14 Aug 2006

Following the organisational restructuring and Board change announced on 20th July, as a result of which Industrial Services is to be integrated into the Facilities Services Division, the subsequent programme of internal reviews has very recently brought to light information relating to the mis-statement of accounting balances within the former Industrial Services Division.  This information suggests that certain control processes within Industrial Services have been repeatedly circumvented over a period of five or more years.

The Board believes from the information available to date that the impact of correcting these cumulative mis-statements is to reduce net assets (primarily work in progress and debtor balances) by some £25 million on a post-tax basis.  This adjustment, the substantial majority of which is expected to be reflected as a prior year adjustment, will be made in the Group's half-year results.   The current cash position of the Group is unaffected.

The following actions have already been taken:

o six senior employees within the Industrial Services Division have been suspended
 
o interim management arrangements have been put in place under the authority of Bruce Melizan, following his appointment on 20 July as Managing Director of the enlarged facilities services division

o an independent forensic review by KPMG and Linklaters is underway, reporting to the Audit Committee; and;

o an operational and strategic review of the Industrial Services business streams is being undertaken as part of the integration process announced in July.

At this point, no conclusions can be drawn as to the timeframe nor results of the forensic and strategic reviews.  These reviews may, however, lead to further restructuring charges.    The Group has informed its banks and will keep them abreast of developments.

Overall, Interserve continues to trade strongly.  Our three major divisions, Facilities Services, Project Services and Equipment Services, are each trading better than we had expected and the Board remains confident of the Group's prospects for future growth.