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Chairman's statement

    2015 annual results

Chairman's statement

Lord Blackwell - Chairman, Interserve
“I AM PROUD TO HAVE BEEN A PART OF THE COMPANY’S CONSIDERABLE SUCCESS AND CONTINUED GROWTH OVER THE LAST DECADE.”

 LORD BLACKWELL, CHAIRMAN


STRATEGIC DEVELOPMENT

In our 2010 Annual Report we set out the ambition to double our earnings per share by 2015. Although we did not quite achieve that, during that five-year period the business achieved a remarkable 71 per cent increase in revenue and grew headline earnings per share by 68 per cent, despite the backdrop of weak economic growth and government austerity.

We are proud of these results, which reflect the transformation in the business over that period in much more difficult markets than we or others had anticipated. At a time when many in our sectors have faced financial difficulties, we continued to grow our dividend every year at a compound rate of over six per cent. Meanwhile, the investment in new business areas, particularly in UK front-line services, has created a stronger and more robust business with new opportunities to deliver further growth in shareholder value. This performance is a testimony to the strength of our business, strong values and performance culture as well as the determination of the management team. Against this backdrop of substantial strategic progress and the changing shape of our portfolio, we have commenced a strategic review of our Equipment Services business.

2015 was another year of continued progress and growth for Interserve, with revenues up 10 per cent and headline total operating profit 12 per cent. This reflected the strength of our business portfolio, with strong performances in many areas that balanced other areas where performance was weaker. In the UK, our Support Services businesses continued to perform strongly: we continued to extend our reach into new markets, such as further education and justice – where we successfully mobilised the delivery of our new front-line service probation contracts, welcoming a further 2,000 colleagues to the Group – and grew our facilities management operations in both the private and public sectors.

Our UK Construction business has had a difficult year, with industry-wide pricing pressures, and some specific supply-chain failures, significantly impacting three of our Energy from Waste projects. These issues were, however, partially offset in the year by strong performance in our building and fit-out businesses.

Both International Support Services and International Construction grew well in recovering but volatile Middle East markets, in which the demands of demographic change and plans for enhanced infrastructure outweighed the impact of the weakness in the oil price. Unless disrupted by world events we continue to believe these markets remain attractive over the medium term given the fundamental growth drivers; however, we are mindful of both the economic and political risks of a sustained low oil price. Our (and our partners’) long experience of operating in the region stands us in good stead to respond to potential near-term challenges as well as the medium-term opportunities.

Our Equipment Services business performed particularly well, building on our sustained investment in recent years with well-balanced growth coming from our largest markets in the Middle East, the Far East and the UK.

SUSTAINABILITY

Offering sustainable solutions and services to our customers is increasingly important and the value of a strong sustainable strategy continues to grow. Our many and varied activities in this area have a direct bearing on our ability to win work and to attract and retain employees, as well as playing our part in developing the workforce of tomorrow and safeguarding the natural environment. They are part of our core business strategy (which is reflected in the way that we are increasingly integrating how we report our activities in our Annual Report).

Achievements of particular note in the year include: our first ever decoupling of financial growth from resource consumption (with CO2 emissions down by 4.6 per cent in a year of strong revenue growth); our launch (with Business in the Community and Asda) of ‘arc’, a social enterprise support programme in Yorkshire, which aims to create social value, and, specifically, 1,000 jobs, in the communities in which we operate; and the award of an Ofsted rating of ‘Good’ to Crawshaw Academy school in Pudsey, Yorkshire, which had been in special measures in 2014, prior to our sponsorship.

OUR PEOPLE

Interserve’s people are our most important asset and the way that our values are reflected through their hard work, skill and diligence, continues to be a source of pride for myself and the Board.

The health and safety of our people is a constant priority for Interserve. This year we have continued to make excellent progress, once again reducing our accident incidence rate, which is a key indicator of performance and is rightly viewed as an important barometer for the general health of any business. This year we have achieved our long-term goal of halving our accident incidence rate, from 2010, four years ahead of schedule, which is a considerable achievement. Nevertheless there will always be more to do and health and safety remains a critical focus for the business.

Listening to our people is important to us and our 2015 employee survey reflected how health and safety remains central to our corporate culture. The survey also showed employee engagement to have grown significantly in the past two years, a substantial achievement in the context of considerable corporate change and over 30 per cent growth in the number of colleagues.

We also made further investment in the training and development of our people during the year, notably in Dubai with the establishment of a new training school, and we have again grown the volume of apprenticeships and work experience opportunities. Volunteering also continues to thrive with over a 50 per cent rise in the number of days given over to community projects around the world by Interserve employees.

BOARD CHANGES

At the 2015 Annual General Meeting Russell King assumed the role of Senior Independent Director. Following the announcement of my intention to step down, part of Russell’s role has been to lead the Board’s search for a new Chairman. On behalf of the Board I’m delighted to welcome Glyn Barker who joined as a non-executive director and Chairman-Designate on 1 January 2016. Glyn brings considerable experience from his time at PricewaterhouseCoopers and as an adviser to numerous companies on a wide variety of corporate, strategic and financial issues and will be a great asset to the Board.

On 29 February I will be retiring from the Board after ten years as Chairman. I have enjoyed the experience enormously and am proud to have been a part of the Company’s considerable success and continued growth over that time. With a new Chairman the Board will be well placed to take a fresh look at the strategic options that the growth in the business now provides. I am confident that Interserve’s breadth and scale combined with its extremely able senior management team will ensure continued success as it faces the challenges and the opportunities ahead.

PROSPECTS

Our near-term development will continue to be played out against a mixed backdrop. As we have highlighted previously, the performance of our UK Support Services division will be impacted by the higher employment costs associated with the new National Living Wage and we expect volume growth to slow temporarily to reflect last year’s normal hiatus in new contracts surrounding a General Election. In the Middle East, current trading remains good, but the low oil price creates uncertainties in our markets. Conversely, we expect improved performance in UK Construction, continued strong momentum in Equipment Services and greater cash conversion across all parts of the business. Visibility for 2016 remains broadly consistent with prior years.

Looking further ahead to 2017 and beyond, we expect a return to good growth in UK Support Services based on our strong market positions and an encouraging pipeline of attractive opportunities with most of the impact of the National Living Wage by then already having been absorbed. In the Middle East, while mindful of the current risks, our combination of strong customer and partner relationships that have developed over more than 30 years provide a strong platform for future growth. These factors underpin our confidence in further sustainable shareholder value creation and support the Board’s recommendation of a final dividend of 16.4p (2014: 15.5p), bringing the total dividend for the year to 24.3p (2014: 23.0p), an increase of 6 per cent. The final dividend will be paid on 20 May 2016 to shareholders on the register at the close of business on 1 April 2016.

Lord Blackwell

Chairman
24 February 2016

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