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Chairman's statement

    2014 full annual results

Chairman's statement

Sir Norman Blackwell - Chairman
“OUR STRATEGY IS PROVING EFFECTIVE AND I AM VERY CONSCIOUS THAT THE ONGOING PERFORMANCE OF THE BUSINESS IS ACHIEVED THROUGH THE INGENUITY AND HARD WORK OF OUR PEOPLE IN SERVING OUR CUSTOMERS.”

Sir Norman Blackwell - Chairman




Interserve made further significant progress during 2014, growing revenues by 33 per cent and adding over 23,000 new colleagues during the year. It is a central tenet of our corporate strategy to build strong core businesses. The acquisition of Initial Facilities in March added breadth and depth to our customer offering, positioning us as a top-three player in the UK Facilities Management (FM) market. In addition, our performance was underpinned by strong organic growth (a 10 per cent increase in consolidated revenues), demonstrating our potential in recovering markets and our resilience where market conditions have been more difficult.
Interserve operates in over 40 countriesOur strategy also envisages extending out from our core businesses to enter and grow in adjacent markets where our skills can be applied to gain competitive advantage. Since 2011, Interserve has been building its capabilities to deliver ‘front-line’ services to the citizen, initially through the Work Programme and subsequently through our domiciliary care business. Recently we have extended our reach considerably; in December, we were selected to provide probation services as part of the Ministry of Justice’s Transforming Rehabilitation programme. Also in December, we acquired The Employment and Skills Group (esg), further extending our Work Programme presence and adding capability to provide skills, training and employability services in the UK and further education in the Kingdom of Saudi Arabia (KSA). The broad range of capabilities we now possess, together with our track record as a trusted partner to UK Government, provides a significant opportunity to deliver better, and better coordinated services to the citizen, whilst improving the outcomes sought by our clients.

During the period we expanded our support services business into a number of territories where we had existing construction and RMD Kwikform activities, including in the KSA where our new joint venture with local partner, Rezayat, gives us access to a significant FM market. In addition, the acquisition of esg adds the establishment and management of three education colleges in the KSA to Interserve’s portfolio. We believe that both the FM and education markets have significant potential for us; not just in the KSA, but in the Middle Eastern region as a whole. Our oil and gas services businesses in the Middle East have also performed well and we took further steps to position ourselves to grow our FM activities across the region.

23,000 new colleagues joined Interserve in 2014In Europe we are growing our capability to serve major clients who look for a single organisation to meet their support service needs across the continent. Some 3,000 colleagues joined us in Spain through the Initial Facilities acquisition whilst organically we expanded our work for the Foreign & Commonwealth Office and won our first cross-border commercial contract, with Sony Europe, wherein we will provide services in 27 countries.

In our construction business we delivered good revenue growth in the UK. Whilst margins have been affected by supply pressures, they remain within our expected range. This is a tribute to strong customer relationships and prudent management of the business through the economic cycle. In the Middle East the business has delivered a solid performance in challenging, albeit improving, construction markets.

Equipment Services performed strongly in 2014, benefitting from our investment over recent years in expanding the fleet in improving overall market conditions. The margins in that business have now recovered after the worldwide recession, enabling us to achieve an attractive return on investment. We opened new facilities on the US west coast, in Panama and in Cape Town, South Africa.

Health and Safety remains a critical priority for the business, especially as our continued growth results in many more colleagues to induct into the Interserve values and culture. Despite our continuing focus on safety, we did not achieve an in-year improvement in our overall rate of reportable incidents, which included one fatal incident early in the year. Our thoughts remain with those affected by this tragic event. We remain absolutely committed to our medium-term target to halve our accident/incident rate over the period from 2010 to 2019.

Our strategy is proving effective and I am very conscious that the ongoing performance of the business is achieved through the ingenuity and hard work of our people in serving our customers. I thank them all on behalf of the Board. We have always sought to recognise those individuals who epitomise our values. In 2014 we developed this further, holding our first Group-wide award scheme, celebrating our colleagues who bring our values to life, who exhibit leadership in Health and Safety and who, both individually and in teams, are role models to inspire us all.

We continue to embrace keenly our obligation to act as a responsible business, recognising that delivering real social value and sustainable shareholder value go hand in hand. During the year we made further progress in our SustainAbilities strategy and are becoming increasingly confident in the differentiation this provides for us with clients, suppliers and our own people. We are also increasingly aware of our responsibilities as a major employer to help inform, guide and influence relevant areas of public policy. In April we published a report, in association with the Social Market Foundation, on how best to boost the skills and wage prospects for the low paid in the UK. We sponsored a social value summit (recently repeated) at which a number of key political leaders and policy thinkers spoke. However, whilst publications and events are useful focal points, it is our everyday actions as a responsible employer that really matter and which are reflected in our integrated reporting of our performance in social, natural and knowledge as well as financial capitals.

BOARD CHANGES

During the year, we were delighted to welcome Nick Salmon and Russell King to the Board as non-executive directors, and members of the Audit, Nomination and Remuneration Committees. They both bring a wealth of commercial and board governance experience. Keith Ludeman assumed chairmanship of the Remuneration Committee on 9 July and David Thorpe retired from the Board in August. David left with our gratitude for the major contribution he made to the Company over five and a half years.

Looking ahead, after serving over nine years on the Board, our Senior Independent Director (SID), Les Cullen, will be retiring at the forthcoming Annual General Meeting. Les will be sorely missed, but I am delighted that Russell King has agreed to assume the role of SID at that time.

Finally, having been Chairman since January 2006 I have informed the Board of my intention to stand down no later than the 2016 AGM. Accordingly, the Board, under Russell King’s leadership, will undertake an external search for my successor and will make further announcements in due course.

PROSPECTS

2014 has been another year of strong progress and growth for the business and looking to the future we are encouraged by its growth potential. In the majority of our markets we are seeing signs of recovery, with the business well positioned to achieve further growth so long as the more extreme global political and economic risks do not crystallise. While optimistic, we continue to manage the business prudently to ensure it remains resilient against future economic cycles.

DIVIDEND

We continue to believe our strategy is able to deliver attractive, sustainable returns for shareholders and support a progressive dividend policy. Given our confidence in the medium-term outlook for the business we are recommending an increased final dividend of 15.5p (2013: 14.7p), bringing the total dividend for the year to 23.0p (2013: 21.5p), an increase of 7.0 per cent. The final dividend will be paid on 20 May 2015 to shareholders on the register at the close of business on 7 April 2015.

Lord Blackwell
Chairman
26 February 2015

2014 Full Annual Report