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Independent Auditor's Report to the Members of Interserve

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Independent Auditor's Report to the Members of Interserve 2013 ANNUAL REPORT REPORT ANNUAL FOR PEOPLE & PLACES REDEFINING THE FUTURE Interserve Plc ANNUAL REPORT 2013 INTERSERVE ANNUAL REPORT 2013 OVERVIEW 2013 IN SUMMARY OVERVIEW 2013 IN SUMMARY HIGHLIGHTS REDEFINING THE FUTURE HEADLINE EPS 1 FOR PEOPLE & PLACES 47.7p +5.3% “ 2013 HAS BEEN ANOTHER GOOD YEAR HEADLINE PROFIT BEFORE TAX 2 FOR THE BUSINESS, AND DESPITE CHALLENGING CONDITIONS IN MANY £ 81.1m +7.7 % OF OUR MARKETS, WE DELIVERED PROFIT BEFORE TAX 3 SUBSTANTIAL GROWTH IN BOTH REVENUE AND HEADLINE PROFIT, £68.1m -62.1% AND MADE IMPORTANT STRATEGIC PROGRESS. OUR FOCUS ON DELIVERING FULL-YEAR DIVIDEND THE BEST POSSIBLE SERVICE TO OUR CLIENTS HAS RESULTED IN STRONG 21.5p +4.9% WORK-WINNING IN THE YEAR, FROM BOTH NEW AND EXISTING CUSTOMERS, ACCIDENT INCIDENT RATE (AIR) MAINTAINING OUR RECORD FUTURE WORKLOAD AT £6.4 BILLION.” 201 per ADRIAN RINGROSE CHIEF EXECUTIVE 100,000 employees -15.9% FUTURE WORKLOAD £6.4bn +1.6% REDEFINING THE FUTURE FOR PEOPLE & PLACES ANNUAL REPORT 2013 SHOPPING CENTRE COMMUNITY CENTRE 1 See note 11 on page 123 for calculation of earnings per share FOR FURTHER 2 See note 33 on page 148 for calculation of headline profit before tax INVESTOR INFORMATION: 3 2012 profit before tax benefits from a one-off gain of £114.9 million on the disposal of the majority of the PFI portfolio www.interserve.com/investors INTERSERVE ANNUAL REPORT 2013 OVERVIEW SECTION2013 IN SUMMARY 0301 OVERVIEW OVERVIEW STRATEGIC HIGHLIGHTS Strong revenue growth (12.0%) and £2.5 billion of new business won operational performance: headline in the year, including work with EPS up 5.3% and dividend up 4.9%. the BBC, University of Sussex, HMRC, The Royal Navy, Ministry Maintained record future workload of Defence, DWP, Magnox, Jaguar at £6.4 billion and good revenue Land Rover, the Lusail Tower in STRATEGIC REPORT STRATEGIC visibility (75% of 2014 consensus Qatar and the Emirates Engine revenue secured at year end). Maintenance Centre in Dubai. Completed the transfer of £55 million of PFI assets into the Interserve Pension Scheme. GOVERNANCE HEAD OFFICE STATEMENTS FINANCIAL HOSPITAL SHOPS COMMUNITY CENTRE 02 INTERSERVE ANNUAL REPORT 2013 OVERVIEW CHAIRMAN’S STATEMENT OVERVIEW CHAIRMAN’S STATEMENT “ 2013 WAS AN IMPORTANT YEAR FOR INTERSERVE IN WHICH WE MADE BOTH SIGNIFICANT STRATEGIC AS WELL AS OPERATIONAL PROGRESS.” LORD BLACKWELL CHAIRMAN STRATEGIC DEVELOPMENT regional presence. In the UK we have deployed our project 2013 was an important year for Interserve in which we made finance skills into selective commercial development both significant strategic as well as operational progress. opportunities such as the redevelopment of Edinburgh’s At the beginning of the year we further strengthened our Haymarket. We also added to our construction portfolio balance sheet by crystallising value from our PFI portfolio. through the acquisition of Paragon, a London-based fit-out We used this strength to complete a number of acquisitions business, thereby expanding our capability and increasing that increase our exposure to growth markets, to reduce our presence in the key London market. further our pension deficit and to position the Group with the necessary resources to continue its growth. Our strategy DIVISIONAL OVERVIEW remains focused on developing the strength of our three Our UK Support Services business has continued to grow main business streams, while also finding additional growth organically, mobilising new, innovative projects and opportunities where we can gain competitive advantage by continuing to win new business with organisations such applying the core skills from these businesses in adjacent as the BBC and the University of Sussex. We have been markets and geographies. adept at designing and implementing innovative solutions which support both our public and private-sector clients Operationally, despite mixed market conditions, the in meeting their objectives of controlling costs whilst business performed strongly, delivering profitable growth delivering better value services. We continue to pursue while continuing to invest in the efficiency and scale of opportunities in a number of front-line services in the our existing businesses. Interserve now operates in over UK, ever mindful of the reputational risks as well as the 40 countries around the world and, whilst not uniform in commercial potential as we assess the risks and merits of pace, the overall global economic outlook has started to more sensitive areas of Government outsourcing. improve. Our business is now well positioned and resourced to take full advantage of the opportunities this will create. Our construction businesses, in both the UK and the Middle East, have performed well, showing continued During 2013 the Group expanded its operational footprint resilience in the face of difficult economic conditions. We through targeted acquisitions as well as new ventures. In increased our future workload in these segments through the Middle East we continued to grow our capability in the new business with clients such as Jaguar Land Rover in the oil and gas services sector, adding both TOCO in Oman and UK, Meraas (UAE), Dubai’s Majid Al Futtaim Group (Mall of Adyard in the United Arab Emirates (UAE) to complement the Emirates), and remain well placed to grow as market our capabilities in Qatar with Madina and create a pan- conditions turn for the better. INTERSERVE ANNUAL REPORT 2013 OVERVIEW CHAIRMAN’S STATEMENT 03 In Equipment Services we have continued to manage our For a company like ours, for which public service is at its core, OVERVIEW global fleet to respond to market opportunities and have I firmly believe that we can and should play a leading role in expanded into new markets in the Far East, Africa and demonstrating our social, environmental and economic value Latin America. and I hope that is reflected in this Annual Report. HEALTH AND SAFETY OUR PEOPLE Whilst we continue to win recognition from organisations On behalf of the Board, I thank all of our people for like RoSPA for the high standards we hold in health and another year of hard work and dedication. Our people safety, and have made further and continued progress in collectively and individually exemplify the ingenuity that reducing our overall accident rate, 2013 has also been a embodies the Interserve brand to our customers and make difficult year. We had three separate incidents involving us what we are today, a strong and growing company. fatalities in our Middle East operations and our thoughts remain with all those affected by these tragic events. BOARD CHANGES Following the retirements of David Paterson and REPORT STRATEGIC Such events serve as a salutary reminder that we must David Trapnell from the Board, Les Cullen became Senior continue to strive to minimise the risk of accidents. Independent Director and we welcomed Anne Fahy, as a Health and safety has always been the most important of non-executive director and chair of the Audit Committee. priorities for the Group and we will maintain this focus with renewed intensity in 2014. PROSPECTS The Group continues to focus on growth, whether organic SUSTAINABILITY AND INTEGRATED REPORTING or acquired, and now with markets showing signs of broad Our 2013 Annual Report is different from previous reports improvement we are confident of delivering further growth in that it reflects a more integrated approach to the in 2014. On 28 February 2014, we announced the proposed communication of our strategy, reporting our performance acquisition and associated financing of Initial Facilities in a broader sense than has previously been the case for £250 million. The acquisition is conditional upon and placing sustainability increasingly at the heart of shareholder approval and we will be holding a General what we do. During the year we launched a far-reaching Meeting for shareholders to vote on the proposal on GOVERNANCE sustainability plan, SustainAbilities. This, and our future 17 March 2014. The Board believes this acquisition will reports will increasingly focus not just on the impact further strengthen the ability of the Group to take the business has on financial capital, but also on other advantage of future market opportunities. ‘capitals’ - knowledge, social and environmental – that together deliver sustainable performance and profitability. DIVIDEND We continue to deliver on our growth strategy and are These impacts take many forms, for example providing confident in the medium-term outlook for our business. We learning opportunities for our 2,000 new employees are therefore recommending an increased final dividend of in Leicestershire through an innovative partnership 14.7p (2012: 14.1p), bringing the total dividend for the year with Leicester College, or by ensuring over 95 per cent to 21.5p (2012: 20.5p), an increase of 5 per cent. The final of our supply chain spend on a major new divisional dividend will be paid on 21 May 2014 to shareholders on headquarters for West Yorkshire Police goes to small and the register at the close of business on 4 April 2014. local enterprises. In a recent Cabinet Office study of STATEMENTS FINANCIAL Government Suppliers, Interserve topped the list with over 70 per cent of our supply chain spend going to SMEs when delivering work for central government. For many years Interserve has recognised the importance of a sustainable corporate strategy, but this new plan provides a formal framework on which to build further. Lord Blackwell We have set ourselves clear targets and objectives across Chairman the breadth
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