.1)
38.5
5.0
-
(0.4)
4.6
44.3
0.3
(1.5)
43.1
29.9
0.1
0.1
30.1
Less: Profit after tax attributable to non-Group interests
(19.4)
(2.3)
(21.7)
(14.0)
Profit after tax attributable to the Group
Group amortisation of acquired intangible assets
Contribution to Group total operating profit
Dividends paid to the Group
Retained result for the period attributable to the Group
19.1
-
19.1
(31.0)
(11.9)
2.3
(0.1)
2.2
(2.7)
(0.5)
21.4
(0.1)
21.3
(33.7)
(12.4)
16.1
-
16.1
(8.8)
7.3
12.1
-
(1.1)
11.0
(6.1)
4.9
(0.1)
4.8
(3.9)
0.9
42.0
0.1
(1.0)
41.1
(20.1)
21.0
(0.1)
20.9
(12.7)
8.2
There are no significant restrictions on the ability of associates to pay dividends or repay loans if agreed by the shareholders.
136
Strategic Report
Financial Statements
Total net assets of the associated undertakings were as follows:
Year ended 31 December 2016
Year ended 31 December 2015
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Less: Net assets attributable to non-Group interests
Net assets attributable to the Group
Goodwill
Acquired intangible assets
Construction
£million
57.1
518.7
Support
Services
£million
3.3
79.7
Total
£million
Construction
£million
60.4
598.4
(388.3)
(45.8)
(434.1)
(44.8)
(4.8)
(49.6)
142.7
(80.2)
62.5
1.2
-
32.4
(14.3)
18.1
3.5
-
175.1
(94.5)
80.6
4.7
-
Support
Services
£million
27.5
70.4
(38.5)
(4.5)
54.9
(29.6)
25.3
3.5
0.1
28.9
45.7
469.4
(336.1)
(35.7)
143.3
(82.4)
60.9
1.2
-
62.1
Carrying value of net assets and goodwill
63.7
21.6
85.3
(ii) Movements in the year
At 1 January 2015
Share of retained profits net of amortisation
Exchange differences
At 31 December 2015
Share of retained profits net of amortisation
Exchange differences
At 31 December 2016
Shares
£million
Loans
£million
5.9
-
-
5.9
-
-
5.9
8.9
-
-
8.9
-
-
8.9
Share of
reserves
£million
62.4
8.2
5.6
76.2
(12.4)
6.7
70.5
Total
£million
73.2
539.8
(374.6)
(40.2)
198.2
(112.0)
86.2
4.7
0.1
91.0
Total
£million
77.2
8.2
5.6
91.0
(12.4)
6.7
85.3
137
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
16. Deferred taxation
The following are the major deferred tax assets and (liabilities) recognised by the Group.
At 1 January 2015
(Charge)/credit to income
(Charge)/credit to equity
Exchange differences
At 31 December 2015
(Charge)/credit to income
(Charge)/credit to equity
Exchange differences
At 31 December 2016
Retirement
benefit
obligations
£million
Acquired
intangible
assets
£million
Accelerated
capital
allowances
£million
Trading
losses
£million
Other
temporary
differences
£million
6.7
(6.1)
(1.1)
-
(0.5)
(6.0)
15.3
-
8.8
(21.5)
5.6
-
-
(15.9)
6.9
-
-
2.2
6.1
-
-
8.3
(2.5)
-
-
1.7
(0.5)
-
-
1.2
2.8
-
-
(9.0)
5.8
4.0
12.6
(1.5)
(2.7)
(0.2)
8.2
(0.2)
0.8
0.2
9.0
Total
£million
1.7
3.6
(3.8)
(0.2)
1.3
1.0
16.1
0.2
18.6
Certain deferred tax assets and liabilities, as shown below, have been offset on the consolidated balance sheet.
Deferred tax liabilities
Deferred tax assets
31 December
2016
£million
31 December
2015
£million
(9.0)
27.6
18.6
(16.4)
17.7
1.3
No deferred tax asset has been recognised in respect of certain unused tax losses available for offset against future profits due
to the unpredictability of future profit streams in those businesses. The accumulated tax value of these losses is £41.5 million
(2015: £14.9 million) on gross losses of £244.2 million (2015: £74.6 million).
17. Inventories
Goods held for resale
Materials
31 December
2016
£million
31 December
2015
£million
31 December
2014
£million
28.7
7.8
36.5
32.1
8.0
40.1
40.1
8.5
48.6
138
Strategic Report
Financial Statements
18. Construction contracts
Balances related to contracts in progress at the balance sheet date were:
31 December
2016
£million
31 December
2015
£million
31 December
2014
£million
Amounts due from contract customers included in trade and other receivables
(note 19)
116.9
127.3
Amounts due to contract customers included in trade and other payables
(note 22)
Contract costs incurred plus recognised profits less recognised losses to date
Less: progress billings
(41.6)
75.3
2,176.4
(2,101.1)
75.3
(35.5)
91.8
1,529.6
(1,437.8)
91.8
81.5
(34.0)
47.5
1,432.7
(1,385.2)
47.5
At 31 December 2016, retentions held by customers for contract work amounted to £44.6 million (2015: £38.4 million) of which
£10.7 million (2015: £6.1 million) is receivable after one year. Advances received were £41.6 million (2015: £35.5 million) of which
£nil is repayable after one year (2015: £nil).
19. Trade and other receivables
Amounts recoverable from the sale of goods and services
Allowances for doubtful debts
Amounts due from construction contract customers
Retentions
Other receivables
Prepayments
Accrued income
31 December
2016
£million
31 December
2015
£million
31 December
2014
£million
380.7
(54.3)
326.4
116.9
44.6
43.2
30.2
163.1
724.4
444.5
(46.3)
398.2
127.3
38.4
27.2
34.9
148.9
774.9
418.0
(49.2)
368.8
81.5
36.8
26.7
23.3
142.3
679.4
Included in the above are the following amounts recoverable after more than one year:
Retentions
31 December
2016
£million
31 December
2015
£million
31 December
2014
£million
10.7
6.1
8.9
The directors consider that the carrying amount of trade and other receivables approximates their fair value. Trade and other
receivables are included as part of the financial assets.
Average credit period taken on the sale of goods and services is 32 days (2015: 37 days). Allowances for doubtful debt are
provided for on a specific basis, based on estimates of irrecoverability determined by market knowledge and past experience.
139
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
19. Trade and other receivables continued
Ageing of trade receivables, not impaired but net of allowances for doubtful debt, is as follows:
31 December
2016
£million
31 December
2015
£million
31 December
2014
£million
Not more than one month past due
Between one and three months past due
Between three and six months past due
Greater than six months
Total past due but not impaired
Not past due
Total net receivables
49.0
19.6
23.3
21.9
113.8
212.6
326.4
The average age of the receivables past due but not impaired is 96 days (2015: 82 days).
Movement in allowance for doubtful debt is as follows:
76.9
23.4
22.5
24.0
146.8
251.4
398.2
2016
£million
46.3
(26.8)
34.4
(7.7)
8.1
54.3
65.8
26.0
24.5
17.1
133.4
235.4
368.8
2015
£million
49.2
(21.8)
28.5
(9.6)
-
46.3
Balance at 1 January
Amounts written off as uncollectable
Impairment losses recognised in the year
Amounts recovered during the year
Exchange differences
Balance at 31 December
20. Cash, deposits and borrowings
(a) Cash, deposits and borrowings
Cash and deposits
Bank overdrafts
Bank loans
US Private Placement loan notes1
Finance leases (note 24)
Total borrowings
Per balance sheet
less: Impact of hedges on US Private Placement loan notes1
Net debt
31 December
2016
£million
31 December
2015
£million
31 December
2014
£million
A
113.3
86.1
82.1
(11.1)
(165.0)
(284.4)
(460.5)
(4.4)
(464.9)
(351.6)
77.2
(274.4)
(15.5)
(170.0)
(236.1)
(421.6)
(2.2)
(423.8)
(337.7)
28.9
(308.8)
(5.5)
(137.5)
(225.3)
(368.3)
(0.8)
(369.1)
(287.0)
18.1
(268.9)
B
A+B
1 The US Private Placement Loan notes are shown above after re-translating to year-end closing exchange rates in accordance with IAS 21. As discussed below these
loan balances have been swapped into the fixed sterling equivalent of £207.2 million and this adjustment is to pro forma the statutory borrowing number back to
this balance which the directors believe best represents the commercial substance of the liability. In accordance with IFRS 7, disclosures given below include the
statutory amount as translated at the closing exchange rate.
140
Strategic Report
Financial Statements
Cash and deposits comprise cash held by the Group and short-term bank deposits that have an original maturity of three months
or less. Where deposits earn interest, the interest rates are at floating rates related to UK base rates.
Included within cash and deposits is £38.6 million (2015: £32.3 million) which is subject to various constraints on the Group’s
ability to utilise these balances. These constraints relate to amounts held in project bank accounts, amounts held in accounts
held in entities subject to minority interest shareholdings and the regulatory cash funding requirements relating to the Group’s
captive insurance company.
Total borrowings are repayable as follows:
On demand or within one year
In the second year
In the third to fi th years inclusive
After more than five years
Less: Amount due for settlement within 12 months
Amount due for settlement after 12 months
31 December
2016
£million
31 December
2015
£million
31 December
2014
£million
12.1
0.9
167.0
284.9
464.9
(12.1)
452.8
16.1
0.4
171.0
236.3
423.8
(16.1)
407.7
5.8
0.3
137.7
225.3
369.1
(5.8)
363.3
Amounts are drawn down against facilities on a short-term basis but the ageing of the total amount borrowed is classified
according to the maturity of the facilities. Contractual interest on bank loans, that will accrue between the year end and the
date of rollover of the amounts drawn down, is £0.7 million and is all due for payment within one year (2015: £0.7 million within
one year).
The analysis of utilisation of committed bank facilities is as follows:
Drawn facilities:
US Private Placement loan notes
Bank loans
Undrawn facilities maturing in one to two years
Undrawn facilities maturing in more than two years but not more than five years
Total committed borrowing facilities
(b) Committed borrowing facilities
US Private Placement loan notes
Bank facilities
Total committed borrowing facilities
31 December
2016
£million
31 December
2015
£million
31 December
2014
£million
284.4
165.0
-
135.0
584.4
236.1
170.0
-
130.0
536.1
225.3
137.5
-
112.5
475.3
31 December
2016
£million
31 December
2015
£million
31 December
2014
£million
284.4
300.0
584.4
236.1
300.0
536.1
225.3
250.0
475.3
141
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
20. Cash, deposits and borrowings continued
(b) Committed borrowing facilities continued
The Group has a US$ 350 million issue of US Private Placement loan notes ("loan notes"), which have a weighted average
maturity length of 7.5 years. The loan notes attract differing fixed rates of interest depending on their tenor. This has
been swapped to a fixed sterling equivalent of £207.2 million, along with the associated interest payments, with the use of
derivatives that have been designated as cash flow hedges that are held at fair value (see note 21(b)).
The loan notes are in addition to £300 million of committed bank facilities as at the year end, which mature in 2019. Subsequent
to the year end, arrangements for new bank facilities with all of our existing, and some new, lenders were put in place. As a
result of this exercise, our bank debt capacity has been expanded by an additional £133 million of committed facilities. This
gives the Group committed bank facilities of £433 million, in addition to the loan notes of £207 million at the swapped exchange
rate, and leaves the Group with committed debt facilities of £640 million, with a weighted average expiry of April 2022.
The loan notes are subject to a fixed rate of interest. The majority of the remainder of the Group's other borrowings bear
interest at floating rates which are set according to published LIBOR rates. The remainder bear interest at rates that are
determined by bank base rates. The Group seeks to control its exposure to changes in interest rates by using interest rate
hedges (see note 21(c)).
21. Financial risk management
Financial assets comprise trade and other receivables (excluding construction contracts, prepaid and accrued income), long-
term debtors and cash and deposits. Financial assets and liabilities have fair values not materially different to the carrying
values. Financial liabilities comprise trade and other payables (excluding construction contracts, accruals, deferred income and
other tax and social security), bank borrowings, finance leases, loan notes, long-term creditors and interest rate hedges.
The Group has the following categories of financial assets and liabilities:
Loans and receivables
Cash and deposits
Trade and other receivables (excluding construction
contracts, prepaid and accrued income)
Currency exchange rate hedge
Total financial assets
31 December 2016
31 December 2015
Other
financial
assets
£million
Derivatives
used for
hedging
£million
Total
£million
Other
financial
assets
£million
Derivatives
used for
hedging
£million
113.3
369.6
-
482.9
-
-
67.6
67.6
113.3
86.1
369.6
67.6
550.5
425.4
-
511.5
-
-
25.2
25.2
31 December 2016
31 December 2015
Borrowings, overdrafts and finance leases
Loan notes
Other
financial
liabilities
£million
180.5
284.4
Trade and other payables (excluding construction contracts,
accruals, deferred income and other tax and social security)
368.5
Interest rate hedge (non-PFI investments)
Total financial liabilities
-
833.4
Derivatives
used for
hedging
£million
-
-
-
0.5
0.5
Total
£million
180.5
284.4
368.5
0.5
833.9
Other
financial
liabilities
£million
187.7
236.1
249.3
-
673.1
Derivatives
used for
hedging
£million
-
-
-
0.1
0.1
Total
£million
86.1
425.4
25.2
536.7
Total
£million
187.7
236.1
249.3
0.1
673.2
Trade and other receivables and trade and other payables are held at amortised cost. The directors consider these values to
approximate their fair values. The interest rate hedges are recorded at fair value at each balance sheet date.
142
Strategic Report
Financial Statements
Financial instruments that are measured subsequent to initial recognition at fair value are grouped into three levels based on
the degree to which the fair value is observable, as defined by IFRS 7:
- Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets and
liabilities;
- Level 2 fair value measurements are those derived from inputs, other than quoted prices included within "Level 1", that are
observable either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
- Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that
are not based on observable market data.
Classification of financial assets/(liabilities) held at fair value according to the definitions set out in IFRS 7:
Level 2
31 December
2016
£million
31 December
2015
£million
67.1
25.1
Derivatives used for hedging financial liabilities are considered to be within the grouping referred to as "Level 2". Their fair
values are calculated based on the valuation models operated by the relevant counterparty bank, based on market interest
rates in force on the date of valuation. The Level 2 financial derivatives are classified within other receivables and other
payables.
No financial instruments have been transferred between levels during the year.
Exposure to credit risk on liquid funds and derivative financial instruments is managed by the Group's requirement to trade
with counterparties with strong credit ratings as determined by international credit rating agencies. The transactional banking
requirements are met by local banks in each location with significant cash balances being remitted to Group treasury where
short-term cash surpluses or cash not available for use by the Group is deposited with investment grade rated banks.
(a) Currency exposures
Where material trade is transacted in non-local currency, the Company hedges the currency exposure and ordinarily this will be
achieved with forward contracts.
Analysis of financial assets, excluding derivatives used for hedging, by currency:
Sterling
US dollar
Euro
Australian dollar
Dirham
Other
Floating
rates
£million
60.6
14.6
3.7
3.4
6.8
24.2
113.3
31 December 2016
31 December 2015
Fixed
rates
£million
Non-interest
bearing
£million
Total
£million
Floating
rates
£million
Fixed
rates
£million
Non-interest
bearing
£million
-
-
-
-
-
-
-
250.2
310.8
38.9
12.4
4.8
24.6
38.7
53.5
16.1
8.2
31.4
62.9
369.6
482.9
58.1
10.7
3.5
1.3
0.8
11.7
86.1
-
-
-
-
-
-
-
311.0
39.1
8.6
2.5
28.2
36.0
Total
£million
369.1
49.8
12.1
3.8
29.0
47.7
425.4
511.5
143
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
21. Financial risk management continued
(a) Currency exposures continued
Analysis of financial liabilities, excluding derivatives used for hedging, by currency:
Sterling
US dollar
Euro
Australian dollar
Dirham
Other
Weighted average interest rates
excluding amortisation of
arrangement fees and bank
margin
31 December 2016
31 December 2015
Floating
rates
£million
174.0
-
-
-
-
2.1
Fixed
rates
£million
4.4
284.4
-
-
-
-
Non-interest
bearing
£million
299.1
38.5
2.0
1.6
10.9
16.4
Total
£million
477.5
322.9
2.0
1.6
10.9
18.5
Floating
rates
£million
185.1
-
-
-
-
1.8
Fixed
rates
£million
0.8
236.1
-
-
-
-
Non-interest
bearing
£million
204.7
24.8
1.2
0.9
9.8
7.9
Total
£million
390.6
260.9
1.2
0.9
9.8
9.7
176.1
288.8
368.5
833.4
186.9
236.9
249.3
673.1
0.3%
5.3%
0.5%
5.3%
Where the Group has overseas operations, the revenues and costs of the business will typically be denominated in local
currency. Gains and losses arising on retranslation of monetary assets and liabilities that are not denominated in the functional
currency of individual Group companies are recognised in the income statement. The Group enters into forward foreign
exchange contracts to manage material currency exposures that arise on cashflows from sales or purchases not denominated in
functional currencies immediately those sales or purchases are contracted. Taking into account the effect of forward contracts,
Group companies did not have a material exposure to foreign exchange gains or losses on monetary assets and monetary
liabilities denominated in foreign currencies at 31 December 2016.
The Group does not hedge anticipated future sales and purchases.
Gains and losses arising on the retranslation of foreign operations' net assets into the consolidation currency are recognised
directly in equity. The Group does not hedge these translation differences.
The Group's exposure to fluctuations in exchange rates is shown below where a change in value of foreign currencies against
sterling would have the following impact on the results of the Group:
A 1% change in exchange rates results in:
Change in profit
Change in reserves/net assets
31 December
2016
£million
31 December
2015
£million
0.4
2.2
0.4
1.9
A 1% change in the Qatari rial exchange rate would result in a £0.1 million change in profit and a £0.6 million change in reserves/
net assets.
144
Strategic Report
Financial Statements
(b) Market price risk - currency exchange rate hedges
The Group seeks to control its exposure to changes in currency rates by using currency rate swaps to limit the impact on the
interest charge in the income statement. Contracts in place at the year end were as follows:
Currency exchange rate hedges
31 December 2016
31 December 2015
Nominal
value
US$ million
85.0
155.0
110.0
350.0
Maturity
2021
2024
2026
Exchange
rate
1.69
1.69
1.69
Nominal
value
US$ million
85.0
155.0
110.0
350.0
Maturity
2021
2024
2026
Exchange
rate
1.69
1.69
1.69
The fair value of currency exchange rate hedges at 31 December 2016 is estimated at £67.6 million (2015: £25.2 million). The
contracts are designated as cash flow hedges and to the extent that the hedges are effective hedges, changes in their fair value
are recognised directly in other comprehensive income. The fair values of the hedge instruments are calculated and provided by
respective counterparty banks. No charges have gone through the income statement in the year (2015: no charges) in respect
of changes in the fair value of the hedges. A gain of £42.0 million (2015: £19.8 million gain) was booked to other comprehensive
income in respect to changes in fair value of the hedges.
(c) Market price risk - interest rate hedges
The Group seeks to control its exposure to changes in interest rates by using interest rate swaps to limit the impact on the
interest charge in the income statement. Contracts in place at the year end were as follows:
Interest rate swaps
31 December 2016
31 December 2015
Nominal
value
£million
20.0
20.0
Current
Current
Maturity
Strike price
2017
2019
1.09%
1.54%
Current
Current
Nominal
value
£million
20.0
20.0
Maturity
Strike price
2017
2019
1.09%
1.54%
The fair value of interest rate hedges at 31 December 2016 is estimated at (£0.5) million (2015: (£0.1) million). The contracts
are designated as cash flow hedges and to the extent that the hedges are effective hedges, changes in their fair value are
recognised directly in other comprehensive income. The fair values of the hedge instruments are calculated using computer
valuation models operated by counterparty banks. No charges have gone through the income statement in the year (2015: £nil)
in respect of changes in the fair value of the hedges. No gains (2015: no gain) was charged through other comprehensive income
in respect to changes in fair value of the hedges.
145
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
21. Financial risk management continued
(c) Market price risk - interest rate hedges continued
The use of interest rate caps and swaps, where appropriate, diminishes the impact of an interest rate change. The impact of a
1% change in interest rate to the Group's results is shown in the table below:
A 1% change in interest rates results in:
Change in profit
(d) Credit risk
31 December
2016
£million
31 December
2015
£million
1.4
1.5
The Group’s principal financial assets are bank balances and cash, trade and other receivables and investments, which
represent the Group’s maximum exposure to credit risk in relation to financial assets.
The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net
of allowances for doubtful receivables, estimated by the Group’s management based on prior experience and their assessment
of the current economic environment. To manage this risk, credit references are taken and where appropriate parent company
guarantees and letters of credit are sought along with monthly monitoring of age and recoverability of trade receivables.
Apart from receivables due from customers related to HM Government, the Group has no significant concentration of credit risk,
with exposure spread over a number of counterparties and customers.
(e) Liquidity risk
The Group seeks to maintain sufficient facilities to ensure that it has access to funding to meet current and anticipated future
funding requirements determined from budgets and medium-term plans. Some of the facilities require us to comply with
certain financial covenants, which are calculated excluding exceptional items. We continue to remain in compliance with these
covenants.
The maturity of financial assets and liabilities, with the exception of interest rate hedges above, are discussed in the specific
asset and liability footnotes.
(f) Capital risk
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns, whilst seeking
to optimise the debt and equity balance, in order to maximise the return to stakeholders. The capital structure of the Group
consists of net debt, which includes cash, deposits and borrowings (note 20), and equity attributable to equity holders of the
parent.
The Group has, over recent years, had a policy of progressively increasing dividends paid to shareholders. The Group may adjust
the capital structure of the Group by returning capital to shareholders, issue new shares or sell assets to reduce debt.
The Group is not subject to externally imposed capital requirements but is subject to covenants in its loan agreements which
seek to maintain the level of debt and interest that the Group may take on at serviceable levels by reference to the Group's
earnings which ultimately limits the amount of debt that the Group can take on.
146
Strategic Report
Financial Statements
22. Trade and other payables - amounts falling due within one year
Obligations under finance leases (note 24)
Trade payables
Advances received
Other taxation and social security
Other payables
Accruals
Deferred income
23. Trade and other payables - amounts falling due after more than one year
Obligations under finance leases (note 24)
Trade payables
Other payables
31 December
2016
£million
31 December
2015
£million
31 December
2014
£million
1.0
290.7
41.6
45.4
64.6
422.5
33.5
899.3
0.6
166.5
35.5
85.3
68.5
388.0
43.6
788.0
0.3
151.4
34.0
73.6
68.9
375.3
50.5
754.0
31 December
2016
£million
31 December
2015
£million
31 December
2014
£million
3.4
0.6
12.6
16.6
1.6
0.2
14.1
15.9
0.5
0.5
13.8
14.8
The carrying amount of trade and other payables approximates to their fair value.
The average credit period taken for trade purchases is 50 days (2015: 53 days).
Ageing of amounts payable excluding advances, finance leases, accruals and deferred income is as follows:
Less than one year
Between one and two years
31 December
2016
£million
31 December
2015
£million
31 December
2014
£million
400.7
13.2
413.9
320.3
14.3
334.6
293.9
14.3
308.2
147
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
24. Obligations under finance and operating leases
(a) Finance leases
Amounts payable under finance leases:
Within one year
In the second to fi th years inclusive
After five years
Less: future finance charges
Present value of lease obligations
Minimum lease payments
Present value of minimum lease payments
2016
£million
2015
£million
2016
£million
2015
£million
4.7
4.7
1.1
3.0
0.6
4.7
(0.3)
4.4
2.4
2.4
0.6
1.5
0.3
2.4
(0.2)
2.2
4.4
4.4
1.0
2.9
0.5
4.4
n/a
4.4
2.2
2.2
0.6
1.4
0.2
2.2
n/a
2.2
Certain of the Group's plant and equipment is held under finance leases. The average lease term is six to seven years. For
the year ended 31 December 2016 the average effective borrowing rate was 1.8% (2015: 1.9%). Interest rates are fixed at the
contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental
payments.
All finance lease obligations are denominated in sterling.
The carrying amount of the Group’s finance lease obligations approximate their fair value.
The Group’s obligations under finance leases are secured by the lessors’ charges over the leased assets.
(b) Operating leases
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
Within one year
In the second to fi th years inclusive
After five years
31 December 2016
31 December 2015
Land and
buildings
£million
20.9
34.9
8.5
64.3
Other
£million
Total
£million
16.4
17.8
-
34.2
37.3
52.7
8.5
98.5
Land and
buildings
£million
15.1
28.9
8.5
52.5
Other
£million
Total
£million
15.9
17.9
-
33.8
31.0
46.8
8.5
86.3
The majority of leases of land and buildings are subject to rent reviews at periodic intervals of between three and five years
and are based on market rates.
148
Strategic Report
Financial Statements
25. Provisions
At 1 January 2015
Additional provision in the year
Release
Utilisation of provision
Exchange differences
At 31 December 2015
Additional provision in the year
Release
Utilisation of provision
Exchange differences
At 31 December 2016
Included in current liabilities
Included in non-current liabilities
The impact of discounting is not material.
Contract provisions
£million
Other
£million
54.0
14.4
(14.1)
(12.7)
0.2
41.8
12.5
(15.2)
(10.5)
0.2
28.8
15.2
19.3
(0.7)
(5.1)
0.2
28.9
9.4
(0.5)
(3.5)
1.6
35.9
Total
£million
69.2
33.7
(14.8)
(17.8)
0.4
70.7
21.9
(15.7)
(14.0)
1.8
64.7
31 December
2016
£million
31 December
2015
£million
31 December
2014
£million
21.8
42.9
64.7
27.4
43.3
70.7
35.7
33.5
69.2
Contract provisions include costs of site clearance, remedial costs and other contractual provisions. These are expected to be
utilised on final settlement of the relevant contracts.
Other provisions include self-insured risk retained by the Group's captive insurance company and other similar balances.
26. Share capital
Issued and fully paid:
31 December
2016
£million
31 December
2015
£million
31 December
2014
£million
145,714,120 ordinary shares of 10p each (2015: 145,207,477 ordinary shares
of 10p each)
14.6
14.5
14.4
At 1 January 2015
Share awards issued in 2015
At 31 December 2015
Share awards issued in 2016
At 31 December 2016
Shares
thousands
Share capital
£million
143,917.6
1,289.9
145,207.5
506.6
145,714.1
14.4
0.1
14.5
0.1
14.6
149
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
26. Share capital continued
Awards were granted during the year as indicated below. Exercise and vesting details are stated in the Directors' Remuneration
Report on pages 72 to 75. Outstanding options and awards over shares in the Company at 31 December 2016 were as follows:
(a) Performance Share Plan
(b) Sharesave Scheme
31 December 2016
31 December 2015
Subscription
price per
10p share
Number of
beneficiaries
including directors
Number of shares
Number of
beneficiaries
including directors
Number of shares
Date of grant
11 April 2012
9 April 2013
13 May 2014
27 May 2014
1 June 2015
5 April 2016
Nil
Nil
Nil
Nil
Nil
Nil
5 April 2012
4 April 2013
9 April 2014
30 September 2014
14 October 2015
12 October 2016
238.0p
398.0p
511.0p
529.0p
467.0p
317.0p
5
17
8,153
40,117
114
1,385,104
2
134
136
-
11
1,319
1,217
2,034
1,995
15,828
1,775,036
2,162,868
5,387,106
-
2,124
410,635
361,139
688,291
1,696,073
3,158,262
20
93
116
2
137
-
6
1,122
1,815
1,717
2,645
-
75,696
1,492,309
1,393,086
15,828
1,801,118
-
4,778,037
1,965
247,821
564,236
510,480
897,498
-
2,222,000
27. Contingent liabilities
The Company and its subsidiaries are, from time to time, parties to legal proceedings and claims which arise in the ordinary
course of business. Appropriate provision has been made in these accounts for all material uninsured liabilities resulting from
proceedings that are, in the opinion of the directors, likely to materialise.
The Company and certain subsidiary undertakings have, in the normal course of business, given performance guarantees and
provided indemnities to third parties in relation to performance bonds and other contract related guarantees. These relate
to the Group’s own contracts and to the Group’s share of the contractual obligations of certain joint ventures and associated
undertakings. The Group acts as guarantor for the following:
Joint ventures and associates
Borrowings
Bonds and guarantees
Maximum guarantee
Amounts utilised
2016
£million
2015
£million
4.7
17.7
284.2
2.4
301.9
14.9
224.3
4.4
239.2
2016
£million
-
172.2
2.2
172.2
2015
£million
-
132.8
132.8
150
Strategic Report
Financial Statements
28. Share-based payments
Under the Group’s share-based incentive schemes the following expense was charged/(credited):
Performance Share Plan
Sharesave Scheme
Total charge/(credit)
Cash settled
Equity settled
Total charge/(credit)
31 December
2016
£million
31 December
2015
£million
(0.6)
0.4
(0.2)
0.2
(0.4)
(0.2)
-
0.5
0.5
0.1
0.4
0.5
The cash settled element of the charge relates to cash payments equivalent to the dividends which would have accrued to
Performance Share Plan participants had their vested shares been awarded at the grant date.
(a) Performance Share Plan
The Performance Share Plan is a "free" share award with an effective exercise price of £nil. For certain participants, one-third of
their award is subject to a Total Shareholder Return (TSR) performance condition with performance compared to a comparator
group. All awards are subject to an Earnings per Share (EPS) performance condition. The performance period is three years.
Further details of these conditions are set out in the Directors' Remuneration Report on pages 73 and 74. Awards are normally
forfeited if the employee leaves the Group before the awards vest.
Outstanding at beginning of period
Granted during the period
Exercised during the period
Lapsed during the period
Outstanding at the end of the period
Exercisable at the end of the period
The remaining weighted average contractual life is 3.5 years (2015: 3.5 years).
2016
Awards
number
4,778,037
2,162,868
(535,171)
2015
Awards
number
5,557,322
1,816,023
(977,244)
(1,018,628)
(1,618,064)
5,387,106
4,778,037
48,270
75,696
151
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
28. Share-based payments continued
(a) Performance Share Plan continued
The Group engaged external consultants to calculate the fair value of these awards at the date of grant. The valuation model
used to calculate the fair value of the awards granted under this plan was a stochastic valuation model, the inputs of which are
detailed below:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk-free rate
Expected dividend yield
Average fair value of award per share
(b) Sharesave Scheme
2016
grants
419.6p
0p
26.2%
3 years
0.5%
0.0%
134.6p
2015
grants
619.5p
0p
24.4%
3 years
0.7%
0.0%
303.0p
2014
grants
694.0p
0p
23.1%
3 years
1.1%
0.0%
462.5p
The Sharesave Scheme is an all-employee HMRC tax-advantaged share scheme. The scheme involves employees saving a
set amount from their salary for a period of three years. At the end of the three-year period the employee is offered the
opportunity to purchase shares based on the amount saved at an option price set at the start of the period. The option price for
grants from 2012 onwards was set at a 20% discount of the average share price over five days trading prior to the offer date of
the scheme.
Outstanding at beginning of period
Granted during the period
Exercised during the period
Lapsed during the period
Outstanding at the end of the period
Exercisable at the end of the period
2016
2015
Options
number
Weighted average
exercise price
£
Options
number
Weighted average
exercise price
£
2,222,000
1,709,574
(13,951)
(759,361)
3,158,262
2.4
2.4
2,124
4.7
4.7
4.85
3.17
3.64
4.64
3.99
3.98
4.4
4.4
1,932,502
903,964
(338,522)
(275,944)
2,222,000
2.2
2.2
1,965
4.51
4.67
2.50
4.76
4.85
2.38
The shares exercised during the year had exercise prices from £2.38 to £5.29. The outstanding options at the end of the period
had a weighted average exercise price of £3.99 (2015: £4.85) and had a remaining weighted average contractual life of 2.6 years
(2015: 2.6 years).
The inputs into the Black-Scholes model are as follows:
Share price at date of grant
Exercise price
Expected volatility
Expected life
Risk-free rate
Expected dividend yield
Fair value of award per share
2016
grants
348.0p
317.0p
30.0%
3 years
0.8%
4.1%
62.3p
2015
grants
592.5p
467.0p
23.3%
3 years
0.8%
4.3%
114.7p
2014
grants
646.5p
520.3p
23.2%
3 years
0.7%
4.9%
113.5p
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous two
years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of
non-transferability, exercise restrictions, and behavioural considerations.
152
Strategic Report
Financial Statements
29. Defined benefit retirement schemes
The principal pension schemes within the Group have been valued for the purposes of IAS 19 Employee benefits. For each of
these pension schemes valuation information has been updated by Lane Clark & Peacock LLP, qualified independent actuaries,
to take account of the requirements of IAS 19 in order to assess the liabilities of the various schemes as at 31 December 2016.
Actuarial gains and losses are recognised in full in the period in which they occur. As permitted by IAS 19, actuarial gains and
losses are recognised outside profit or loss and presented in other comprehensive income. The liability recognised in the balance
sheet represents the present value of the various defined benefit obligations, as reduced by the fair value of plan assets. The
cost of providing benefits is determined using the Projected Unit Credit Method.
The Group contributes to various defined benefit pension schemes in the UK and overseas. By far the most significant
arrangement is the Interserve Pension Scheme in the UK, where benefits are generally related to service and final salary. The
Group operates a defined contribution plan for new hires, with membership of the defined benefit arrangements only permitted
when specific contract terms require defined benefit provision. Contributions to the defined contribution arrangements are in
addition to those set out below and are charged directly to profit and loss.
During 2016, a scheme merger took place whereby the entire contents of the Landmarc Pension Scheme were transferred into
a segregated section of the Interserve Pension Scheme. The Interserve Pension Scheme now comprises two segregated sections
(referred to as the Interserve and Landmarc sections), with assets and liabilities ring-fenced; as such, there is no change in the
accounting treatment compared with the position when they were separate schemes.
The current funding target for the Group's defined benefit schemes is to maintain assets equal to the value of the accrued
benefits based on projected salaries (where relevant). The regulatory framework in the UK requires the Trustees and Group
to agree upon the assumptions underlying the funding target, and then to agree upon the necessary contributions required to
recover any deficit at the valuation date. There is a risk to the Group that adverse experience could lead to a requirement for
the Group to make considerable contributions to recover any deficit.
The following table sets out the key IAS 19 assumptions used to assess the present value of the defined benefit obligation.
The discount rate and inflation assumptions shown below are the single equivalent rates for the full-yield curves assumed for
the Interserve section of the Interserve Pension Scheme, which represents 91% of the total defined benefit obligation. The life
expectancy assumptions shown relate to the vast majority of the membership of that scheme. Alternative assumptions have
been used for the less material arrangements where the specific nature of those schemes makes it appropriate to do so. The
weighted average duration of the expected benefit payments for the schemes is around 17 years.
Significant actuarial assumptions
Retail price inflation (pa)
Discount rate (pa)
Post-retirement mortality (expectancy of life in years)
Male currently aged 65
Female currently aged 65
Male aged 65 in 20 years' time
Female aged 65 in 20 years' time
Other related actuarial assumptions
Consumer price index price inflation (pa)
Pension increase assumptions (pa)
LPI/RPI
Fixed 5%
3% or RPI if higher (capped at 5%)
General salary increases (pa)
2016
2015
2014
3.3%
2.8%
87.6
89.5
89.4
91.0
2.3%
3.1%
3.8%
87.6
89.4
89.3
90.9
2.1%
3.1%
3.6%
87.5
89.5
89.3
91.0
2.1%
3.1%/3.3%
3.0%/3.1%
3.0%/3.1%
5.0%
3.7%
2.8%
5.0%
3.6%
2.6%
5.0%
3.6%
2.1%-2.6%
153
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
29. Defined benefit retirement schemes continued
The amount included in the balance sheet arising from the Group’s obligations in respect of the various pension schemes is as
follows:
Present value of defined benefit obligation
Fair value of schemes' assets
(Asset)/liability recognised in the balance sheet
2016
£million
1,044.6
(992.2)
52.4
The change in the net liabilities recognised in the balance sheet is comprised as follows:
Opening net (asset)/liability
Expense charges to profit and loss
Amount recognised in other comprehensive income
Employer contributions
Closing net (asset)/liability
2015
£million
880.9
(898.1)
(17.2)
2016
£million
(17.2)
2.8
90.2
(23.4)
52.4
2014
£million
924.9
(920.1)
4.8
2015
£million
4.8
7.7
(5.6)
(24.1)
(17.2)
The Group has assessed that no further liability arises under IFRIC 14 IAS 19 — The limit on a defined benefit asset, minimum
funding requirements and their interaction. This conclusion was reached because the trustees of the Interserve Pension
Scheme and the Landmarc Pension Scheme, which together represented 97% of the Group's total defined benefit obligations
at 31 December 2016, do not have a unilateral power to wind up the schemes and the schemes' rules allow the Group an
unconditional right to refunds assuming the gradual settlement of plan liabilities over time until all members have left the
scheme.
Sensitivity to significant actuarial assumptions
Price inflation
Discount rate
Sensitivity
+0.5% pa
+0.5% pa
Post-retirement mortality (expectancy of life in years)
1 year increase
Indicative change in defined benefit obligation
2016
£million
2015
£million
+65
-85
+34
+54
-70
+29
The sensitivities shown above reflect only the change in the assessed defined benefit obligation. In practice any movement in
assumptions is likely to be accompanied by a partially offsetting change in asset values, and the corresponding overall impact on
the net liability/(asset) is therefore likely to be lower than the amounts above.
The amounts recognised in the income statement are as follows:
Employer’s part of current service cost
Administration costs
Past service cost/(credit)
Losses/(gains) on settlements
Net interest (income)/expense on the net pension liability/(asset)
Total expense recognised in the income statement
154
2016
£million
5.7
0.9
(2.6)
(0.1)
(1.1)
2.8
2015
£million
7.2
1.9
-
(1.1)
(0.3)
7.7
Strategic Report
Financial Statements
The current service cost and administration costs are included within operating profit. The interest cost is included within
financing costs.
During 2016 the Company and Trustee amended the Interserve Pension Scheme to introduce additional standard options for
members reaching retirement, including facilitating the new “Freedom and Flexibility” options introduced by the Government.
This amendment is expected to change the way in which a proportion of members take their benefits and, consequently,
generated a past service credit of £2.6 million, as at the effective date of the rule amendment.
The current allocation of the schemes' assets is as follows:
Equities (quoted)
Alternative investments (primarily unquoted)
Property (unquoted)
Liability Driven Investment (LDI) (unquoted)
Insurance policies (unquoted)
Government bonds (quoted)
Corporate bonds (quoted)
Infrastructure (unquoted)
Cash and other (primarily unquoted)
31 December 2016
31 December 2015
31 December 2014
Current
allocation
Fair value
£million
Current
allocation
Fair value
£million
Current
allocation
Fair value
£million
28%
17%
0%
12%
37%
0%
0%
5%
1%
271.7
168.6
3.1
117.7
368.7
2.1
2.7
52.0
5.6
23%
16%
2%
0%
39%
13%
0%
6%
1%
207.4
144.9
22.5
-
347.9
115.8
2.3
51.7
5.6
21%
13%
4%
0%
40%
11%
0%
10%
1%
190.7
120.7
37.4
-
371.6
96.8
2.7
90.0
10.2
100%
992.2
100%
898.1
100%
920.1
Alternative investments include diversified growth funds, fund of hedge funds and emerging market multi-asset funds (primarily
unquoted).
The Trustee of the Interserve section of the Interserve Pension Scheme holds an insurance policy to protect the Group from
certain risks associated with approximately 35% of that section's defined benefit obligation. The policy aims to closely match
the pension payments to the pensioner members who were above age 65 in July 2014. The policy is not an exact match for
the benefits in certain areas, notably: pension increases if price inflation falls below 0%; differences between the increase
in the Consumer Prices Index and the Retail Prices Index; and the eligibility criteria for dependants’ pensions. The element
of the policy that does not provide an exact match for the benefits covers £309.6 million of the defined benefit obligation
at 31 December 2016. The policy covers a further £9.4 million of the defined benefit obligation which precisely matches the
benefits in respect of certain dependants in receipt of pension.
Except for the element of the policy which precisely matches the benefits (around 3% of the total policy value), the policy has
been valued as the estimated replacement cost at the accounting date by the Group’s actuarial advisers, LCP, in accordance
with the fair value requirements of IFRS 13. The small matching element has been valued at the same amount as the defined
benefit obligation in respect of the matched benefits.
During 2016 the Interserve Pension Scheme invested in a bespoke pooled LDI fund. The LDI portfolio provides a broad 45% hedge
of the Interserve section's interest rate and inflation exposure not covered by the insurance policy above. The LDI manager
invests in a combination of gilts and swaps, depending on the relative attractiveness of each instrument at each maturity.
The infrastructure holding predominantly consists of the remaining portfolio of PFI investments originally transferred by
Interserve Plc to the Interserve Pension Scheme in November 2009 and January 2013. The schemes have not directly invested in
any of the Group's other financial instruments nor in other assets or properties used by the Group.
155
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
29. Defined benefit retirement schemes continued
A reconciliation of the present value of the defined benefit obligation is as follows:
Opening defined benefit obligation
Employer’s part of current service cost
Interest cost
Contributions by schemes' participants
Actuarial loss/(gain) due to:
Changes in financial assumptions
Changes in demographic assumptions
Experience on defined benefit obligations
Benefits paid
Past service cost/(credit)
Curtailments and settlements
Bulk transfers
Closing defined benefit obligation
A reconciliation of the fair value of the schemes' assets is as follows:
Opening fair value of the schemes' assets
Interest on schemes' assets
Actual return on schemes' assets less interest on schemes' assets
Contributions by the employer
Contributions by schemes' participants
Benefits paid
Curtailments and settlements
Administration costs
Bulk transfers
Closing fair value of the schemes' assets
2016
£million
880.9
5.7
32.7
0.4
176.0
-
(8.6)
(39.1)
(2.6)
(0.8)
-
1,044.6
2016
£million
898.1
33.8
77.2
23.4
0.4
(39.1)
(0.7)
(0.9)
-
992.2
2015
£million
924.9
7.2
32.6
0.5
(28.4)
(2.3)
(9.8)
(36.7)
-
(7.2)
0.1
880.9
2015
£million
920.1
32.9
(34.9)
24.1
0.5
(36.7)
(6.1)
(1.9)
0.1
898.1
Based on current contribution rates and payroll, the Group expects to contribute £19.5 million to the various defined benefit
arrangements during 2017. This includes deficit contributions to the Interserve section of the Interserve Pension Scheme of
£13.7 million.
156
Strategic Report
Financial Statements
30. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and
are not disclosed in this note. Transactions between the Group and its associates are disclosed below.
During the year, Group companies entered into the following transactions with related parties who are not members of the
Group:
Joint-venture entities
Associates
Sales of goods
and services
Purchases of goods
and services
Amounts due from
related parties
Amounts owed to
related parties
2016
£million
118.1
11.6
2015
£million
120.7
47.8
2016
£million
2015
£million
-
1.2
-
1.1
2016
£million
7.8
4.6
2015
£million
3.7
12.0
2016
£million
2015
£million
-
0.5
-
0.7
Sales and purchases of goods and services to related parties were made on normal trading terms.
The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received in respect of
the outstanding balances. No provisions have been made for doubtful debts in respect of the amounts owed by related parties.
Key management personnel are considered to be the directors of Interserve Plc. Dividends totalling £0.3 million
(2015: £0.2 million) were paid in the year in respect of ordinary shares held by the Company's directors. Other amounts paid to
key management personnel are given in the Directors' Remuneration Report on pages 62 to 76.
157
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
31. Investments in joint ventures - arrangements
The composition of investment in joint ventures can be summarised as follows:
(a) PFI/PPP arrangements that have reached financial close at 31 December 2016
Interserve services
Dates
Design/
build
Operate
Whole-life
value
£million
Status
Awarded
Fully
operational
Contract
end
Share of equity/
sub-debt
%
£million
Total capital
required
£million
Contract
Custodial
Addiewell Prison
yes
no
73
operational mid-2006
late 2008
2033
33
2.9
100.0
Central/local
government
Derby Waste
Health
yes
no
145
construction
Q3 2014
-
2042
50
17.5
190.8
Alder Hey Hospital
no
yes
100
operational
Q2 2013 mid-2015
2045
yes
yes
43
construction
Q4 2014
yes
yes
160
construction
Q1 2015
-
-
Scottish National
Blood Transfusion
Education
Hertford, Luton and
Reading Schools
Invested to date
Shares
Loans
Remaining commitment
20
50
4.0
1.6
200.0
43.0
2042
2042
45
147.0
6.1
32.1
0.1
14.5
17.5
32.1
Interserve’s share of the capital commitments of the joint ventures above amounts to £25.8 million (2015: £88.5 million).
(b) Non-PFI/PPP arrangements
Contract
Description
Haymarket
Rehab Jobfit
Property development venture in central Edinburgh
Employment-related support services to the Department for
Work and Pensions
Invested to date
Shares
Loans
Remaining commitment
Share of equity/
sub-debt
%
£million
50/100
41.0
49/n/a
-
41.0
-
25.8
15.2
41.0
Interserve’s share of the capital commitments of the joint ventures above amounts to £15.2 million (2015: £5.0 million).
158
Strategic Report
Financial Statements
32. Reconciliation of non-statutory measures
The Group uses a number of key performance indicators to monitor the performance of its business.
This note reconciles these key performance indicators to individual lines in the financial statements.
(a) Headline pre-tax profit
Profit/(loss) before tax
Adjusted for:
Amortisation of acquired intangible assets
Share of associates amortisation of acquired intangible assets
Exceptional items - transaction and integration costs
Exceptional items - exited business
Exceptional items - strategic review of Equipment Services
Investment revenue
Finance costs
Headline pre-tax profit
(b) Operating cash flow
Cash generated by operations
Adjusted for:
Cash used by operations - exited business
Cash used by operations - strategic review of Equipment Services
Pension contributions in excess of income statement charge
Other exceptional items cash impact
Proceeds on disposal of plant and equipment - non-hire fleet
Capital expenditure - non-hire fleet
Operating cash flow
(c) Free cash flow
Operating cash flow
Adjusted for:
Pension contributions in excess of income statement charge
Taxes paid
Dividends received from associates and joint ventures
Interest received
Interest paid
Effect of foreign exchange rate change
Free cash flow
2016
£million
(94.1)
29.8
0.1
-
160.0
10.7
(5.6)
23.3
124.2
2016
£million
90.7
116.9
7.7
19.5
-
8.6
(38.3)
205.1
2016
£million
205.1
(19.5)
(10.2)
34.1
4.5
(23.3)
10.9
201.6
2015
£million
79.5
31.0
0.1
4.8
10.6
2.6
(4.7)
21.1
2014
£million
61.9
24.4
0.1
19.8
-
0.5
(5.0)
16.0
145.0
117.7
2015
£million
38.7
10.4
2.6
16.1
3.0
1.6
(31.2)
41.2
2015
£million
41.2
(16.1)
(6.8)
13.6
4.4
(21.1)
0.1
15.3
2014
£million
10.9
(7.7)
0.9
18.2
18.4
0.9
(24.9)
16.7
2014
£million
16.7
(18.2)
(10.2)
17.8
4.7
(16.0)
0.8
(4.4)
159
GovernanceOverview
Notes to the consolidated financial statements continued
for the year ended 31 December 2016
32. Reconciliation of non-statutory measures continued
(d) Operating cash conversion
Operating cash flow
Operating profit, before exceptional items and amortisation of acquired
intangible assets
Full-year operating cash conversion
2016
£million
205.1
101.6
201.9%
2015
£million
41.2
122.4
33.7%
2014
£million
16.7
101.5
16.5%
Three-year rolling operating cash flow
263.0
101.5
119.7
Three-year rolling operating profit, before exceptional items and
amortisation of acquired intangible assets
Operating cash conversion, three-year rolling average
(e) Gross operating cash conversion
Operating cash flow
Dividends received from associates and joint ventures
Gross operating cash flow
325.5
80.8%
2016
£million
205.1
34.1
239.2
295.0
34.4%
2015
£million
41.2
13.6
54.8
227.4
52.6%
2014
£million
16.7
17.8
34.5
Operating profit, before exceptional items and amortisation of acquired
intangible assets
101.6
122.4
101.5
Share of results of associates and joint ventures, before exceptional items and
amortisation of acquired intangible assets
22.6
22.6
16.6
Total operating profit, before exceptional items and amortisation of acquired
intangible assets
124.2
145.0
118.1
Full-year gross operating cash conversion
192.6%
37.8%
29.2%
Three-year rolling gross operating cashflow
328.5
146.6
171.0
Three-year rolling total operating profit before exceptional items and
amortisation of acquired intangible assets
Gross operating cash conversion, three-year rolling average
387.3
84.8%
351.5
41.7%
286.7
59.6%
(f) Gross revenue
Consolidated revenue
Share of revenues of associates and joint ventures
Gross revenue
2016
£million
3,244.6
440.6
3,685.2
2015
£million
3,204.6
424.3
3,628.9
2014
£million
2,913.0
392.3
3,305.3
160
Strategic Report
Financial Statements
(g) Net debt
Cash and deposits
Bank overdrafts
Bank loans
US Private Placement Loans
Finance leases
Total borrowings
Per balance sheet
less: Impact of hedges on US Private Placement loan notes
Net debt
A
B
A+B
2016
£million
113.3
(11.1)
(165.0)
(284.4)
(460.5)
(4.4)
(464.9)
(351.6)
77.2
(274.4)
2015
£million
86.1
(15.5)
(170.0)
(236.1)
(421.6)
(2.2)
(423.8)
(337.7)
28.9
(308.8)
2014
£million
82.1
(5.5)
(137.5)
(225.3)
(368.3)
(0.8)
(369.1)
(287.0)
18.1
(268.9)
33. Events after the balance sheet date
Subsequent to the year end, arrangements for new bank facilities with all of our existing, and some new, lenders were put
in place. As a result of this exercise, our bank debt capacity has been expanded by an additional £133 million of committed
facilities. This gives the Group committed bank facilities of £433 million, in addition to the loan notes of £207 million at the
swapped exchange rate, and leaves the Group with committed debt facilities of £640 million, with a weighted average expiry of
April 2022.
161
GovernanceOverview
Company balance sheet
at 31 December 2016
Fixed assets
Tangible assets
Investments in subsidiaries
Investments in associates
Retirement benefit surplus
Other investments
Current assets
Debtors:
Due within one year
Due after one year
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current assets/(liabilities)
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Retirement benefit obligation
Provisions for liabilities
Net assets
Capital and reserves
Called-up share capital
Share premium account
Capital redemption reserve
Merger reserve
Profit and loss account
Total shareholders’ funds
Notes
E
F
G
L
H
I
I
J
K
L
M
O
2016
£million
10.2
462.9
2.7
-
0.3
476.1
114.5
7.5
5.3
127.3
(37.4)
89.9
566.0
(4.8)
(39.5)
(15.9)
505.8
14.6
116.5
0.1
180.9
193.7
505.8
2015
£million
12.6
462.9
2.7
15.2
0.3
493.7
50.6
-
48.5
99.1
(110.9)
(11.8)
481.9
(7.1)
-
(11.6)
463.2
14.5
116.5
0.1
180.9
151.2
463.2
Interserve Plc reported a profit after taxation for the financial year ended 31 December 2016 of £32.9 million (2015: £14.9 million).
The financial statements of Interserve Plc (registered number 00088456) were approved by the Board of Directors on
28 February 2017.
Signed on behalf of the Board of Directors
A M Ringrose
Director
T P Haywood
Director
162
Strategic Report
Financial Statements
Company statement of changes in equity
for the year ended 31 December 2016
Balance as at 1 January 2015
14.4
153.1
115.3
0.1
180.9
Called-up
share
capital
£million
Profit
and loss
account
£million
Share
premium
account
£million
Capital
redemption
reserve
£million
Merger
reserve
£million
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Issue of share capital
Dividends
Fair value adjustment
Investment in own shares
Share-based payments
Transactions with owners
-
-
-
0.1
-
-
-
-
14.9
15.0
29.9
-
(33.7)
0.4
0.7
0.8
-
-
-
1.2
-
-
-
-
0.1
(31.8)
1.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
£million
463.8
14.9
15.0
29.9
1.3
(33.7)
0.4
0.7
0.8
(30.5)
Balance as at 31 December 2015
14.5
151.2
116.5
0.1
180.9
463.2
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Issue of share capital
Dividends
Fair value adjustment
Investment in own shares
Share-based payments
Transactions with owners
-
-
-
0.1
-
-
-
-
34.1
43.8
77.9
-
(35.5)
-
-
0.1
0.1
(35.4)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
34.1
43.8
77.9
0.1
(35.5)
-
-
0.1
(35.3)
Balance as at 31 December 2016
14.6
193.7
116.5
0.1
180.9
505.8
The share premium reserve includes proceeds from share issues over and above the nominal value of the 10p ordinary shares.
The merger reserve includes premium on the shares issued on acquisition of subsidiary companies.
163
GovernanceOverview
Notes to the Company financial statements
for the year ended 31 December 2016
A) Accounting policies
The principal accounting policies are summarised below. They have all been applied consistently throughout the year and the
preceding year.
(a) Basis of accounting
These financial statements have been prepared in accordance with Financial Reporting Standard 101 Reduced disclosure
framework and the Companies Act 2006. These financial statements have therefore been prepared under the historical cost
convention.
Interserve Plc is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office
is given on page 43.
The Company meets the definition of qualifying entity under FRS 100 Application of financial reporting requirements. These
financial statements were prepared in accordance with FRS 101 Reduced disclosure framework as issued by the Financial
Reporting Council.
The Company’s financial statements are included in the Interserve Plc consolidated financial statements for the year ended
31 December 2016. As permitted by section 408 of the Companies Act 2006, the Company has not presented its own profit and
loss account.
The Company has taken advantage of the following disclosure exemptions in preparing these financial statements, as permitted
by FRS 101 Reduced disclosure framework:
•
•
•
•
•
•
•
•
•
•
the requirements of paragraphs 45(b) and 46 to 52 of IFRS 2 Share-based payment;
the requirements of IFRS 7 Financial instruments: disclosures;
the requirements of paragraphs 91 to 99 of IFRS 13 Fair value measurement;
the requirement in paragraph 38 of IAS 1 Presentation of financial statements to present comparative information in
respect of:
- paragraph 79(a)(iv) of IAS 1;
- paragraph 73(e) of IAS 16 Property, plant and equipment; and
- paragraph 118(e) of IAS 38 Intangible assets;
the requirements of paragraphs 10(d), 10)(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D and 111 of IAS 1 Presentation of
financial statements;
the requirements of paragraphs 134 to 136 of IAS 1 Presentation of financial statements;
the requirements of IAS 7 Statement of cash flows;
the requirements of paragraphs 30 and 31 of IAS 8 Accounting policies, changes in accounting estimates and errors;
the requirements of paragraphs 17 and 18A of IAS 24 Related party disclosures;
the requirements in IAS 24 Related party disclosures to disclose related party transactions entered into between two or
more members of a group; and
•
the requirements of paragraphs 134(d) to 134(f) and 135(c) to 135(e) of IAS 36 Impairments of assets.
These financial statements are separate financial statements.
Where required, equivalent disclosures are given in the Annual Report and Financial Statements of the Group as shown in
notes 1 to 33.
Adoption of new and revised standards
The Company adopted FRS 101 for the first time in the prior year. There have been no changes to the Standards or
Interpretations applied in the current year.
164
Strategic Report
Financial Statements
(b) Going concern
The 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 annual
financial statements.
(c) Leases
Operating lease payments represent rentals payable by the Company for its office properties. Leases are negotiated for an
average term of 10 years and rentals are fixed for an average of five years with a break option to extend at five years. Leases of
land and buildings are typically subject to rent reviews at five-yearly intervals and provide for the lessee to pay all insurance,
maintenance and repair costs.
(d) Foreign currency
The financial statements are presented in pounds sterling, which is the currency of the primary economic environment in which
the Company operates (its functional currency).
Transactions denominated in currencies other than the functional currency are translated at the rates ruling at the dates of
the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated
at the rates ruling at that date. Non-monetary items that are measured in terms of historical cost in foreign currency are not
retranslated.
Exchange differences are recognised in profit and loss in the period in which they arise.
(e) Tangible assets
Tangible assets are carried at cost less any accumulated depreciation and any impairment losses. Depreciation is provided on a
straight-line basis, calculated to write off the cost or valuation over its expected useful life, at rates ranging between:
Freehold land
Freehold buildings
Leasehold property
Computer hardware and software
Furniture, office and plant equipment
Nil
2%
Over period of lease
33.3%
10% to 33.3%
Useful lives are reviewed at the end of every reporting period.
The costs of operating leases are charged to the profit and loss account as they accrue.
(f) Provisions and contingent liabilities
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is
probable that the Company 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
profit and loss 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.
Contingent liabilities are disclosed in the notes to the financial statements in respect of guarantees given to the Company’s
subsidiaries, associated undertakings, joint ventures and pension scheme. Due to the nature of the guarantees it would be
difficult to reliably measure the Company’s potential obligation and the Company considers it unlikely that there will be a
requirement to make a financial settlement as a result of these guarantees.
(g) Investments
Investments are stated at cost less any impairment at the balance sheet date.
165
GovernanceOverview Notes to the Company financial statements continued
for the year ended 31 December 2016
A) Accounting policies continued
(h) Pensions
The Company participates in, and is the sponsoring employer of, both defined benefit and defined contribution pension schemes
for the benefit of permanent members of staff. For the defined benefit schemes the cost of providing benefits is determined
using the projected unit credit method, with actuarial valuations being carried out at each balance sheet date.
Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised directly in equity and
recognised in the statement of other comprehensive income.
For defined contribution schemes, the amount recognised in the profit and loss is equal to the contributions payable to the
schemes during the year.
(i) Taxation
Current tax, including UK corporation tax and foreign 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. The tax currently payable is
based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss because is excludes
items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or
deductible.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is
accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the
temporary difference arises from the initial recognition of other assets and liabilities in a transaction that affects neither the
taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that is it no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is
realised based on tax laws and rates that have been enacted or substantively enacted at the balance sheet date.
Deferred tax is charged or credited in the profit and loss, except when it relates to items charged or credited in other
comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in
which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and
liabilities.
Deferred tax assets and liabilities are offset where there is a legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to
settle its current tax assets and liabilities on a net basis.
Current tax and deferred tax for the year
Current and deferred tax are recognised in profit and loss, except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other
comprehensive income or directly in equity respectively.
(j) Finance costs
Borrowing costs are recognised in the profit and loss in the period in which they are incurred. Differences between borrowing
costs payable in the year and costs actually paid are shown in accruals in the balance sheet.
166
Strategic Report
Financial Statements
(k) Financial Instruments
Financial assets and financial liabilities are recognised in the Company’s balance sheet when the Company becomes party
to the contractual provisions of the instrument. Financial assets, other than those held at fair value through profit and loss,
are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective
evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated
future cash flows of the investment have been affected.
Debtors
Debtors are initially measured at fair value. Appropriate allowances for estimated irrecoverable amounts are recognised in the
profit and loss where there is objective evidence that the asset is impaired.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, 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 and other borrowings
Interest-bearing bank loans, intercompany 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 profit and loss 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.
Creditors
Creditors are initially measured at fair value and subsequently measured at amortised cost.
Equity instruments
Debt and equity instruments are classified as either financial liabilities or equity in accordance with the substance of the
contractual arrangement.
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Derivative financial instruments
Transactions in derivative financial instruments are for risk management purposes only. The Company uses derivative financial
instruments to hedge its exposure to foreign currency risk. 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. These derivative
instruments are designated as fair value through the profit and loss.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is
recognised as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining
maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other
derivatives are presented as current assets or current liabilities.
(l) Share-based payments
The Company issues equity-based and cash-settled 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 28 to the Annual Report and Financial Statements of
the Group sets out details of the share-based payments. 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.
For cash-settled share-based payments a liability is recognised based on the fair value of the payment earned by the balance
sheet date. For equity-settled share-based payments the corresponding credit is recognised directly in reserves.
167
GovernanceOverview Notes to the Company financial statements continued
for the year ended 31 December 2016
A) Accounting policies continued
(m) Critical accounting judgements and key sources of estimation uncertainty
In the application of the Company accounting policies, which are described above, the directors are required to make
judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent
from other sources. The estimates and associated assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period which the estimate is revised if the revisions affect only that period, or in the period of the revision and future
periods if the revision affects both current and future periods.
There are no critical judgements, apart from those involving estimates (which are dealt with separately below), that the
directors have made in the process of applying the Company’s accounting policies and that have the most significant effect on
the amounts recognised in the financial statements.
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year, are discussed below.
Impairment of investments in subsidiaries
Determining whether the Company’s investments in subsidiaries have been impaired requires judgement. In making these
judgements, net assets of subsidiaries at the balance sheet date and Board-approved budgets for the next three years are
taken into consideration. The carrying amount of the investments in subsidiaries at the balance sheet date was £462.9 million
(2015: £462.9 million) with £nil (2015: £1 million) of impairment losses recognised in 2016.
Retirement benefit obligations
In accordance with IAS 19 Employee benefits, the Company has disclosed in note L the assumptions used in calculating the
defined benefit obligations. In the calculation a number of assumptions around future salary increases, increase in pension
benefits, mortality rates, inflation and discount rates have been made. Small changes in these assumptions can lead to
significant changes to the overall scheme liabilities, as disclosed in note L. Judgement is also exercised in establishing the fair
value of retirement benefit assets, most notably the valuation of the buy-in contract to insure some of the benefits of a subset
of the pension membership of the scheme provided by the insurer.
B) Profit on ordinary activities after taxation
Interserve Plc reported a profit after taxation for the financial year ended 31 December 2016 of £32.9 million (2015: £14.9 million).
The auditors’ remuneration for audit services to the Company was £0.2 million (2015: £0.2 million).
168
Strategic Report
Financial Statements
C) Employees
The costs incurred in respect of these employees were:
Wages and salaries
Social security costs
Share-based payments
Pension costs
Share-based payments to employees of the Company
Share-based payments to employees of subsidiaries
Group share-based payment charge
Cash-settled
Equity-settled
Group share-based payment charge
2016
£million
17.0
1.7
(0.8)
1.1
19.0
2016
£million
(0.8)
0.6
(0.2)
0.2
(0.4)
(0.2)
2015
£million
15.2
1.2
-
1.0
17.4
2015
£million
-
0.5
0.5
0.1
0.4
0.5
The average number of persons employed, being full-time equivalents, by the Company during the year, including directors,
was 300 (2015: 239).
Share-based payments are issued to certain employees of the Company and its wider Group. All schemes referenced in the
Group accounts are applicable to the Company. The division of costs across the Group has resulted in no charge to the Company.
Further details can be found in note 28 to the Group consolidated financial statements on pages 151 and 152.
Directors’ remuneration
Detailed disclosures of directors’ aggregated individual remuneration and share-based payments included in the above analysis
are given in the Directors’ Remuneration Report on pages 62 to 76 and should be regarded as an integral part of this note.
D) Dividends
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2015 of 16.4p (2014: 15.5p) per share
Interim dividend for the year ended 31 December 2016 of 8.1p (2015: 7.9p) per share
The directors do not recommend the payment of a final dividend for the year ended 31 December 2016.
2016
£million
23.7
11.8
35.5
2015
£million
22.3
11.4
33.7
169
GovernanceOverview
Notes to the Company financial statements continued
for the year ended 31 December 2016
E) Tangible fixed assets
(a) Movement during the year
Cost
At 1 January 2016
Additions
Disposals
At 31 December 2016
Depreciation
At 1 January 2016
Charge in year
Disposals
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
(b) Land and buildings
Net book value of land and buildings
Freehold:
Land at cost
Buildings at cost less depreciation
Leaseholds over 50 years at cost less depreciation
Land and
buildings
£million
12.1
0.4
(6.7)
5.8
2.5
0.2
-
2.7
3.1
9.6
Computers
£million
Other
£million
Total
£million
7.2
4.9
(2.0)
10.1
4.4
1.0
(2.0)
3.4
6.7
2.8
0.8
0.2
-
1.0
0.6
-
-
0.6
0.4
0.2
20.1
5.5
(8.7)
16.9
7.5
1.2
(2.0)
6.7
10.2
12.6
2016
£million
2015
£million
1.3
1.1
2.4
0.7
3.1
8.0
0.7
8.7
0.9
9.6
170
Strategic Report
Financial Statements
(c) Operating leases
At the balance sheet date, the Company had outstanding commitments for future minimum lease payments under
non-cancellable operating leases, which fall due as follows:
Within one year
Between two to five years
After five years
b
b
F)
Investments in subsidiaries
Cost
At 1 January 2016
Additions
Disposals
At 31 December 2016
Provisions
At 1 January 2016
Additions
Disposals
At 31 December 2016
Carrying value
At 31 December 2016
At 31 December 2015
Land and buildings
2016
£million
1.2
3.6
5.1
9.9
2015
£million
1.3
3.7
6.4
11.4
Other
2016
£million
0.2
0.2
-
0.4
2015
£million
0.1
0.1
-
0.2
£million
477.4
-
-
477.4
14.5
-
-
14.5
462.9
462.9
Details of the Company’s subsidiaries at 31 December 2016 are given on pages 179 to 183, which form part of these financial
statements. Direct subsidiaries are annotated with a superscript note 3.
171
GovernanceOverview
Notes to the Company financial statements continued
for the year ended 31 December 2016
G)
Investments in associates
Cost
At 1 January 2016
Additions
Disposals
At 31 December 2016
Provisions
At 1 January 2016
Additions
Disposals
At 31 December 2016
Carrying value
At 31 December 2016
At 31 December 2015
£million
2.7
-
-
2.7
-
-
-
-
2.7
2.7
The Company’s direct associate at 31 December 2016 is Al Binaa Contracting Company W.L.L. (incorporated in Qatar). Both
the proportion of ownership interest and proportion of voting power held is 49%. Of the total investment, £17,565 relates to
investment in shares and the remainder is a loan.
H) Other investments
Bonds
I) Debtors
Amounts falling due within one year
Trade debtors
Amounts owed by Group undertakings
Corporation tax
Prepayments and accrued income
Amounts falling due after more than one year
Deferred taxation (note N)
172
2016
£million
0.3
2016
£million
0.2
95.7
11.4
7.2
114.5
7.5
7.5
2015
£million
0.3
2015
£million
0.4
34.6
8.2
7.4
50.6
-
-
Strategic Report
Financial Statements
J) Creditors: amounts falling due within one year
Bank loans and overdrafts
Trade creditors
Amounts owed to Group undertakings
Other taxation and social security
Other creditors
Accruals and deferred income
K) Creditors: amounts falling due after one year
Other creditors
Deferred tax (note N)
2016
£million
14.5
2.6
4.6
1.1
5.7
8.9
2015
£million
59.7
1.5
3.6
34.1
6.0
6.0
37.4
110.9
2016
£million
4.8
-
4.8
2015
£million
5.9
1.2
7.1
L) Retirement benefit schemes
The principal pension scheme the Company participates in and acts as sponsor for has been valued for the purposes of
IAS 19 Employee benefits. The pension scheme valuation information has been updated by Lane Clark & Peacock LLP, qualified
independent actuaries, to take account of the requirements of IAS 19 in order to assess the liabilities of the scheme as at
31 December 2016.
Actuarial gains and losses are recognised in full in the period in which they occur. As permitted by IAS 19, actuarial gains and
losses are recognised outside profit and loss and presented in other comprehensive income. The liability recognised in the
balance sheet represents the present value of the various defined benefit obligations, as reduced by the fair value of plan
assets. The cost of providing benefits is determined using the Projected Unit Credit Method.
The Company contributes to a defined benefit pension scheme in the UK, the Interserve Pension Scheme, where benefits are
generally related to service and final salary. The Company operates a defined contribution plan for new hires, with membership
of the defined benefit arrangements only permitted when specific contract terms require defined benefit provision.
Contributions to the defined contribution arrangements are in addition to those set out below and are charged directly to profit
and loss.
During 2016, a scheme merger took place whereby the entire contents of the Landmarc Pension Scheme were transferred into
a segregated section of the Interserve Pension Scheme. The Interserve Pension Scheme now comprises two segregated sections
(referred to as the Interserve and Landmarc sections), with assets and liabilities ring-fenced; as such, there is no change in the
accounting treatment compared with the position when they were separate schemes.
The current funding target for the Company’s defined benefit scheme is to maintain assets equal to the value of the accrued
benefits based on projected salaries (where relevant). The regulatory framework in the UK requires the Trustees and the
Company to agree upon the assumptions underlying the funding target, and then to agree upon the necessary contributions
required to recover any deficit at the valuation date. There is a risk to the Company that adverse experience could lead to a
requirement for the Company to make considerable contributions to recover any deficit.
173
GovernanceOverview
Notes to the Company financial statements continued
for the year ended 31 December 2016
L) Retirement benefit schemes continued
The following table sets out the key IAS 19 assumptions used to assess the present value of the defined benefit obligation. The
discount rate and inflation assumptions shown below are the single equivalent rates for the full-yield curves assumed for the
Interserve section of the Interserve Pension Scheme, which represents 91% of the total defined benefit obligation. Alternative
assumptions have been used for the less material sections where the specific nature of the schemes makes it appropriate to do
so. The weighted average duration of the expected benefit payments for the schemes is around 17 years.
2016
2015
2014
Significant actuarial assumptions
Retail price inflation (pa)
Discount rate (pa)
Post-retirement mortality (expectancy of life in years)
Male currently aged 65
Female currently aged 65
Male aged 65 in 20 years’ time
Female aged 65 in 20 years’ time
Other related actuarial assumptions
Consumer price index price inflation (pa)
Pension increase assumptions (pa)
Retail price inflation
5% LPI
Fixed 5%
3% or RPI if higher (capped at 5%)
General salary increases (pa)
3.3%
2.8%
87.6
89.5
89.4
91.0
2.3%
3.3%
3.1%
5.0%
3.7%
2.8%
3.1%
3.8%
87.6
89.4
89.3
90.9
2.1%
3.1%
3.0%
5.0%
3.6%
2.6%
3.1%
3.6%
87.5
89.5
89.3
91.0
2.1%
3.1%
3.0%
5.0%
3.6%
2.1%-2.6%
The amount included in the balance sheet arising from the Company’s obligations in respect of the pension scheme is as follows:
Present value of defined benefit obligation
Fair value of scheme’s assets
Net (asset)/liability in balance sheet
The change in net liabilities recognised in the balance sheet is comprised as follows:
Opening net asset
Expense charged to profit and loss
Amount recognied outside profit and loss
Employer contributions
Closing net (asset)/liability
2016
£million
950.8
(911.3)
39.5
2015
£million
807.2
(822.4)
(15.2)
2016
£million
(15.2)
0.4
74.7
(20.4)
39.5
2014
£million
850.0
(846.5)
3.5
2015
£million
3.5
4.3
(3.6)
(19.4)
(15.2)
174
Strategic Report
Financial Statements
Price inflation
Discount rate
Sensitivity
+0.5% pa
+0.5% pa
Post-retirement mortality (expectancy of life in years)
1 year increase
Indicative change in defined benefit obligation
2016
£million
+56
-76
+31
2015
£million
+47
-62
+26
The sensitivities shown above reflect only the change in the assessed defined benefit obligation. In practice any movement in
assumptions is likely to be accompanied by a partially offsetting change in asset values, and the corresponding overall impact on
the net liability/(asset) is therefore likely to be lower than the amounts above.
The amounts recognised in the profit and loss are as follows:
Employer’s part of current service cost
Net interest on the net pension liability/(asset)
Administration costs
Past service cost/(credit)
Loss/(gain) on settlements
Total expense recognised in the profit and loss
2016
£million
3.1
(0.9)
0.9
(2.6)
(0.1)
0.4
2015
£million
3.7
(0.2)
1.9
-
(1.1)
4.3
The current service cost and administration costs are included within operating profit. The interest cost is included within
financing costs.
The current allocation of the schemes’ assets is as follows:
Equities (quoted)
Alternative investments (primarily unquoted)
Property (unquoted)
Liability Driven Investment (LDI) (unquoted)
Insurance policies (unquoted)
Government bonds (quoted)
Corporate bonds (quoted)
Infrastructure (unquoted)
Cash and other (primarily unquoted)
2016
2015
2014
Current
allocation
Fair value
£million
Current
allocation
Fair value
£million
Current
allocation
Fair value
£million
26%
17%
0%
13%
37%
0%
0%
6%
1%
238.1
156.3
-
117.7
342.9
-
-
51.5
4.8
22%
15%
2%
0%
41%
13%
0%
6%
1%
178.2
128.1
19.4
-
336.0
105.3
-
50.9
4.5
19%
12%
4%
0%
43%
10%
0%
11%
1%
163.6
105.0
34.4
-
359.1
86.3
-
88.9
9.2
100%
911.3
100%
822.4
100%
846.5
Alternative investments include diversified growth funds, fund of hedge funds and emerging market multi-asset funds (primarily
unquoted).
The Trustee of the Interserve section of the Interserve Pension Scheme holds an insurance policy to protect the Company from
certain risks associated with approximately 35% of that section’s defined benefit obligation. The policy aims to closely match
the pension payments to the pensioner members who were above age 65 in July 2014. The policy is not an exact match for
the benefits in certain areas, notably: pension increases if price inflation falls below 0%; differences between the increase
in Consumer Prices Index and the Retail Prices Index; and the eligibility criteria for the dependants’ pensions. The element
of the policy that does not provide an exact match for the benefits covers £309.6 million of the defined benefit obligation
at 31 December 2016. The policy covers a further £9.4 million of the defined benefit obligation which precisely matches the
benefits in respect of certain dependants in receipt of pension.
175
GovernanceOverview
Notes to the Company financial statements continued
for the year ended 31 December 2016
L) Retirement benefit schemes continued
Except for the element of the policy which precisely matches the benefits (around 3% of the total policy value), the policy has
been valued as the estimated replacement cost at the accounting date by the Company’s actuarial advisers Lane, Clarke and
Peacock in accordance with the fair value requirements of IFRS 13. The small matching element has been valued at the same
amount as the defined benefit obligation in respect of the matched benefits.
During 2016 the Interserve Pension Scheme invested in a bespoke pooled LDI fund. The LDI portfolio provides a broad 45% hedge
of the Interserve section’s interest rate and inflation exposure not covered by the insurance policy above. The LDI manager
invests in a combination of gilts and swaps, depending on the relative attractiveness of each instrument at each maturity.
The infrastructure holding predominantly consists of the remaining portfolio of PFI investments originally transferred by
Interserve Plc to the Interserve Pension Scheme in November 2009 and January 2013. The schemes have not directly invested in
any of the Company’s other financial instruments nor in other assets or properties used by the Company.
A reconciliation of the fair value of the schemes’ assets is as follows:
Opening defined benefit obligation
Employer’s part of current service cost
Interest cost
Contributions by schemes’ participants
Actuarial loss/(gain) due to:
Changes in financial assumptions
Changes in demographic assumptions
Experience on defined benefit obligations
Benefits paid
Past service cost/(credit)
Curtailments and settlements
Bulk transfers
Closing defined benefit obligation
A reconciliation of the fair value of the schemes’ assets is as follows:
Opening fair value of the schemes’ assets
Interest on schemes’ assets
Actual return on schemes’ assets less interest on schemes’ assets
Contributions by the employer
Contributions by schemes’ participants
Benefits paid
Administration costs
Curtailments and settlements
Bulk transfers
Closing fair value of the schemes’ assets
2016
£million
807.2
3.1
30.0
0.3
158.8
-
(9.4)
(35.8)
(2.6)
(0.8)
-
950.8
2016
£million
822.4
30.9
74.7
20.4
0.3
(0.9)
(35.8)
(0.7)
-
911.3
2015
£million
850.0
3.7
30.0
0.3
(25.9)
(2.3)
(8.5)
(33.0)
-
(7.2)
0.1
807.2
2015
£million
846.5
30.2
(33.1)
19.4
0.3
(1.9)
(33.0)
(6.1)
0.1
822.4
Based on current contribution rates and payroll, the Company expects its subsidiaries to contribute £19.5 million to the defined
benefit arrangement during 2017. This includes deficit contributions to the Interserve Pension Scheme of £13.7 million.
176
Strategic Report
Financial Statements
M) Provisions for liabilities
At 1 January
Charged to the profit and loss account
Charged to other comprehensive income
Released unused
Utilisation of provision
At 31 December
2016
£million
Insurance
Other
Total
Insurance
(11.6)
(4.3)
-
-
-
(15.9)
-
-
-
-
-
-
(11.6)
(4.3)
(14.3)
2.7
-
-
-
-
-
-
(15.9)
(11.6)
2015
£million
Other
(0.4)
-
-
0.4
-
-
Total
(14.7)
2.7
-
0.4
-
(11.6)
Insurance provisions are made for claim events that have been incurred, but not reported based on claims history as a guide to
best estimate the level of provision. The timing and outflow of these provisions will depend on when claims are settled. The
Company aims to close out old insurance years on a regular basis if favourable pricing can be obtained from the market in order
to avoid holding on to unnecessary provisions.
N) Deferred taxation asset
At 1 January 2015
Charge/(credit) to the profit and loss
Charge to other comprehensive income
Charge direct to equity
At 1 January 2016
Charge/(credit) to the profit and loss
Charge to other comprehensive income
Charge direct to equity
At 31 December 2016
Accelerated
tax
depreciation
£million
Retirement
benefit
obligation
£million
Share-based
payments
£million
Revaluation of
financial
assets
£million
0.2
0.2
-
-
0.4
0.1
-
-
0.5
0.7
0.5
(4.2)
-
(3.0)
(0.1)
9.8
-
6.7
2.8
(1.7)
-
-
1.1
(1.0)
-
-
0.1
0.1
(0.1)
-
-
-
-
-
-
-
Other
£million
0.3
-
-
-
0.3
(0.1)
-
-
0.2
Total
£million
4.1
(1.1)
(4.2)
-
(1.2)
(1.1)
9.8
-
7.5
Deferred tax assets and liabilities are offset where the Company has a legally enforceable right to do so. The following is the
analysis of the deferred tax balances (after offset) for financial reporting purposes.
Deferred tax liabilities (note K)
Deferred tax assets (note I)
Deferred tax is calculated at 17% (2015: 20%).
2016
£million
-
7.5
7.5
2015
£million
(1.2)
-
(1.2)
177
GovernanceOverview
Notes to the Company financial statements continued
for the year ended 31 December 2016
O) Share capital
Authorised
Ordinary shares of 10p each
Allotted, called-up and fully paid
Ordinary shares of 10p each
At 1 January
Issued on exercise of share options
At 31 December
2016
£million
2015
£million
Unlimited
Unlimited
14.5
0.1
14.6
14.4
0.1
14.5
Awards were granted during the year as indicated in note 26 to the Group consolidated financial statements.
P) Contingent liabilities
At 31 December 2016, 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 2016, these amounted
to £2.1 million (2015: £1.7 million). The Company has provided a guarantee to the Interserve Pension Scheme for future
contributions due from subsidiary undertakings amounting to £250.0 million (2015: £250.0 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 £14.6 million (2015: £12.4 million) in respect of borrowings and £241.5 million
(2015: £189.3 million) in respect of guarantees. At 31 December 2016, £nil (2015: £nil) had been utilised in borrowings and
£149.3 million (2015: £115.4 million) in guarantees.
178
Strategic Report
Financial Statements
Related undertakings
In accordance with section 409 of the Companies Act 2006, a full list of the related undertakings of Interserve Plc, as at 31 December 2016, is
disclosed below. Unless otherwise stated:
(a)
(b)
the principal operations of each related undertaking are conducted in its country of incorporation or registration;
the shareholding of each related undertaking relates to ordinary, common or unclassified share capital and is equivalent to the
percentage of voting rights held by the Group;
the equity capital of each related undertaking is held through an intermediate holding company rather than Interserve Plc;
the results of each related undertaking are consolidated within these financial statements; and
the consolidated financial state ents include the results for the twelve months to 31 December even if the accounting reference date is
different.
(c)
(d)
(e)
Subsidiary undertakings
Principal activity
Incorporated in the United Kingdom
England and Wales: Interserve House, Ruscombe Park, Twyford, Reading, Berkshire RG10 9JU
Advantage Healthcare Ltd
Advantage Healthcare Nursing and Care Ltd
Advantage Healthcare Payroll Ltd
Advantage Healthcare (QHRS) Ltd
Advantage Healthcare (QHS) Ltd
Axiam (UK) Ltd
Baker Blythe & Company Ltd
Bandt Holdings Ltd
Bandt P J H Ltd
Bandt Properties Ltd
Bateman’s Cleaning Services Ltd
Broadreach Group Ltd1
Broomco (4110) Ltd2
ESG Corporate Services Ltd
ESG Holdings Ltd
ESG Intermediate Holdings Ltd
ESG (Skills) Ltd
How Engineering Services Northern Ltd
How Group Ltd
How Group Trust Company Ltd
How Investments Ltd
Industrial Services International Ltd
Interserve Building Ltd
Interserve Developments No.1 Ltd
Interserve Developments No.2 Ltd
Interserve Developments No.3 Ltd
Interserve Developments No.4 Ltd
Interserve Developments No.6 Ltd
Interserve Energy Renewable Solutions Ltd
Interserve Engineering Ltd
Interserve Finance Ltd
Interserve Finance (Switzerland) Holdings Ltd
Interserve Group Holdings Ltd3
Interserve Group Holdings (Qatar) Ltd
Interserve Healthcare Holdings Ltd4
Interserve Healthcare Ltd
Interserve Holdings Ltd
Interserve International Ltd
Interserve Investments Ltd
Interserve Project Services Ltd2
Interserve Service Futures Holdings Ltd
Interserve Service Futures Ltd
Interserve Strategic Partnerships Ltd
Interserve Support Services Ltd
Interserve Trustees Ltd2 3 5
Interserve Working Futures Ltd
Kwikform Holdings Ltd1
Kwikform UK Ltd3
MacLellan Group Ltd
MacLellan Integrated Services Ltd
Montpellier Health Care Ltd
Orient Gold Ltd
Professional Healthcare Services Ltd
Purple Futures LLP6
RMD Kwikform Holdings Ltd
R M Douglas Construction Ltd
Ruscombe Ltd3
Sencia Ltd1
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Holding company
Dormant company
Property management
Dormant company
Holding company
Dormant company
Central support to fellow subsidiary companies
Holding company
Holding company
Vocational training services
Dormant company
Holding company
Corporate trustee of employee benefit trust
Dormant company
Dormant company
Dormant company
Holding company
Holding company
Property development management
Holding company
Holding company
Dormant company
Holding company
Intra-group financing company
Holding company
Holding company
Dormant company
Holding company
Healthcare services
Holding company
Holding company
Holding company
Dormant company
Holding company
Holding company
Holding company
Dormant company
Pension trustee company
Welfare-to-work services
Holding company
Dormant company
Holding company
Dormant company
Dormant company
Vocational training services
Dormant company
Management of five Community Rehabilitation Companies
Holding company
Dormant company
Dormant company
Training and employment services
Group
holding
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
33.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
80.0%
100.0%
100.0%
100.0%
100.0%
179
GovernanceOverview Related undertakings continued
Subsidiary undertakings continued
Principal activity
Strand Nurses Bureau Ltd
T D Construction Ltd1
The Cheshire and Greater Manchester Community Rehabilitation
Company Ltd
The Courtyard (Bristol) Management Company Ltd3 7
The Hampshire and Isle of Wight Rehabilitation Company Ltd
The Humberside, Lincolnshire and North Yorkshire Community
Rehabilitation Company Ltd
The Merseyside Community Rehabilitation Company Ltd
The Ramoneur Company Ltd
The West Yorkshire Community Rehabilitation Company Ltd
Tilbury Developments Ltd1 3
Tilbury Douglas Construction Ltd
Tilbury Douglas Projects Ltd
Tilbury Estates Ltd3
Transcoast Ltd3
Triangle Training Holdings Ltd
Triangle Training Ltd
Unique Cleaning Services Ltd
West’s Group International Ltd1
England and Wales: Capital Tower, 91 Waterloo Road, London SE1 8RT
Benchmark Carpet Care Ltd
Building & Property (Holdings) Ltd
Building & Property Trustees Ltd
Central Window Cleaning Company Ltd
Clough Williams Power Ltd2
Euro AS Ltd
Fincham Industrial Services Ltd8
First Security Group Ltd9
First Security (Guards) Ltd10
Global Protect Ltd
Hi-Tech Cleaning Solutions Ltd
How Engineering Services Ltd
Insitu Cleaning Company Ltd
Interserve Building Services (UK) Ltd
Interserve Catering Services Ltd2
Interserve (Defence) Ltd
Interserve Environmental Services Ltd
Interserve (Facilities Management) Ltd
Interserve (Facilities Services) Ltd
Interserve (Facilities Services-Slough) Ltd8
Interserve Fire Services Ltd
Interservefm (Holdings) Ltd
Interservefm Ltd11
Interserve FS (UK) Ltd
Interserve Hospital Services Ltd
Interserve Industrial Services Ltd
Interserve Integrated Services Ltd
Interserve Security (Fire & Electronics) Ltd
Interserve Security Ltd
Interserve Specialist Services (Holdings) Ltd
Interserve Technical Services Ltd
KGL Business Services Ltd
Knightsbridge Guarding Holdings Ltd9
Knightsbridge Guarding Ltd
Lancaster Employment Business Ltd
Lancaster Office Cleaning Company Ltd
Lancaster Payroll Company Ltd
Landmarc Pension Scheme Trustees Ltd
Landmarc Solutions Ltd
Landmarc Support Services Ltd12
MacLellan International Airport Services Ltd
MacLellan International Ltd
MacLellan Ltd
MacLellan Management Services Ltd
Modus FM Ltd
MSS Facilities Management Ltd
Perception UK LLP6
Phoenix Fire Services Ltd
Phonotas Services Ltd
Quadro Specialist Cleaning Services Ltd
180
Dormant company
Dormant company
Probation and rehabilitation services
Dormant company
Probation and rehabilitation services
Probation and rehabilitation services
Probation and rehabilitation services
Dormant company
Probation and rehabilitation services
Dormant company
Dormant company
Property rental
Dormant company
Dormant company
Holding company
Vocational training services
Dormant company
Holding company
Dormant company
Holding company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Security manpower and associated support services
Dormant company
Dormant company
Dormant company
Non-trading company
Dormant company
Catering services
Support services to defence sector
Asbestos services
Facilities management services
Dormant company
Management/maintenance services for Slough Borough Council
Dormant company
Holding company
Holding company
Contract cleaning and related services
Dormant company
Industrial support services
Support services
Dormant company
Dormant company
Holding company
Mechanical and electrical engineering services
Dormant company
Holding company
Manned guarding security services
Dormant company
Dormant company
Dormant company
Pension trustee company
Share plan trustee
Management/maintenance services for MoD Army
Training Estate
Dormant company
Facilities management services
Dormant company
Personnel and management services
Maintenance and facilities management services
Dormant company
Dormant company
Fire suppression and detection systems
Dormant company
Dormant company
Group
holding
100.0%
100.0%
80.0%
33.3%
80.0%
80.0%
80.0%
100.0%
80.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
51.0%
100.0%
51.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Strategic Report
Financial Statements
Subsidiary undertakings continued
Principal activity
R & D Holdings Ltd
Ramoneur Cleaning and Support Services Ltd
Retail Cleaning Services Ltd2
SSD UK Ltd
St James Cleaning and Support Services Ltd
TASS (Europe) Ltd
THK Insulation Ltd
Tilbury (City) Ltd3
Dormant company
Dormant company
Dormant company
Specialist window cleaning
Dormant company
Dormant company
Dormant company
Dormant company
England and Wales: 395 George Road, Erdington, Birmingham, West Midlands B23 7RZ
CI-ONE Construction Ltd
Interserve Construction Ltd
Interserve Engineering Services Ltd
Interserve Piling Ltd
Interserve Rail Ltd1 3
Paragon Management UK Ltd
Tilbury Water Treatment Ltd
Whittle Contracts Ltd3
Dormant company
Sustainable solutions for building/infrastructure projects
Mechanical, electrical and engineering services
Non-trading company
Dormant company
Fitting out and refurbishment of offices and other buildings
Dormant company
Dormant company
England and Wales: Brickyard Road, Aldridge, Walsall, West Midlands WS9 8BW
Rapid Metal Developments Ltd
RMD Kwikform Ltd
Dormant company
Equipment hire and sales
Scotland: 35 North Canal Bank Street, Glasgow G4 9XQ
Bandt Ltd
Tilbury Homes (Glasgow) Ltd3
Tilbury Homes (Scotland) Ltd3
Incorporated in the Rest of Europe
Holding company
Dormant company
Dormant company
Channel Islands: Mill Court, La Charroterie, St Peter Port, Guernsey GY1 4ET
Interserve Insurance Company Ltd
Insurance
Poland: Plac Konstytucji 6/55, 01-553 Warszawa
Tilbury Douglas Polska Sp zoo
In liquidation
Portugal: Avenida Antonio Augusto Aguiar, No.66, 4th esq, 1050-018 Lisboa
RMD Kwikform Ibérica – Cofragens e Construçôes Metálicas, Unipessoal, Lda Equipment hire and sales
Republic of Ireland: Ballyboggan Road, Finglas, Dublin 11
Interserve Industrial Services (Ireland) Ltd
RMD Kwikform Ireland Ltd
Dormant company
Equipment hire and sales
Spain: Calle San Miguel 25, Bajo 1, Azuqueca de Henares, Guadalajara 19200
Interserve Centro Especial de Empleo, SL
Supply of labour for Spanish contracts
Spain: Calle Juan Ignacio Luca de Tena 8, Madrid 28027
Interserve Facilities Services, SA
Translimp Contract Services, SA
Dormant company
Supply of labour for Spanish contracts
Spain: Avenida de Europa, 19 – Ed 2 – 2o D, Pozuelo de Alarcon, Madrid 28224
RMD Kwikform Ibérica, SA
The Indium Division Company, SL
Tilbury Ibérica, SA3
Equipment hire and sales
Property leasing
Holding company
Switzerland: Avenue Jean-Jacques-Rousseau 7, Neuchatel 2000
Interserve Finance (Switzerland) Sàrl
Intra-group financing company
Incorporated in the Middle East & Africa
India: 6202/2, 3rd Floor, Shiv Sakthi Mansion, Block 1, Dev Nagar, Karol Bagh, Delhi 110005
RMD Kwikform India Private Ltd
Equipment hire and sales
Kingdom of Bahrain: Flat 34, Building 5, Road 3001, Block 330, Manama
RMD Kwikform Almoayed Bahrain WLL13
Equipment hire and sales
Kingdom of Saudi Arabia: 7536, Unit No 39, AR Riyadh 12472-4304
ESG (Saudi Arabia) LLC
Kingdom of Saudi Arabia: PO Box 62982, Riyadh 11595
Interserve Saudi Arabia LLC
Education, training and employment services
Building maintenance and cleaning
Kingdom of Saudi Arabia: Office No.4A, Gulf Star Building, near Hotel Meridien, Prince Turkey Road, Al Khobar 31952
RMD Kwikform Saudi Arabia LLC
Equipment hire
Mauritius: Axis Fiduciary Ltd, 2nd Floor, The Axis, 26 Cybercity, Ebene 72201
Interserve International Equipment Ltd
Rental of plant and machinery
Republic of South Africa: 52 Jakaranda Street, Plot 22, Hennopspark, Centurion
RMD Kwikform (South Africa) (Proprietary) Ltd
Equipment hire and sales
State of Qatar: PO Box 405, Doha
RMD Kwikform (Al Maha) Qatar WLL14
Equipment hire and sales
Group
holding
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
95.0%
100.0%
100.0%
100.0%
100.0%
100.0%
95.0%
100.0%
100.0%
100.0%
100.0%
49.0%
100.0%
100.0%
100.0%
85.0%
100.0%
49.0%
181
GovernanceOverview Related undertakings continued
Subsidiary undertakings continued
Principal activity
Sultanate of Oman: PO Box 1639, Hay Al-Mina, Muscat, Postal Code 114
Interserve Oman LLC15
Facilities management
Sultanate of Oman: PO Box 152, Muscat, Postal Code 103
RMD Kwikform Oman LLC
Sultanate of Oman: PO Box 142, Muscat, Postal Code 100
The Oman Construction Company LLC16
Equipment hire and sales
Transport and maintenance services to oil and gas industry
United Arab Emirates: PO Box 7604, Plot M10, Musaffah Industrial, Oil Services Area, Sector 10, MW2, Musaffah, Abu Dhabi
Adyard Abu Dhabi LLC17
Engineering works for oil and gas industry
United Arab Emirates: No.104, Arjan Emirates Real Estate – Branch 1, PO Box 129354, Al Hilal Building, Al Falah Road, Abu Dhabi
Landmarc Gulf Consultancy Management LLC18
Administrative consultancy
United Arab Emirates: PO Box 5801, Sharjah
RMD Kwikform Middle East LLC19
Equipment hire and sales
United Arab Emirates: No.5, Level 7, West Tower, Trade Centre Towers, Abu Dhabi
RMD Kwikform Oil & Gas Services LLC20
Equipment hire and sales
Incorporated in Australasia
Australia: PO Box 169, Melrose Park, South Australia 5039
Rapid Metal Developments (Australia) Proprietary Ltd
Equipment hire and sales
New Zealand: PO Box 22.316, 101 Station Road, Otahuhu, Auckland 6, New Zealand
Rapid Metal Developments (NZ) Ltd
Equipment hire and sales
Incorporated in the Far East
Hong Kong: Suite 3806, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong
RMD Kwikform Hong Kong Ltd3
Equipment hire and sales
Republic of Indonesia: 2nd Floor, Suite 202B, Wisma Pondok Indah, Jl Sultan Iskandar Muda V-TA, Pondok Indah, Jakarta
PT Rapid Metal Development Indonesia
Equipment hire and sales
Republic of the Philippines: Unit 2406-09 Raffles Corporate Center, F.Ortigas Jr. Ave., Ortigas Center, Pasig City, Metro Manila
RMD Kwikform Philippines, Inc3
Equipment hire and sales
Republic of Singapore: 77 Robinson Road, #13-00 Robinson 77, Singapore 068896
RMD Kwikform Singapore Pte Ltd
Equipment hire and sales
Incorporated in the Americas
Bermuda: PO Box HM 1022, Clarendon House, 2 Church Street, Hamilton, HM11
Interserve Engineering & Construction (UAE) Ltd
Oil-field maintenance, fabrication and construction services
Canada: Suite 1001, 275 Slater Street, Ottawa, ON, K1P5H9
Interserve Canada Ltd
Support services to defence sector
Cayman Islands: Intertrust Corporate Services (Cayman) Limited, 190 Elgin Avenue, George Town, Grand Cayman KY1-9005
Interserve Engineering & Construction Ltd
Holding company
Guam: Suite 101, Orlean Pacific Plaza, 865 South Marine Corps Drive, Tamuning 96913
RMD Kwikform Guam, LLC
Equipment hire and sales
Republic of Chile: La Estera 811, Valle Grande, Lampa, Santiago 9390433
RMD Kwikform Chile SA
Equipment hire and sales
Republic of Colombia: Calle 98, No 18-71 of 805, Bogota
RMD Kwikform Colombia SAS
Equipment hire and sales
Republic of Panama: Calle A, Km 1.0 desde Transitsmica, Villa Zaita, Panama City
RMD Kwikform Panama, SA
Equipment hire and sales
Republic of Peru: Calle Los Zorzales No.160, Distrito de San Isidro, Lima
RMD Kwikform Peru SAC
Equipment hire and sales
United States of America: 2711 Centerville Road, Suite 400, Wilmington, New Castle, DE 19808
Holding company
RMD Kwikform North America Holdings Inc
Equipment hire and sales
RMD Kwikform North America Inc
Group
holding
70.0%
70.0%
70.0%
49.0%
25.0%
49.0%
49.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
182
Strategic Report
Financial Statements
Notes - subsidiary undertakings
1 Ownership held in ordinary and preference shares.
2 Ownership held in ordinary A and ordinary B shares.
3 Shareholding directly held by Interserve Plc.
4 Ownership held in ordinary A, ordinary B, preference A, preference B and deferred shares.
5 The Group has the right to appoint the majority of the directors of Interserve Trustees Limited by virtue of provisions contained in its Articles of
Association and is therefore deemed to be a subsidiary undertaking.
6 No share capital.
7 The Group exercises dominant infl ence and control over The Courtyard (Bristol) Management Company Ltd by virtue of provisions contained in its
Articles of Association. It is therefore consolidated in the Group financial statements as a wholly-owned subsidiary undertaking. Ownership is held in
ordinary and developer’s shares.
8 Ownership held in ordinary and deferred shares.
9 Ownership held in ordinary and ordinary A shares.
10 Ownership held in ordinary, deferred A and deferred B shares.
11 Ownership held in ordinary, redeemable ordinary and deferred shares.
12 Ownership held in ordinary A and ordinary C shares.
13 The Group has the right to appoint and remove the Board of Managers and therefore exercises dominant infl ence and control over RMD Kwikform
Almoayed Bahrain LLC. It is therefore consolidated in the Group financial statements as a wholly-owned subsidiary undertaking.
14 The Group has the right to appoint and remove the General Manager and therefore exercises dominant infl ence and control over RMD Kwikform
(Al Maha) Qatar WLL. It is therefore consolidated in the Group financial statements as a wholly-owned subsidiary undertaking.
15 The Group has a 70% equity shareholding in Interserve Oman LLC. It is consolidated in the Group financial statements as an 85%-owned subsidiary
undertaking on the basis of contractual arrangements.
16 The Group has a 70% equity shareholding in The Oman Construction Company LLC. It is consolidated in the Group financial statements as an
85%-owned subsidiary undertaking on the basis of contractual arrangements.
17 The Group exercises dominant infl ence and control over Adyard Abu Dhabi LLC by virtue of provisions contained in its Memorandum of Association.
It is therefore consolidated in the Group financial statements as a wholly-owned subsidiary undertaking.
18 The Group has the right to appoint the majority of the directors of Landmarc Gulf Consultancy Management LLC by virtue of provisions contained in
its Memorandum of Association. It is therefore consolidated in the Group financial statements as a 51%-owned subsidiary undertaking.
19 The Group has the right to appoint and remove the Manager and therefore exercises dominant infl ence and control over RMD Kwikform Middle East
LLC. It is therefore consolidated in the Group financial statements as a wholly-owned subsidiary undertaking.
20 The Group has the right to appoint and remove the Manager and therefore exercises dominant infl ence and control over RMD Kwikform Oil & Gas
Services LLC. It is therefore consolidated in the Group financial statements as a wholly-owned subsidiary undertaking.
Associated undertakings1
Principal activity
Accounted for as Associates within the financial statements
Incorporated in the Middle East & Africa
Kingdom of Saudi Arabia: Alsroor Building, Kilo 1, Mecca Road, Jeddah
Al-Esayi Saif Noman Douglas Ltd
In liquidation
State of Qatar: PO Box 1811, Building No.334, C Ring Road, Street 230, Zone 24, Doha
Al Binaa Contracting Company WLL2
Contracting and investment
State of Qatar: PO Box 3886, Building No.309, 230 C Ring Road, Area/Zone 40, Doha
Gulf Contracting Co WLL
Civil engineering, building and maintenance services
State of Qatar: Zone 39, Al Saad Street No.340, Building 55 United Tower, 2nd Floor, PO Box 24176, Doha
How United Services WLL
Mechanical, engineering and plumbing services
State of Qatar: PO Box 20459, Doha
Madina Group WLL
Qatar Inspection Services WLL
Severn Glocon (Qatar) WLL
State of Qatar: PO Box 23651, Doha
Qatar International Safety Centre WLL
State of Qatar: PO Box 22715, Doha
United Industrial Services WLL
Mechanical engineering fabrication contractor
Non-destructive testing and inspection services
Supply of valves and valve maintenance services
Safety training for oil, gas and petrochemical industries
Holding company
Sultanate of Oman: PO Box 1639, Hay Al-Mina, Muscat, Postal Code 114
Douglas OHI LLC
Civil engineering and building
Sultanate of Oman: Flat No 31, PO Box 889, Building No.2522, Way No.3830, Al Ghubra Tower, Al Ghubra, Muscat 100
Khansaheb Civil Engineering LLC
Road construction
Sultanate of Oman: PO Box 375, Muscat, Postal Code 114, Jibroo
Occupational Training Institute LLC
Health & safety, environment and educational services
United Arab Emirates: PO Box 2716, Dubai
Khansaheb Civil Engineering LLC
Khansaheb Group LLC
United Arab Emirates: PO Box 259, Abu Dhabi
Khansaheb Hussain LLC
United Arab Emirates: PO Box 4722, Abu Dhabi
Khansaheb UKCon International LLC
Civil engineering, building and maintenance services
Facilities management and maintenance services
Civil engineering, building and maintenance services
Dormant company
Group
holding
49.0%
49.0%
49.0%
49.0%
49.0%
49.0%
49.0%
49.0%
49.0%
49.0%
46.4%
49.0%
45.0%
49.0%
49.0%
49.0%
183
GovernanceOverview Related undertakings continued
Associated undertakings1 continued
Principal activity
Accounted for as Joint Ventures within the financial statements
Incorporated in the United Kingdom
England and Wales: Interserve House, Ruscombe Park, Twyford, Reading, Berkshire RG10 9JU
Harmondsworth Detention Services Ltd
Rehab Jobfit LLP5
Dormant company
Employment-related support services
England and Wales: Capital Tower, 91 Waterloo Road, London SE1 8RT
Axiam Ltd
PriDE (SERP) Ltd4
Sussex Estates and Facilities LLP5
Dormant company
MoD estate management services
Facilities management services
England and Wales: 8 White Oak Square, London Road, Swanley, Kent BR8 7AG
Alder Hey Holdco 1 Ltd
Alder Hey Holdco 2 Ltd
Alder Hey Holdco 3 Ltd
Alder Hey (Special Purpose Vehicle) Ltd
Holding company
Holding company
Holding company
Hospital construction/operation
England and Wales: 55 Baker Street, London W1U 8EW
HLR Schools Holding Ltd
HLR Schools Ltd
Holding company
School/college construction/operation
England and Wales: 5 The Triangle, Wildwood Drive, Worcester WR5 2QX
Interserve Prime Solutions Ltd4
Partnering Solutions (Southampton) Ltd
Partnering Solutions (Yeovil) Ltd
Southampton CEDP LLP5
Southampton CEDP Project Co Ltd
Yeovil Estates Partnership LLP5
Holding company
Hospital construction/operation
Hospital construction/operation
Hospital construction/operation
Hospital construction/operation
Hospital construction/operation
England and Wales: Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire MK1 1BU
Resource Recovery Solutions (Derbyshire) Holdings Ltd3
Resource Recovery Solutions (Derbyshire) Ltd
Holding company
Construction/operation of new waste treatment facility
Scotland: 35 North Canal Bank Street, Glasgow G4 9XQ
Addiewell Prison (Holdings) Ltd
Addiewell Prison Ltd
Holding company
Prison construction/operation
Scotland: Interserve House, Almondview Business Park, Almondview, Livingston EH54 6SF
Edinburgh Haymarket Developments Ltd3
Property development
Seacole National Centre (Holding) Ltd3
Holding company
Construction/maintenance of new National Centre for Scottish
Seacole National Centre Ltd
National Blood Transfusion Service
Notes - associated undertakings
1 Accounted for using the equity method of consolidation.
2 Shareholding directly held by Interserve Plc.
3 Ownership held in ordinary B shares.
4 Ownership held in ordinary A shares.
5 No share capital.
Joint ventures1
Principal activity
Incorporated in the United Kingdom
England and Wales: Brunswick House, Hindley Green Business Park, Leigh Road, Hindley Gree, Wigan WN2 4TN
KMI Plus Water
KMI Water
Water project framework for United Utilities
Water project framework for United Utilities
Incorporated in the Rest of Europe
Spain: Avenida de Europa, 18 Parque Empresarial La Moraleja, 28108 Alcobendas, Madrid
Acciona Agua SAU
Water desalination project for Thames Water Utilities Ltd
Notes - joint ventures
1 Accounted for as joint operations within the financial statements.
Group
holding
49.0%
49.0%
50.0%
50.0%
35.0%
20.0%
20.0%
20.0%
20.0%
45.0%
45.0%
50.0%
50.0%
50.0%
25.0%
25.0%
25.0%
50.0%
50.0%
33.3%
33.3%
50.0%
50.0%
49.5%
Group
holding
30.8%
33.3%
47.0%
184
Strategic Report
Financial Statements
The following entities were part of the Group’s former PFI portfolio and have now been transferred to the trustee of the Interserve Pension
Scheme or Dalmore Capital. Whilst the Group has retained the legal interest shown, it no longer has any beneficial interest in these entities
and they have no impact on the consolidated financial statements.
Other holdings
Principal activity
Incorporated in the United Kingdom
England and Wales: Interserve House, Ruscombe Park, Twyford, Reading, Berkshire RG10 9JU
Ashford Prison Services Holdings Ltd
Ashford Prison Services Ltd
Dudley Summit PLC
Environments for Leaning Leeds Holdco Four Ltd1
Environment for Learning Leeds Holco One Ltd2
Environments for Learning Leeds Holdco Three Ltd1
Environments for Learning Leeds Holdco Two Ltd2
Environments for Learning Leeds PFI Four Ltd
Environments for Learning Leeds PFI One Ltd
Environments for Learning Leeds PFI Three Ltd
Environments for Learning Leeds PFI Two Ltd
Environments for Learning Leeds PSP Ltd3
Environments for Learning Ltd4
Environments for Learning Sandwell PFI Holdco One Ltd2
Environments for Learning Sandwell PFI One Ltd
Environments for Learning Sandwell PSP Ltd3
Environments for Learning St Helens Holdco Ltd5
Environments for Learning St Helens Partnership Ltd4
Environments for Learning St Helens PFI Ltd
Environments for Learning St Helens PSP Ltd
Falcon Support Services (Holdings) Ltd
Falcon Support Services Ltd
ICB Holdings Ltd4
Inteq Services (Holdings) Ltd
Inteq Services Ltd
Interserve Developments No.10 Ltd
Interserve PFI 2003 Ltd
Interserve PFI 2005 Ltd
Interserve PFI Holdings Ltd6
Interserve PFI Holdings 2003 Ltd6
Interserve PFI Holdings 2014 Ltd
Investors in the Community (Buxton) Ltd
Kent and East Sussex Weald Hospital Holdings Ltd
Kent and East Sussex Weald Hospital Ltd
Leeds D&B One Ltd
Leeds LEP Ltd7
Minerva Education and Training (Holdings) Ltd
Minerva Education and Training Ltd
Peterborough Prison Management Holdings Ltd
Peterborough Prison Management Ltd
PFI Custodial (Holdings) Ltd
PFI Para (Holdings) Ltd
Pyramid Accommodation Services (Cornwall) Holdings Ltd
Pyramid Accommodation Services (Cornwall) Ltd
Pyramid Schools (Cornwall) Holdings Ltd
Pyramid Schools (Cornwall) Ltd
Pyramid Schools (Hadley) Holdings Ltd
Pyramid Schools (Hadley) Ltd
Pyramid Schools (Plymouth) Design & Build Ltd
Pyramid Schools (Plymouth) Holdings Ltd
Pyramid Schools (Plymouth) Ltd
Pyramid Schools (Southampton) Holdings Ltd
Pyramid Schools (Southampton) Ltd
Pyramid Schools (Tameside) Holdings Ltd
Pyramid Schools (Tameside) Ltd
Sandwell Futures Ltd7
Summit Healthcare (Dudley) Ltd
Summit Holdings (Dudley) Ltd
UCLH Investors (Holdings) Ltd2
Victory Support Services (Portsmouth) Holdings Ltd
Victory Support Services (Portsmouth) Ltd
West Yorkshire PFI Operational Training &
Accommodation (Holdings) Ltd
West Yorkshire PFI Operational Training &
Accommodation Ltd
Holding company
Prison construction/operation
Investment company
Holding company
Holding company
Holding company
Holding company
Leisure centre construction/operation
School/college construction/operation
Leisure centre construction/operation
School/college construction/operation
Holding company
Holding company
Holding company
School/college construction/operation
Holding company
Holding company
Management services
School/college construction/operation
Holding company
Holding company
Construction/operation of MoD accommodation facilities
Holding company
Holding company
Construction/operation of MoD accommodation and office facilities
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Construction/operation of Health & Safety Laboratory
Holding company
Hospital construction/operation
School/college construction/operation
School/college operation/management
Holding company
Construction/operation of Defence Sixth Form College for MoD
Holding company
Prison construction/operation
Holding company
Holding company
Holding company
Fire station construction/operation
Holding company
School/college construction/operation
Holding company
School/college construction/operation
Dormant company
Holding company
School/college construction/operation
Holding company
School/college construction/operation
Holding company
School/college construction/operation
School/college management/operation
Hospital construction/operation
Holding company
Holding company
Holding company
Day care/respite care centre construction/operation
Holding company
Construction/operation of three new facilities for West Yorkshire
Police Authority
Group
holding
5.5%
5.5%
16.7%
8.3%
6.6%
7.5%
6.6%
8.3%
6.6%
7.5%
6.6%
8.3%
8.3%
6.6%
6.6%
8.3%
8.2%
7.5%
8.2%
8.3%
25.1%
25.1%
10.0%
8.3%
8.3%
50.1%
50.1%
16.6%
50.1%
33.1%
50.1%
10.0%
4.2%
4.2%
6.6%
6.6%
22.5%
22.5%
5.5%
5.5%
16.6%
16.6%
25.1%
25.1%
25.1%
25.1%
25.1%
25.1%
8.3%
8.3%
8.3%
25.1%
25.1%
25.1%
25.1%
6.6%
16.7%
16.7%
8.3%
50.1%
50.1%
25.1%
25.1%
185
GovernanceOverview Related undertakings continued
Other holdings continued
Principal activity
England and Wales: 8 White Oak Square, London Road, Swanley, Kent BR8 7AG
Healthcare Support (Newcastle) Finance Plc
Healthcare Support (Newcastle) Holdings Ltd
Healthcare Support (Newcastle) Ltd
Investment company
Holding company
Hospital construction/operation
England and Wales: Third Floor, Broad Quay House, Prince Street, Bristol BS1 4DJ
Health Management (Carlisle) Holdings Ltd
Health Management (Carlisle) Ltd5
Health Management (UCLH) Holdings Ltd
Health Management (UCLH) Ltd
UCLH Investors Ltd 3
Holding company
Hospital construction/operation
Holding company
Hospital construction/operation
Holding company
Northern Ireland: Carnbane House, Shepherd’s Way, Newry, Co Down BT35 6EE
Belfast Educational Services (Derry) Holdings Ltd
Belfast Educational Services (Derry) Ltd
Belfast Educational Services (Down & Connor) Holdings Ltd
Belfast Educational Services (Down & Connor) Ltd
Belfast Educational Services (Downpatrick) Holdings Ltd
Belfast Educational Services (Downpatrick) Ltd
Belfast Educational Services (Dungannon) Holdings Ltd
Belfast Educational Services (Dungannon) Ltd
Belfast Educational Services (Holdings) Ltd
Belfast Educational Services Ltd
Belfast Educational Services (Omagh) Holdings Ltd
Belfast Educational Services (Omagh) Ltd
Belfast Educational Services (Strabane) Holdings Ltd
Belfast Educational Services (Strabane) Ltd
Holding company
School/college construction/operation
Holding company
School/college construction/operation
Holding company
School/college construction/operation
Holding company
School/college construction/operation
Holding company
School/college construction/operation
Holding company
School/college construction/operation
Holding company
School/college construction/operation
Northern Ireland: At the offices of Tughans, Marlborough House, 30 Victoria Street, Belfast BT1 3GS
NIHG Ltd
NIHG South West Health Partnership Ltd
Holding company
Hospital construction/operation
Notes - other holdings
1 Ownership held in ordinary A, ordinary C and preferred shares.
2 Ownership held in ordinary A and ordinary C shares.
3 Ownership held in ordinary A shares.
4 Ownership held in ordinary B shares.
5 Ownership held in ordinary A and ordinary B shares.
6 Ownership held in an ordinary and a Special Rights share.
7 Ownership held in ordinary C shares.
Group
holding
3.3%
3.3%
3.3%
8.3%
8.3%
5.0%
5.0%
6.6%
8.3%
8.3%
8.3%
8.3%
8.3%
8.3%
25.1%
25.1%
16.7%
16.7%
25.1%
25.1%
8.3%
8.3%
6.1%
6.1%
186
Five-year analysis
(unaudited)
Revenue including share of associates and joint ventures
Support Services - UK
Support Services - International
Support Services
Construction - UK
Construction - International
Construction
Equipment Services
Group Services
Inter-segment elimination
Consolidated revenue
Support Services - UK
Support Services - International
Support Services
Construction - UK
Construction - International
Construction
Equipment Services
Group Services
Inter-segment elimination
Headline profit
Support Services - UK
Support Services - International
Support Services
Construction - UK
Construction - International
Construction
Equipment Services
Group Services
Total operating profit
Investment revenue
Finance costs
Earnings per share, pence
Basic EPS
Headline EPS
Dividend per share, pence
Interim
Final
Strategic Report
Financial Statements
2016
£million
2015
£million
2014
£million
2013
£million
2012
£million
1,798.4
267.9
2,066.3
1,881.5
224.3
1,786.0
157.2
1,292.5
100.5
1,215.4
31.3
2,105.8
1,943.2
1,393.0
1,246.7
1,062.4
296.9
1,040.8
279.0
970.7
207.9
802.2
215.9
1,359.3
1,319.8
1,178.6
1,018.1
228.4
81.3
(50.1)
211.0
53.9
(61.6)
195.5
46.7
(58.7)
169.6
41.6
(40.4)
737.2
201.6
938.8
167.5
81.0
(64.4)
3,685.2
3,628.9
3,305.3
2,581.9
2,369.6
1,775.0
211.9
1,834.4
170.4
1,679.9
117.5
1,196.6
57.5
1,118.1
-
1,986.9
2,004.8
1,797.4
1,254.1
1,118.1
1,062.4
-
1,040.8
-
1,062.4
1,040.8
228.4
17.0
(50.1)
211.0
9.6
(61.6)
970.7
-
970.7
195.5
8.1
(58.7)
802.2
-
802.2
169.6
7.1
(40.4)
737.2
-
737.2
167.5
-
(64.4)
3,244.6
3,204.6
2,913.0
2,192.6
1,958.4
80.8
6.2
87.0
(3.1)
16.9
13.8
48.6
(25.2)
124.2
5.6
(23.3)
106.5
(71.2)
63.3
8.1
-
92.2
8.2
100.4
10.7
13.0
23.7
44.5
(23.6)
145.0
4.7
(21.1)
128.6
47.5
75.6
7.9
16.4
81.4
7.4
88.8
15.4
10.8
26.2
27.5
(24.4)
118.1
5.0
(16.0)
107.1
32.2
59.4
6.8
15.5
56.0
4.1
60.1
14.7
13.1
27.8
21.8
(21.3)
88.4
3.6
(9.2)
82.8
39.1
49.1
6.4
14.1
44.3
3.7
48.0
14.6
14.3
28.9
17.8
(14.5)
80.2
8.4
(11.5)
77.1
130.0
46.7
6.0
13.0
187
GovernanceOverview
Five-year analysis continued
(unaudited)
Balance sheet
Intangible assets
Property, plant and equipment
Interests in joint ventures
Interests in associated undertakings
Retirement benefit surplus
Deferred tax asset
Non-current assets
Assets held for sale
Inventories
Trade and other receivables
Derivative financial instruments
Cash and deposits
Bank overdrafts and loans
Trade and other payables
Short-term provisions
Net current assets/(liabilities)
Bank loans
Trade and other payables
Long-term provisions
Retirement benefit obligation
Non-current liabilities
Net assets
Cash flow
Operating cash flows before movements in working capital
Movement in working capital
Changes in hire fleet
Taxes paid
Net cash from operating activities
Acquisitions and investments
Net capital expenditure - non-hire fleet
Dividends from joint ventures and associates
Interest received
Net cash used in investing activities
Interest paid
Dividends paid
Other (including share issues)
Net cash used in financing activities excluding debt
Effect of foreign exchange
Movement in net debt
Closing net cash/(debt)
188
2016
£million
2015
£million
2014
£million
2013
£million
2012
£million
514.0
250.4
41.6
85.3
-
18.6
909.9
-
36.5
724.4
67.1
113.3
(11.1)
(901.9)
(21.8)
6.5
(449.4)
(16.6)
(42.9)
(52.4)
(561.3)
355.1
(65.8)
165.8
(9.3)
(10.2)
80.5
(5.2)
(29.7)
34.1
4.5
3.7
(23.3)
(37.1)
(0.3)
(60.7)
10.9
34.4
(274.4)
520.2
218.1
40.9
91.0
17.2
1.3
888.7
-
40.1
774.9
25.1
86.1
(15.5)
(794.1)
(27.4)
89.2
(406.1)
(15.9)
(43.3)
-
(465.3)
512.6
112.0
(51.7)
(21.6)
(6.8)
31.9
(6.6)
(29.6)
13.6
4.4
(18.2)
(21.1)
(34.7)
2.1
(53.7)
0.1
(39.9)
(308.8)
544.4
194.7
42.7
77.2
-
1.7
860.7
-
48.6
679.4
-
82.1
(5.5)
(755.0)
(35.7)
13.9
(362.8)
(14.8)
(33.5)
(4.8)
(415.9)
458.7
94.5
(53.3)
(30.3)
(10.2)
0.7
(253.8)
(24.0)
17.8
4.7
(255.3)
(16.0)
(34.4)
73.9
23.5
0.8
(230.3)
(268.9)
286.6
155.9
20.6
73.9
-
21.0
558.0
-
30.7
486.1
-
79.7
(27.4)
(597.6)
(18.1)
(46.6)
(90.0)
(13.5)
(29.9)
(7.7)
(141.1)
370.3
74.7
(19.7)
(11.8)
(5.7)
37.5
(59.9)
(21.9)
13.7
3.5
(64.6)
(7.8)
(29.1)
0.6
(36.3)
(1.0)
(64.4)
(38.6)
265.8
137.8
7.6
76.6
-
33.5
521.3
51.2
24.6
432.0
-
76.8
(19.8)
(559.7)
(24.2)
(19.1)
(30.0)
(13.2)
(27.1)
(101.1)
(171.4)
330.8
39.5
0.2
(6.0)
(10.7)
23.0
63.0
(8.9)
19.8
8.4
82.3
(9.6)
(27.0)
1.5
(35.1)
(0.2)
70.0
25.8
Strategic Report
Financial Statements
Shareholder information
Financial calendar 2017
Final results announcement for the year ended 31 December 2016
Publication of Annual Report and Financial Statements
Annual General Meeting
Half-year results announcement for the six months ended 30 June 2017
Publication of Half-Year Report
28 February 2017
30 March 2017
12 May 2017
9 August 2017
Late August 2017
The Company will keep under review the appropriateness of issuing other trading updates to the market during the course of the year.
Share price
As at 31 December 2016
Lowest for the year ended 31 December 2016
Highest for year ended 31 December 2016
The current price of the Company’s shares is available on the Company’s website at www.interserve.com.
Analysis of registered shareholdings
Notifi ble interests
Banks, institutions and nominees
Private shareholders
Total as at 28 February 2017
Holders
Number
5
917
3,446
4,368
%
0.12
20.99
78.89
Shares
Number
35,810,329
99,881,081
10,022,710
100.00
145,714,120
100.00
341.75p
221.25p
518.50p
%
24.57
68.55
6.88
Shareholder services
Capita is our registrar and they offer many services to make managing your shareholding easier and more efficient:
(a) Share Portal
The 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
• Change your address
• Elect to receive shareholder communications by email rather than by post
• View your dividend payment history
• Make dividend payment choices
• Register your proxy voting instruction
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.
(b) Customer Support Centre
Alternatively, you can contact Capita’s Customer Support Centre which is available to answer any queries you have in relation to
your shareholding:
By email:
By phone:
By post:
shareholderenquiries@capita.co.uk
+44 (0)371 664 0300 (lines are open 9.00am to 5.30pm, Monday to Friday)
Shareholder Administration, Capita Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU
189
GovernanceOverview
Shareholder information continued
(c) Sign up to electronic communications
By 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) Buy and sell shares
A quick and easy way to buy and sell shares is provided by Capita Asset 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)371 664 0445 (calls
are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the
applicable international rate. Lines are open 8.00am to 4.30pm, Monday to Friday, excluding public holidays in England and Wales).
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 Asset Services is a trading name of Capita IRG Trustees Limited which is authorised and regulated by the
Financial Conduct 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 charity
If 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 1052686). Find out more at www.sharegift.org.uk or by telephoning +44 (0)20 7930 3737.
Beneficial owners of shares with “information rights”
Please note that beneficial owners of shares who have been nominated by the registered holder of those shares to receive
information rights under section 146 of the Companies Act 2006 are required to direct all communications to the registered
holder of their shares rather than to the Company’s Registrar, Capita Asset Services, or to the Company directly.
Capital gains tax/capitalisation changes
The market value of the Company’s shares as at 31 March 1982 for the purpose of capital gains tax was 16.67p per share. This
has been adjusted to take account of all capitalisation changes to 28 February 2017, 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; and
31 October 1997 - share split of five new 10p shares for every two 25p shares held.
Beware of share fraud
In recent years many companies have become aware that their shareholders have received unsolicited telephone calls or
correspondence concerning investment matters. These are typically from overseas-based ‘‘brokers’’ who target UK shareholders
offering to sell them what often turn out to be worthless or high-risk shares in US or UK investments. These operations are
commonly known as “boiler rooms”. The “brokers” can be very persistent and extremely persuasive. Shareholders are advised
to be very wary of any unsolicited advice, offers to buy shares at a discount or offers of free reports into the Company.
You can find out more information on how share fraud works and how to avoid it on the Financial Conduct Authority
website at www.fca.org.uk/consumers/share-fraud-boiler-room-scams. You can also call the FCA Consumer Helpline
on 0800 111 6768.
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.
190
Strategic Report
Financial Statements
Notes
191
GovernanceOverview Notes
192