I would like to start by paying tribute to my predecessor, Norman Blackwell, and to thank him for his huge contribution to the Company over his ten years as Chairman.
Overall trading in the first half of 2016 has seen a 2.1 per cent increase in headline total operating profit and a 1 per cent rise in headline earnings per share. Our gross operating cash flow has improved substantially, which is reflected by our lower net debt position of £275.6 million (FY 2015: £308.8 million).
UK Support Services, which accounts for the majority of the Group’s earnings, performed in line with expectations, delivering strong work winning in both public and private-sector services, including the recent five-year contract to support the US Air Force bases in the UK.
Equipment Services continues to show good momentum, particularly in the UK and Far East, increasing revenue by 5 per cent. The strategic review of this division is proceeding as planned and we expect it to conclude later this year.
In the Middle East, our International Construction business had a strong period of work winning – adding work worth £0.2 billion to the order book and, with revenue growth of 17 per cent, it has been a positive first half. International Support Services also had a very strong first half, delivering revenue growth of 43 per cent.
In our UK Construction business, we continue to win work and trading in the building and fit-out areas remains good.
These first-half results have, of course, been overshadowed by the deterioration in the outlook of our Energy from Waste contracts. As a result of the unique challenges in the Energy from Waste market, including continuing supply chain challenges, we have taken the decision to exit this area of our business. These six contracts are therefore now reported as ‘Exited Business’.
Our assessment of the aggregate impact of the Exited Business is in line with the £70 million we announced in May. The significant milestones that effect our exit from these contracts will take place through 2016 and 2017 and we expect the cash outflow associated with these losses to be substantially borne this year. Managing the challenges of exiting from these complex projects is a significant priority, as is ensuring our processes continue to improve given the lessons we have learned. This is further discussed in the Business Review.
Earlier this year we won the PLC Award for ‘Achievement in Sustainability’, which is a pleasing recognition of our efforts to be a responsible business. It is increasingly being recognised by new customers and stakeholders in government that good sustainability
translates into good management of both risk and reputation and is an increasingly important tool in attracting the best employees and winning new business. Our focus on early career development and apprenticeships will stand the Company in good stead for the implementation of next year’s apprenticeship levy, but more importantly helps secure the future sustainability of the business. While our reduction in energy and water use has a direct impact on our cost to operate, our ability to measure the social value we deliver to local communities has already helped us win new business.
Since joining Interserve I have spent time meeting employees, both office and site-based. It is still early days and there will be further opportunities to meet more people, but my first impressions are of a company with strong values and a commitment to hard work. On behalf of the Board, I would like to acknowledge the dedication and commitment of every one of our 80,000 employees around the world and thank them for their continued hard work.
While the overall measures of safety in the business continue to improve, I report with great sadness that two of our colleagues tragically died in a workplace accident this year in Oman. Our thoughts remain with their families and we will continue to do all we can to guard against such events in the future. Over recent years we have made great strides in terms of health and safety, winning several awards for our work in this field, but there will be no greater impetus for future progress than this tragic event.
As previously announced in May, Steve Dance decided to step down from the Board. Steve has been an important part of the management team and successfully led the Equipment Services division over the past 12 years. I would like to thank him for his significant contribution to the business.
Trading in the first half of the year, across the vast majority of our divisions and our regions, has been in line with expectations. Our cash performance has been strong. As outlined above, the previously announced challenges with certain Energy from Waste projects are being worked through and the anticipated aggregate financial impact of completing and closing out this Exited Business is unchanged.
Despite the increased political and macro-economic uncertainty following the EU referendum, we reiterate our guidance for the full year, which is underpinned by our geographical diversity, sectoral breadth and strong order book.
In the medium term, the structural drivers in our markets (a growing and ageing population, the continuing demand for efficiency and the need to upgrade infrastructure) and the specific strengths of our business (strong market positions, low capital intensity, long order books) enable us to look to the future with confidence. DIVIDEND Reflecting our performance and prospects, the Board has approved a further increase in the dividend of 2.5 per cent to 8.1 pence per share (H1 2015: 7.9 pence per share) which will be paid on 21 October 2016 to shareholders on the register at the close of business on 16 September 2016.
10 August 2016
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