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INGENUITY AT WORK HALF-YEAR REPORT 2016

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Page 1: INGENUITY AT WORK - Interserve · Highlights Strategic highlights INTERIM DIVIDEND 8.1p +2.5% HEADLINE TOTAL OPERATING PROFIT1 £62.9m +2.1% FUTURE WORKLOAD1 £7.6bn +0.9% HEADLINE

INGENUITY AT WORK

HALF-YEAR REPORT 2016

Page 2: INGENUITY AT WORK - Interserve · Highlights Strategic highlights INTERIM DIVIDEND 8.1p +2.5% HEADLINE TOTAL OPERATING PROFIT1 £62.9m +2.1% FUTURE WORKLOAD1 £7.6bn +0.9% HEADLINE

ADRIAN RINGROSE CHIEF EXECUTIVE

FOR FURTHER INVESTOR INFORMATION: www.interserve.com/investors

STRONG CASH GENERATION AND RESILIENT PERFORMANCE IN CORE BUSINESSES “Trading in the first half of the year, across the vast majority of our

divisions and our regions, has been good, in markets that offer both opportunities and challenges. We delivered a strong cash performance and grew revenue and headline operating profit.

We are taking action to exit the Energy from Waste sector. Our assessment of the aggregate impact of exiting this sector is in line with the £70 million exceptional charge we announced in May.

Despite the increased political and macro-economic uncertainty following the UK’s EU referendum, our outlook for the current year remains unchanged. This, together with our significantly improved cash flow and healthy future workload, underpins the Board’s confidence in our prospects and a further increase in the interim dividend.”

HIGHLIGHTS 02

INTERIM MANAGEMENT REPORT

CHAIRMAN’S STATEMENT 03

BUSINESS REVIEW 05

RESPONSIBILITY STATEMENT 15

INDEPENDENT REVIEW REPORT 17

FINANCIAL STATEMENTS 18

NOTES TO THE FINANCIAL STATEMENTS 24

DIRECTORS AND ADVISERS 37

ContentsHALF-YEAR REPORT 2016

Build more skills and more opportunities

Create places that benefit

people

Deliver public service in the public interest

Achieve sustainable

growth

Generate a positive

environmental impact

CASE STUDY KEY 06-16

INTERSERVE HALF-YEAR REPORT 2016 01CONTENTS

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Highlights

Strategic highlights

INTERIM DIVIDEND

8.1p +2.5%

HEADLINE TOTAL OPERATING PROFIT1

£62.9m +2.1%

FUTURE WORKLOAD1

£7.6bn +0.9%

HEADLINE EARNINGS PER SHARE1

31.3p +1.0%

REVENUE

£1,632.9m +2.4%

LOSS BEFORE TAX

(£33.8m)

1 The Interim Management Report includes a number of non-statutory measures to reflect the impact of non-trading and non-recurring items. See note 11 to the condensed consolidated financial statements for a reconciliation of these measures to their statutory equivalents and note 7 for calculation of earnings per share. References to workload exclude the workload associated with Exited Business.

2 As restated.

Robust, in-line revenue and earnings performance

Strong gross operating cash flow1: £128.3 million (H1 2015: £19.9 million2)

Net debt reduced to £275.6 million (FY 2015: £308.8 million); improved year-end net debt guidance of £300-£320 million

Further growth in interim dividend

Exiting Energy from Waste business; £70 million exceptional charge unchanged from May announcement

Good visibility of future workload of £7.6 billion1 (FY 2015: £7.6 billion)

£1.9 billion of new business won in the period

Key contract wins with both new and existing customers including the Defence Infrastructure Organisation, Home Office, JLL, Renfe, East Midlands Trains, Emaar (UAE), Majid Al Futtaim Group (UAE) and Hitachi (Qatar)

INTERSERVE HALF-YEAR REPORT 2016 02HIGHLIGHTS

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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.

SUSTAINABILITYEarlier 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.

OUR PEOPLESince 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.

INTERIM MANAGEMENT REPORT

Chairman’s statement

INTERSERVE HALF-YEAR REPORT 2016 INTERIM MANAGEMENT REPORT 03CHAIRMAN’S STATEMENT

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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.

BOARD CHANGESAs 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.

OUTLOOKTrading 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.

DIVIDENDReflecting 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.

Glyn BarkerChairman 10 August 2016

“WE REITERATE OUR GUIDANCE FOR THE FULL YEAR, WHICH

IS UNDERPINNED BY OUR GEOGRAPHICAL

DIVERSITY, SECTORAL BREADTH AND STRONG

ORDER BOOK.” GLYN BARKER

CHAIRMAN

04INTERSERVE HALF-YEAR REPORT 2016 INTERIM MANAGEMENT REPORT CHAIRMAN’S STATEMENT

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INTERIM MANAGEMENT REPORT

Business reviewAgainst the backdrop of mixed trading conditions and increasing uncertainty in a number of markets, the substantial majority of the Group’s operations continued to perform well in the first half of the year. Our gross operating cash flow in the period was strong, leading to a £33.2 million reduction in net debt from the end of 2015. We grew revenue and headline total operating profit by 2.4 per cent and 2.1 per cent respectively and won new work in the period with an aggregate whole-life value of £1.9 billion, increasing our future workload at 30 June by 0.9 per cent over the 2015 year-end position. Headline earnings per share grew by 1.0 per cent.

Further to our trading update on 6 May, in which we stated that we expected to make a contract provision of £70 million in respect of the Glasgow Energy from Waste project, the Board has determined that the Group will no longer undertake contracts for the construction of Energy from Waste facilities involving contractual responsibility for process risk. The six relevant contracts in which we carry such exposure are therefore now reported as ‘Exited Business’.

Results summary H1 2016 H1 2015 Change

Revenue £1,632.9m £1,595.1m +2.4%

Headline total operating profit £62.9m £61.6m1 +2.1%

Gross operating cash flow £128.3m £19.9m1

(Loss) / profit before tax (£33.8m) £33.7m

Headline earnings per share 31.3p 31.0p1 +1.0%

H1 2016 YE 2015 Change

Future workload (excl Exited Business)

£7.6bn £7.6bn +0.9%

Net debt £275.6m £308.8m -10.8%

1 As restated

DIVISIONAL REVIEWWe segment our results into three main areas of service – Support Services, Construction and Equipment Services – each of which is supported by central Group Services.

SUPPORT SERVICESSupport Services focuses on the management and delivery of outsourced operational activities, including facilities management, a broad range of process- and accommodation-related services and services direct to the citizen. Our customer base is comprised of both public and private-sector organisations in the UK and overseas. Operations in mainland Europe, which are managed from the UK, are disclosed under Support Services UK.

Results summary H1 2016 H1 2015 Change

Revenue

– UK (consolidated revenue) £899.3m £933.1m -3.6%

– International (incl share of associates)

£147.2m £102.6m +43.5%

Contribution to total operating profit

£43.2m £44.0m -1.8%

– UK £36.7m £40.0m -8.3%

– International £6.5m £4.0m +62.5%

Operating margin

– UK 4.1% 4.3%

– International1 4.5% 4.2%

H1 2016 YE 2015 Change

Future workload

– UK £5.7bn £5.6bn +1.7%

– International (incl share of associates)

£0.2bn £0.3bn -32.6%

1 Blended underlying margins of associates and subsidiaries

Support Services UKSupport Services UK performed well, winning £1.0 billion of new work during the period, and increasing the division’s future workload by 2 per cent. As expected, revenue dipped slightly as the hiatus in government procurement around the 2015 General Election and associated slowdown in bidding opportunities worked its way through the cycle. Encouragingly, retention rates were strong throughout the period and the rate of work winning picked up during the second quarter, as market demand normalised. As anticipated, the operating margin softened by 20 basis points as a consequence of increased payroll costs attributable to the National Living Wage, which came into force in April.

We strengthened our position as one of the Ministry of Defence’s (MoD) largest infrastructure partners during the period, winning a five-year contract worth £230 million with the Defence Infrastructure Organisation to provide facilities services to the United States Air Force’s (USAF) UK estate. The addition of this contract means we now manage services at the six USAF main bases in the UK and their associated satellite sites, as well as the National Training Estate, services at Welbeck Defence Sixth Form College, the Defence Communications Services Agency and the Permanent Joint Overseas Bases (Falklands, Ascension, Cyprus and Gibraltar).

INTERSERVE HALF-YEAR REPORT 2016 INTERIM MANAGEMENT REPORT BUSINESS REVIEW 05

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EXPANDING IN THE DEFENCE SECTOR

We strengthened our position as one of the Ministry of Defence’s (MoD) largest infrastructure partners during the period by winning a five-year

contract worth £230 million with the MoD’s Defence Infrastructure Organisation to provide facilities services to the

United States Air Force’s (USAF) UK estate.

The United States Forces Prime (USFP) contract, which starts in November 2016, combines four existing facilities support contracts, which cover the USAF’s six main UK bases and their associated satellite sites. We will provide a combination of total facilities management and engineering

services maintenance for the USAF’s 48th Fighter Wing, 100th Air Refuelling Wing and 501st Combat Support Wing.

Many of the sites Interserve will manage have outsourced support services previously, but this is the first time that the USAF estate will be managed by a single provider. This amalgamation of contracts is designed to drive greater efficiencies, allow flexibility to accommodate changes in estate requirements and funding in the future, while providing vital support to

USAF military operations and training.

Interserve also manages services across the MoD’s National Training Estate, Welbeck Defence Sixth Form College, the

Defence Communications Services Agency and the Permanent Joint Overseas Bases in the Falklands,

Ascension, Cyprus and Gibraltar.

06INTERSERVE HALF-YEAR REPORT 2016 INTERIM MANAGEMENT REPORT BUSINESS REVIEW

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GROWING OUR FACILITIES MANAGEMENT BUSINESS IN THE RETAIL SECTOR

We reinforced our position as one of the leading providers of facilities services to the retail sector

by winning a three-year contract worth £60 million to provide facilities management services at 18 UK shopping centres managed by commercial and residential property

services firm, JLL.

Over 300 staff will deliver cleaning, security, customer services, pest control, window cleaning and electronic security system maintenance

at the 18 sites across the country. The account also includes the provision of standalone cleaning services for a number of JLL’s offices

across central London.

Services will be delivered using Interserve’s LEAN model, which focuses on improving service delivery and maximising cost savings, by implementing new innovations across the business. Interserve’s commitment to innovation and its long-term relationship with JLL

were key factors in the awarding of the contract.

Interserve now manages services at more than 60 shopping centres across the UK and has a dedicated shopping

centre team that self-delivers many services to clients across the sector.

07BUSINESS REVIEWINTERIM MANAGEMENT REPORTINTERSERVE HALF-YEAR REPORT 2016

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We were also awarded a five-year contract - under the new Crown Commercial Services’ (CCS) facilities management framework - to provide total facilities management services including maintenance, cleaning, catering and security support for the Home Office, across the department’s estate. This covers more than 200 sites serving key Home Office departments including the College of Policing, HM Passport Office, UK Border Force and UK Visas and Immigration. Additionally, post-period we secured a two-year extension to our contract to provide security services to the British Broadcasting Corporation (BBC) worth £20 million.

In recent years we have built capability in the provision of frontline public services across healthcare, welfare-to-work, skills and justice. This growing part of the business includes Interserve Healthcare, Interserve Learning & Employment (ILE), and our Community Rehabilitation Companies (CRCs), which provide probation, rehabilitation and ‘through-the-gate’ services on behalf of the Ministry of Justice (MoJ).

Some 5,000 of our colleagues are involved in the delivery of frontline services direct to the citizen, wherein we generate annualised revenues of some £250 million. During the year we further developed this portion of our business, with our learning and employment business being awarded a contract by the UK’s Skills Funding Agency to deliver education and training services to support young people, aged 15 – 24, in the north of England who are not in education, training or employment.

In the justice sector, we continued to perform well and made significant progress in the transformation programme across our CRCs through the introduction of integrated back-office services, supporting a streamlined organisational structure and extensive infrastructure upgrade work.

Our position as one of the UK’s leading providers of facilities services to the retail sector was reinforced by our success in winning a three-year facilities management services contract, worth £60 million, with commercial and residential property services company, JLL. The contract, which includes an option for a two-year extension, will see us provide facilities services at 18 shopping centres across the UK.

During the period we continued to make good progress in the transport sector. We secured a one-year contract extension to provide customer support services for Spanish national train operator, RENFE Viajeros, at 63 stations across Spain. This extension, which is worth £5 million a year, runs until March 2017 and has the potential to be extended for a further year. We also won a two-year contract extension to provide facilities services for East Midlands Trains (EMT), which will see us continue to provide cleaning services for seven EMT offices and 13 stations, as well as trains, until March 2018.

Support Services InternationalInternationally, we provide outsourced services in sectors such as hospitality, leisure, education, defence, retail and oil and gas across the Middle East region.

The business performed well, largely due to a mix of new contract wins and increasing volumes with existing customers across the region. Revenue (including our share of associates) grew by 43.5 per cent, year-on-year, to £147.2 million (H1 2015: £102.6 million), while contribution to total operating profit increased by 62.5 per cent to £6.5 million (H1 2015: £4.0 million).

Our oil and gas services business, which accounts for the majority of this division, delivered another robust performance, growing revenue, profit and cash flow strongly from our business critical activities of providing essential maintenance services to national oil companies in Abu Dhabi, Oman and Qatar.

Our positioning in the growing Middle East facilities management market continues to benefit from our ability to leverage our extensive UK experience and long-standing customer relationships in the region. This was exemplified in the period through securing an integrated facilities management contract with Emaar, one of the UAE’s largest developers, to provide services at all of its community and retail centres across Dubai. We also won a contract with Meraas (another major UAE developer) to provide integrated FM services at its first roadside food truck park in Dubai. Our joint venture in Saudi Arabia with the Rezayat Group (Interserve Rezayat) won facilities management contracts for around £11 million of services on the Al Waha project – part of the King Abdullah Economic City development.

In Oman, where we have delivered training services for some years, we have expanded our partnership with OHI Group to offer facilities management services throughout the Sultanate.

The division’s future workload at the end of June was £205 million (YE 2015: £304 million), reflecting some caution on behalf of our customers around spending commitments. We continue to focus on our own efficiency through reorganising the back office of our businesses, as we adjust to the market and so that we can offer customers the full range of our expertise across the region.

INTERIM MANAGEMENT REPORT

Business review continued

We reinforced our position as one of the leading providers of facilities services to the retail sector

by winning a three-year contract worth £60 million to provide facilities management services at 18 UK shopping centres managed by commercial and residential property

services firm, JLL.

Over 300 staff will deliver cleaning, security, customer services, pest control, window cleaning and electronic security system maintenance

at the 18 sites across the country. The account also includes the provision of standalone cleaning services for a number of JLL’s offices

across central London.

Services will be delivered using Interserve’s LEAN model, which focuses on improving service delivery and maximising cost savings, by implementing new innovations across the business. Interserve’s commitment to innovation and its long-term relationship with JLL

were key factors in the awarding of the contract.

Interserve now manages services at more than 60 shopping centres across the UK and has a dedicated shopping

centre team that self-delivers many services to clients across the sector.

08INTERSERVE HALF-YEAR REPORT 2016 INTERIM MANAGEMENT REPORT BUSINESS REVIEW

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INTERIM MANAGEMENT REPORT

Business review continued

CONSTRUCTIONWe provide advice, design, construction and fit-out services for buildings and infrastructure. Our focus is on forming long-term relationships, developing sector expertise and delivering repeat business, predominantly through framework agreements.

Results summary1 H1 2016 H1 2015 Change

Revenue

– UK (consolidated revenue) £468.3m £432.2m +8.4%

– International (share of associates)

£141.0m £130.3m +8.2%

Contribution to total operating profit

£10.5m £11.5m -8.7%

– UK ongoing businesses £4.5m £6.6m -31.8%

– International £6.0m £4.9m +22.4%

Operating margin

– UK 1.0% 1.5%

– International2 3.9% 3.3%

H1 2016 YE 2015 Change

Future workload

– UK £1.4bn £1.4bn +1.9%

– International (share of associates)

£0.3bn £0.3bn +16.5%

1 Excludes Exited Business2 Underlying margins of associates

Construction InternationalOur performance in the Middle East continued to improve, with contribution to operating profit in our associate businesses increasing by 22.4 per cent to £6.0 million (H1 2015: £4.9 million) and margins strengthening to 3.9 per cent (H1 2015: 3.3 per cent). Future workload grew 16.5 per cent to £344 million (YE 2015: £295 million).

Work winning during the period was encouraging, especially in the UAE, where our success included winning a £75 million contract to expand the City Centre mall in Ajman by Majid Al Futtaim, for whom we have previously worked on numerous projects, including Dubai’s Mall of the Emirates. We also won a contract to build a 389-room Premier Inn hotel in Dubai.

In Qatar, we were awarded a new £12 million contract by Hitachi to provide civil works on a desalination plant in Doha and a £15 million field maintenance, technical manpower and equipment supply contract with RasGas, which is due to begin later this year.

The outlook in the region is mixed, with a strong flow of work in the UAE, tempered by a less certain near-term outlook in Qatar. However, strategic development plans such as the UAE’s plans for Expo 2020, Qatar’s ‘Vision 2030’ and the ongoing need for infrastructure development to keep pace with rapid population growth, are all gaining traction and stimulating activity.

Construction UKMarket demand remained good during the period, particularly in regional building and fit-out, reflected in our revenue growth of 8.4 per cent in the first half of the year.

The substantial majority of our UK Construction activity is focused on projects with an average value of less than £10 million, constructing a range of buildings and infrastructure. Our operating model combines a strong regional presence and exposure to framework agreements with infrastructure and public-sector customers, in sectors such as defence, education and healthcare, along with our growing presence in the commercial development and fit-out markets. Work winning in the period was healthy, with our future workload increasing by 1.9 per cent to £1.4 billion.

Significant contract wins in the period included a £25 million contract to build one of Southern England’s biggest leisure developments, the Fleming Park Leisure Centre in Hampshire. We also secured a place on the new £750 million Eastern Highways Alliance Framework, which covers 11 local highways authorities across the East of England.

We have made good progress in the utilities sector, where we were awarded, in joint venture with Doosan Enpure, a £46 million contract by Northumbrian Water to upgrade the Horsley water-treatment works in the Tyne Valley. We were also selected by South West Water to form part of a team that will build the infrastructure and pipelines for a new £60 million water-treatment plant, which will serve Plymouth and the surrounding area.

Our fit-out business, Paragon, delivered another strong performance, growing revenue by 24 per cent and winning orders from existing customers such as BMW and new customers including Renault, Greycoat Real Estate, Mishcon De Reya and Kings College School.

INTERSERVE HALF-YEAR REPORT 2016 INTERIM MANAGEMENT REPORT BUSINESS REVIEW 09

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PUTTING ‘THE SPARK’ INTO SOLENT UNIVERSITY

We completed the construction of a new £33 million campus building for Southampton Solent

University, called ‘The Spark’.

The Spark, which is connected to one of the University’s existing buildings, features a 60-metre central atrium and

dramatic elevated red pod, and provides 40 new learning spaces with specially designed audio-visual and teaching technology.

The pod houses an 80-seat lecture theatre with an open-topped viewing platform.

Beneath the pod, the lower atrium leads to subterranean lecture theatres as well as lower-level classrooms, kitchens, offices and

a plant room.

The new building also features a main conference centre, a number of smaller conference rooms and numerous classrooms (part of a total 2,000m2 of classroom area). Various projecting balconies

and glazed spaces also overlook the main atrium.

Students will start using the new building from the start of the 2016 academic year in September.

10INTERSERVE HALF-YEAR REPORT 2016 INTERIM MANAGEMENT REPORT BUSINESS REVIEW

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BUILDING THE UK’S FIRST NHS PROTON BEAM THERAPY CENTRE

We are currently on site

at The Christie in Manchester, delivering the UK’s first NHS high-energy

proton beam therapy centre, where we are using cutting-edge digital technology and advanced concrete pouring techniques to create 6-metre thick radiation

proof walls.

Proton beam therapy is a specialist form of radiotherapy, which can very precisely target certain cancers, increasing success rates and reducing side effects. When completed in 2018, the five-storey building will provide three treatment rooms, research room, a patient reception,

consultation rooms and public space.

By designing the facility around the equipment, and being brought in very early in the equipment procurement stage, Interserve is helping The Christie to drive the project’s costs down and offer value for money. Building Information

Modelling (BIM) technology has also played a crucial role in the design and construction of the proton beam therapy centre. Interserve, architects HKS,

Arup and equipment suppliers all produced BIM models which have been integrated into one version to give a 4D representation of the project.

High-energy protons are harmful when people are exposed to them over long periods of time and staff who are often in close proximity to proton beam therapy equipment must be carefully

protected. As such, a thick concrete barrier – 6 metres thick in places – is being poured to separate the equipment and hospital staff. We expect to pour

of 20,000m3 of concrete and 1,700 tonnes of reinforcement during 2016.

INTERSERVE HALF-YEAR REPORT 2016 INTERIM MANAGEMENT REPORT BUSINESS REVIEW 11

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Exited BusinessWe have taken the decision to exit business where we take contractual process risk on the construction of Energy from Waste facilities. The Exited Business comprises six contracts with aggregate whole-life revenues of £430 million that we entered into between mid-2012 and early 2015. We expect to complete our works during 2017 and that the impact of these contracts will be contained within the £70 million exceptional loss provision announced in our May trading update.

Managing the challenges of exiting from these complex projects is a significant priority.

Results summary H1 2016 H1 2015 Change

Revenue

– Exited Business (consolidated revenue)

£62.3m £68.5m -9.1%

Total pre-tax exceptional loss (£72.0m) (£1.3m)

Total post-tax exceptional loss (£70.0m) (£1.0m)

EQUIPMENT SERVICESOur Equipment Services business (RMD Kwikform) operates globally, designing, hiring and selling formwork and falsework solutions for infrastructure and building projects.

Results summary H1 2016 H1 2015 Change

Revenue £109.9m £104.2m +5.5%

Contribution to total operating profit

£23.5m £18.6m +26.3%

Margin 21.4% 17.9%

Our strong growth momentum, achieved through geographic expansion and fleet investment over the last few years, drove revenue growth of 5.5 per cent. Contribution to total operating profit increased by 26.3 per cent to £23.5 million, reflecting strong pricing and utilisation growth across the broad range of global infrastructure markets in which we operate.

In Asia-Pacific, we delivered strong performances in Hong Kong and the Philippines, driven by our ongoing work on large-scale infrastructure projects, including the Kowloon Rail Terminus, the Hong Kong Macau Bridge and the Manila Bay Development.

We again performed well in the Middle East, where a number of large projects that we started work on last year continued, including the East West Highway project in Qatar. Demand also continued to grow in the UAE, where we won work on the Dubai Ports Bridge project and in Saudi Arabia, where we started work on the Jeddah Metro scheme.

We delivered a strong performance in the UK, winning work on several major projects, including the Mersey Gateway Bridge, the Medway crossing, the National Automotive Innovation Centre and the Defence National Rehabilitation Centre. Work also continues on sizeable rail improvement projects in Reading and on the Stockley Viaduct project near Heathrow airport.

GROUP SERVICESAll central costs and income, including those related to our financing, central bidding and asset management activities are disclosed within the Group Services segment.

Group Services’ costs during the period were £14.3 million (H1 2015: £12.5 million), reflecting the ongoing investment in back-office capabilities, IT infrastructure, people development and communications.

NET DEBT AND OPERATING CASH FLOWNet debt at 30 June was £275.6 million (YE 2015: £308.8 million). A strong underlying gross operating cash flow of £128.3 million was partially offset by cash outflows associated with the Exited Business (H1 2016: £52.8 million).

£million H1 2016 H1 2015

Total operating profit before exceptional items and amortisation of intangible assets

62.9 61.6

Land disposal – Midlands Office consolidation 7.0 (7.0)

Capex in (excess) of depreciation (3.1) (0.5)

Dividends in excess / (deficit) of JVA profits 5.4 (6.0)

Other (4.1) (7.8)

Working capital movement 60.2 (20.4)

Gross operating cash flow1 128.3 19.9

Exited Business (52.8) (1.3)

Gross operating cash flow incl Exited Business 75.5 18.6

1 See note 11 to the condensed consolidated financial statements for a reconciliation of this measure to the statutory equivalents.

Business review continuedINTERIM MANAGEMENT REPORT

We are currently on site

at The Christie in Manchester, delivering the UK’s first NHS high-energy

proton beam therapy centre, where we are using cutting-edge digital technology and advanced concrete pouring techniques to create 6-metre thick radiation

proof walls.

Proton beam therapy is a specialist form of radiotherapy, which can very precisely target certain cancers, increasing success rates and reducing side effects. When completed in 2018, the five-storey building will provide three treatment rooms, research room, a patient reception,

consultation rooms and public space.

By designing the facility around the equipment, and being brought in very early in the equipment procurement stage, Interserve is helping The Christie to drive the project’s costs down and offer value for money. Building Information

Modelling (BIM) technology has also played a crucial role in the design and construction of the proton beam therapy centre. Interserve, architects HKS,

Arup and equipment suppliers all produced BIM models which have been integrated into one version to give a 4D representation of the project.

High-energy protons are harmful when people are exposed to them over long periods of time and staff who are often in close proximity to proton beam therapy equipment must be carefully

protected. As such, a thick concrete barrier – 6 metres thick in places – is being poured to separate the equipment and hospital staff. We expect to pour

of 20,000m3 of concrete and 1,700 tonnes of reinforcement during 2016.

12INTERSERVE HALF-YEAR REPORT 2016 INTERIM MANAGEMENT REPORT BUSINESS REVIEW

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INTERIM MANAGEMENT REPORT

Business review continued

INTERSERVE HALF-YEAR REPORT 2016 INTERIM MANAGEMENT REPORT BUSINESS REVIEW 13

The £7.0 million net land disposal in the period reflects the progression of arrangements in respect of our Midlands Office consolidation. No profit was recognised on this transaction. Excluding this, net capex was £3.1 million in excess of depreciation, reflecting continuing investment in the Equipment Services hire fleet and Support Services UK.

The strong working capital inflow of £60.2 million (H1 2015: £19.1 million outflow) reflects the impact of settlement of a number of final accounts, an increased focus on cash management throughout the business and the stabilisation of customer payment terms, following several periods of tightening.

PENSIONSAt the end of June the aggregate pension position was an IAS 19 pension deficit of £25.5 million (H1 2015: £34.3 million asset), largely due to the sharp fall in gilt yields and associated reduction in liability discount rates following the EU referendum.

Although the scheme’s position has weakened over the last year, due to the factors outlined above, the work we have done in recent years to de-risk the scheme’s liability position (the 2014 pension buy-in and making a one-off contribution of £55 million of PFI assets in 2013) has left the scheme in a much stronger position than it would have been in without these actions.

PRINCIPAL RISKS AND UNCERTAINTIESThe principal risks and uncertainties which could have a material impact upon the Group’s performance, together with the mitigation strategies adopted, have been reviewed and have not changed significantly from those set out on pages 28 to 30 of the Strategic Report included in the Group’s 2015 Annual Report and Financial Statements.

These risks and uncertainties arise from:

• Failure to win new or sufficiently profitable contracts in our chosen markets or to complete those contracts with sufficient profitability, due to adverse changes in the business, economic and political environment.

• The termination or unsatisfactory execution of major contracts.

• A breakdown of the relationships in the businesses in which we do not have overall control.

• Failure to recruit or retain key people.

• Failure to manage health and safety adequately.

• The financial risks discussed in the Financial Review on pages 32 to 34 of the Group’s 2015 Annual Report and Financial Statements.

• Damage to reputation resulting from issues arising within contracts, the management of our business and its IT systems or the behaviour of our employees.

• Climate change which could have uncertain implications for our business and for many of our customers.

The Group continues to have no material exposure to currency risks. Whilst it does not trade in commodities, the Group operates in countries where their economies depend upon commodity extraction and are therefore subject to volatility in commodity prices. The Group’s principal businesses operate in countries which we regard as politically stable.

AUDITORGrant Thornton UK LLP has been the Group’s auditor since 2014. Reappointment will be subject to approval by the shareholders at the next general meeting.

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RMD’S INNOVATION BOOSTS DUBAI RESIDENTIAL DEVELOPMENT

RMD Kwikform is helping the latest phase of the Al Barari sustainable

residential complex in Dubai take shape thanks to the innovative use of its formwork and shoring products

and design expertise.

By combining two of its shoring products (Prop Tableform and Rapidshor U-Heads systems) RMD Kwikform helped simplify the basement construction process, enabling the main contractor,

Sustainable Builders, to reduce the programme time and the cost of the project.

The latest phase of the luxury development will see the creation of 157 luxury housing units, including villas, penthouses, duplexes and garden homes, along

with a total internal and external amenity space of 3,000m2.

To support the fast-track construction programme, RMD Kwikform provided design and site support services, in addition to over a thousand tonnes of formwork and shoring for the construction of concrete walls,

core walls and slabs.

The complex is formed of two residential blocks of 12 and 10 floors respectively with both buildings featuring stepped layers and trims

as they increase in height. This allows for increased airflow across the development and capitalizes on Al Barari’s existing microclimate, ensuring the continuation of

temperatures two to five degrees cooler than other developments in Dubai.

BUSINESS REVIEWINTERSERVE HALF-YEAR REPORT 2016 INTERIM MANAGEMENT REPORT 14

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Responsibility statement

A list of current directors and their functions is maintained on the Group website at www.interserve.com.

The directors confirm to the best of their knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union;

(b) the interim management report includes a fair review of the important events during the first six months and description of the principal risks and uncertainties for the remaining six months of the year, as required by DTR 4.2.7R of the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority (DTR); and

(c) the interim management report includes a fair review of the information required by DTR 4.2.8R.

By order of the Board

Adrian Ringrose Tim HaywoodChief Executive Group Finance Director

10 August 2016

INTERSERVE HALF-YEAR REPORT 2016 15RESPONSIBILITY STATEMENT

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SUPPORTING SOCIAL ENTERPRISES IN YORKSHIRE

In partnership with Business in the Community (BITC) and Asda we launched the ‘arc’ social

enterprise support programme in Yorkshire, which aims to create social value, and specifically 1,000 jobs, in the region.

Our capacity to leverage many of our operational activities in Yorkshire was a significant factor behind choosing this region to launch the scheme. We ran a successful pilot scheme in 2015 and believe we

can continue to give social entrepreneurs free access to tailored, practical support from within the business to help grow their businesses and create

employment opportunities.

BITC set up its social enterprise programme – arc - to create a lasting legacy from the London 2012 Olympic Games in the host boroughs, and later expanded it to West London. Following the creation of almost 3,000 jobs in London and

the South East, the programme has now been rolled out in Yorkshire.

So far we have supported a number of social enterprises in Yorkshire including Legacy Sport CIC in Huddersfield, which promotes healthy and active lifestyles by delivering PE, sport and health programmes that have a positive impact in school and community settings and Paperworks, a print production company in Leeds, providing work

preparation training and support to adults with learning, physical and mental health related disabilities.

16INTERSERVE HALF-YEAR REPORT 2016

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Independent review reportto the members of Interserve Plc

17INTERSERVE HALF-YEAR REPORT 2016 INDEPENDENT REVIEW REPORT

IntroductionWe have reviewed the condensed set of financial statements in the half-yearly financial report of Interserve Plc for the six months ended 30 June 2016 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows and the related notes. We have read the other information contained in the half-yearly financial report which comprises only the Chairman’s Statement and Business Review and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company’s members, as a body, in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ‘Review of Interim Financial Information performed by the Independent Auditor of the Entity’. Our review work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our review work, for this report, or for the conclusion we have formed.

Directors’ responsibilitiesThe half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom’s Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the European Union.

Our responsibilityOur responsibility is to express a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of reviewWe conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

ConclusionBased on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom’s Financial Conduct Authority.

Grant Thornton UK LLPStatutory Auditor, Chartered Accountants London 10 August 2016

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Unaudited condensed consolidated income statementFor the six months ended 30 June 2016

Six months ended 30 June 2016 Six months ended 30 June 2015 Year ended 31 December 2015

Before exceptional

items and amortisation

of acquired intangible

assets £million

Exceptional items and

amortisation of acquired

intangible assets

(note 4) £million

Total £million

Before exceptional

items and amortisation

of acquired intangible

assets restated #

£million

Exceptional items and

amortisation of acquired

intangible assets

(note 4) restated #

£million Total

£million

Before exceptional

items and amortisation

of acquired intangible

assets restated #

£million

Exceptional items and

amortisation of acquired

intangible assets

(note 4) restated #

£million Total

£million

Continuing operations

Revenue including share of associates and joint ventures

1,791.3 62.3 1,853.6 1,735.9 68.5 1,804.4 3,483.0 145.9 3,628.9

Less: Share of associates and joint ventures

(220.7) – (220.7) (209.3) – (209.3) (424.3) – (424.3)

Consolidated revenue 1,570.6 62.3 1,632.9 1,526.6 68.5 1,595.1 3,058.7 145.9 3,204.6

Cost of sales (1,339.1) (138.0) (1,477.1) (1,316.8) (76.5) (1,393.3) (2,614.5) (167.4) (2,781.9)

Gross profit/(loss) 231.5 (75.7) 155.8 209.8 (8.0) 201.8 444.2 (21.5) 422.7

Administration expenses (177.9) 3.7 (174.2) (158.8) 3.9 (154.9) (324.4) 6.1 (318.3)

Amortisation of acquired intangible assets

– (15.5) (15.5) – (15.4) (15.4) – (31.0) (31.0)

Total administration expenses (177.9) (11.8) (189.7) (158.8) (11.5) (170.3) (324.4) (24.9) (349.3)

Operating profit/(loss) 53.6 (87.5) (33.9) 51.0 (19.5) 31.5 119.8 (46.4) 73.4

Share of result of associates and joint ventures

9.3 – 9.3 10.6 – 10.6 22.6 – 22.6

Amortisation of acquired intangible assets

– (0.1) (0.1) – (0.1) (0.1) – (0.1) (0.1)

Total share of result of associates and joint ventures

9.3 (0.1) 9.2 10.6 (0.1) 10.5 22.6 (0.1) 22.5

Total operating profit/(loss) 62.9 (87.6) (24.7) 61.6 (19.6) 42.0 142.4 (46.5) 95.9

Investment revenue 2.5 – 2.5 2.2 – 2.2 4.7 – 4.7

Finance costs (11.6) – (11.6) (10.5) – (10.5) (21.1) – (21.1)

Profit/(loss) before tax 53.8 (87.6) (33.8) 53.3 (19.6) 33.7 126.0 (46.5) 79.5

Tax (charge)/credit (note 5) (6.8) 4.9 (1.9) (8.0) 3.6 (4.4) (17.8) 8.5 (9.3)

Profit/(loss) for the period 47.0 (82.7) (35.7) 45.3 (16.0) 29.3 108.2 (38.0) 70.2

Attributable to:

Equity holders of the parent 45.6 (82.7) (37.1) 44.8 (16.0) 28.8 106.9 (38.0) 68.9

Non-controlling interests 1.4 – 1.4 0.5 – 0.5 1.3 – 1.3

47.0 (82.7) (35.7) 45.3 (16.0) 29.3 108.2 (38.0) 70.2

Earnings per share (note 7)

Six months ended30 June 2016

pence

Six months ended30 June 2015

pence

Year ended31 December 2015

pence

Basic (25.5) 19.9 47.5

Diluted (25.5) 19.8 47.2

# See note 2

INTERSERVE HALF-YEAR REPORT 2016 18FINANCIAL STATEMENTS

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Six months ended30 June 2016

£million

Six months ended30 June 2015

£millionrestated #

Year ended31 December 2015

£million

Profit/(loss) for the period (35.7) 29.3 70.2

Items that will not be reclassified subsequently to profit or loss:

Actuarial gains/(losses) on defined benefit pension schemes (53.8) 30.9 5.6

Deferred tax on above items taken directly to equity (note 5) 10.8 (6.2) (1.1)

(43.0) 24.7 4.5

Items that may be reclassified subsequently to profit or loss:

Exchange differences on translation of foreign operations 38.8 (8.9) 7.4

Gains on cash flow hedging instruments (excluding joint ventures) 31.3 1.8 19.8

Recycling of cash flow hedge reserve to profit and loss account (25.1) 2.7 (10.8)

Deferred tax on above items taken directly to equity (note 5) (1.3) (0.8) (1.8)

Net impact of Items relating to joint-venture entities (3.6) (9.5) (9.1)

40.1 (14.7) 5.5

Other comprehensive income/(expense) net of tax (2.9) 10.0 10.0

Total comprehensive income/(expense) (38.6) 39.3 80.2

Attributable to:

Equity holders of the parent (40.2) 38.8 78.8

Non-controlling interests 1.6 0.5 1.4

(38.6) 39.3 80.2

# See note 2

Unaudited condensed consolidated statement of comprehensive incomeFor the six months ended 30 June 2016

19INTERSERVE HALF-YEAR REPORT 2016 FINANCIAL STATEMENTS

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30 June 2016£million

30 June 2015£million

restated #31 December 2015

£million

Non-current assetsGoodwill 433.1 426.6 428.6Other intangible assets 81.1 100.8 91.6Property, plant and equipment 232.6 205.9 218.1Interests in joint-venture entities 34.0 38.0 40.9Interests in associated undertakings 92.7 81.6 91.0Retirement benefit surplus (note 10) – 34.3 17.2Deferred tax asset 11.1 – 1.3

884.6 887.2 888.7

Current assetsInventories 40.6 49.3 40.1Trade and other receivables 747.4 775.3 774.9Derivative financial instruments 56.4 7.0 25.1Cash and deposits 115.1 108.2 86.1

959.5 939.8 926.2Total assets 1,844.1 1,827.0 1,814.9

Current liabilitiesBank overdrafts (5.6) (8.1) (15.5)Trade and other payables (818.9) (832.3) (788.0)Current tax liabilities (3.9) (2.7) (6.1)Short-term provisions (39.8) (26.2) (27.4)

(868.2) (869.3) (837.0)Net current assets 91.3 70.5 89.2

Non-current liabilitiesBorrowings (436.2) (412.6) (406.1)Trade and other payables (16.1) (17.2) (15.9)Long-term provisions (49.1) (41.5) (43.3)Retirement benefit obligation (note 10) (25.5) - -Deferred tax liabilities - (5.3) -

(526.9) (476.6) (465.3)Total liabilities (1,395.1) (1,345.9) (1,302.3)Net assets 449.0 481.1 512.6

Equity Share capital 14.6 14.5 14.5Share premium account 116.5 116.5 116.5Capital redemption reserve 0.1 0.1 0.1Merger reserve 121.4 121.4 121.4Hedging and revaluation reserve 3.2 (1.8) 2.0Translation reserve 80.9 26.1 42.3Investment in own shares (2.4) (3.0) (1.5)Retained earnings 102.0 195.4 205.2Equity attributable to equity holders of the parent 436.3 469.2 500.5Non-controlling interests 12.7 11.9 12.1Total equity 449.0 481.1 512.6

# See note 2

Unaudited condensed consolidated balance sheetAt 30 June 2016

INTERSERVE HALF-YEAR REPORT 2016 20FINANCIAL STATEMENTS

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Share capital

£million

Share premium£million

Capital redemption

reserve£million

Merger reserve1

£million

Hedging and

revaluation reserve2 £million

Translation reserve£million

Investment in own shares3

£million

Retained earnings£million

Attributable to equity

holders of the parent

£million

Non-controlling

interests£million

Total£million

Balance at 31 December 2014 14.4 115.3 0.1 121.4 3.9 35.0 (3.0) 165.3 452.4 11.6 464.0

Profit for the period - - - - - - - 28.8 28.8 0.5 29.3

Other comprehensive income - - - - (5.7) (8.9) - 24.6 10.0 - 10.0

Total comprehensive income - - - - (5.7) (8.9) - 53.4 38.8 0.5 39.3

Dividends paid (note 6) - - - - - - - (22.2) (22.2) (0.2) (22.4)

Shares issued 0.1 1.2 - - - - - - 1.3 - 1.3

Company shares used to settle share-based payments

- - - - - - - - - - -

Share-based payments - - - - - - - (1.1) (1.1) - (1.1)

Transactions with owners 0.1 1.2 - - - - - (23.3) (22.0) (0.2) (22.2)

Balance at 30 June 2015 (restated #)

14.5 116.5 0.1 121.4 (1.8) 26.1 (3.0) 195.4 469.2 11.9 481.1

Profit for the period - - - - - - - 40.1 40.1 0.8 40.9

Other comprehensive income - - - - 3.8 16.2 - (20.1) (0.1) 0.1 -

Total comprehensive income - - - - 3.8 16.2 - 20.0 40.0 0.9 40.9

Dividends paid (note 6) - - - - - - - (11.5) (11.5) (0.8) (12.3)

Acquisition - - - - - - - - - 0.1 0.1

Company shares used to settle share-based payments

- - - - - - 1.5 (0.6) 0.9 - 0.9

Share-based payments - - - - - - 1.9 1.9 - 1.9

Transactions with owners - - - - - - 1.5 (10.2) (8.7) (0.7) (9.4)

Balance at 31 December 2015 14.5 116.5 0.1 121.4 2.0 42.3 (1.5) 205.2 500.5 12.1 512.6

Profit for the period - - - - - - - (37.1) (37.1) 1.4 (35.7)

Other comprehensive income - - - - 1.2 38.6 - (42.9) (3.1) 0.2 (2.9)

Total comprehensive income - - - - 1.2 38.6 - (80.0) (40.2) 1.6 (38.6)

Dividends paid (note 6) - - - - - - - (23.7) (23.7) (1.0) (24.7)

Shares issued 0.1 - - - - - - - 0.1 - 0.1

Purchase of Company shares - - - - - - (0.9) - (0.9) - (0.9)

Company shares used to settle share-based payments

- - - - - - - - - - -

Share-based payments - - - - - - - 0.5 0.5 - 0.5

Transactions with owners 0.1 - - - - - (0.9) (23.2) (24.0) (1.0) (25.0)

Balance at 30 June 2016 14.6 116.5 0.1 121.4 3.2 80.9 (2.4) 102.0 436.3 12.7 449.0

1 The £121.4 million merger reserve represents £16.4 million premium on the shares issued on the acquisition of Robert M. Douglas Holdings Plc in 1991, £32.6 million premium on the shares issued on the acquisition of MacLellan Group Plc in 2006 and £72.4 million premium on the shares placed on the acquisition of Initial Facilities in 2014.

2 The hedging and revaluation reserve includes £24.1 million relating to the revaluation of available-for-sale financial assets within the joint ventures (£18.2 million at 31 December 2015 and £16.1 million at 30 June 2015).

3 The investment in own shares reserve represents the cost of shares in Interserve Plc held by the trustees of the How Group, Bandt and Interserve Employee Benefit Trusts and the Interserve Training Trust. The market value of these shares at 30 June 2015 was £1.8 million (£2.6 million at 31 December 2015 and £5.5 million at 30 June 2015).

# See note 2

Unaudited condensed consolidated statement of changes in equityFor the six months ended 30 June 2016

21INTERSERVE HALF-YEAR REPORT 2016 FINANCIAL STATEMENTS

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Six months ended30 June 2016

£million

Six months ended30 June 2015

£million

Year ended31 December 2015

£million

Operating activities

Total operating profit/(loss) (24.7) 42.0 95.9

Adjustments for:

Amortisation of acquired intangible assets 15.5 15.4 31.0

Amortisation of capitalised software development 0.9 1.4 1.3

Depreciation of property, plant and equipment 16.8 20.0 34.8

Other non-cash exceptional items - 0.5 1.8

Pension payments in excess of income statement charge (10.6) (8.1) (16.1)

Share of results of associates and joint-venture entities (9.2) (10.5) (22.5)

(Credit)/charge relating to share-based payments 2.9 (1.0) 0.5

Gain on disposal of plant and equipment – hire fleet (6.9) (6.6) (12.7)

Gain on disposal of plant and equipment - other - (0.1) (0.2)

Operating cash flows before movements in working capital (15.3) 53.0 113.8

(Increase)/decrease in inventories 2.9 (1.7) 8.8

(Increase)/decrease in receivables 44.6 (99.0) (97.9)

Increase/(decrease) in payables 31.9 80.3 35.6

Cash generated by operations before changes in hire fleet 64.1 32.6 60.3

Capital expenditure - hire fleet (16.5) (20.4) (37.5)

Proceeds on disposal of plant and equipment - hire fleet 9.0 8.4 15.9

Cash generated by operations 56.6 20.6 38.7

Cash used by operations – exited business (52.8) (1.3) (10.4)

Cash generated by operations - ongoing business 109.4 21.9 49.1

Taxes paid (4.3) (2.7) (6.8)

Net cash from operating activities 52.3 17.9 31.9

Investing activities

Interest received 2.0 2.2 4.4

Dividends received from associates and joint ventures 14.6 4.5 13.6

Proceeds on disposal of plant and equipment - non-hire fleet 9.6 0.5 1.6

Capital expenditure - non-hire fleet (15.9) (17.4) (31.2)

Investment in joint-venture entities (0.8) (4.1) (6.7)

Proceeds on disposal of investments 4.6 - -

Receipt of loan repayment - Investments - - 0.1

Net cash generated by/(used in) investing activities 14.1 (14.3) (18.2)

Unaudited condensed consolidated statement of cash flowsFor the six months ended 30 June 2016

INTERSERVE HALF-YEAR REPORT 2016 22FINANCIAL STATEMENTS

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Six months ended30 June 2016

£million

Six months ended30 June 2015

£million

Year ended31 December 2015

£million

Financing activities

Interest paid (11.6) (10.5) (21.1)

Dividends paid to equity shareholders (23.7) (22.2) (33.7)

Dividends paid to non-controlling interests (1.0) (0.2) (1.0)

Proceeds from issue of shares and exercise of share options 0.1 1.3 2.1

Purchase of own shares (0.9) - -

Increase in bank loans 5.0 52.5 32.5

Movement in obligations under finance leases 0.7 - 1.4

Net cash from/(used in) financing activities (31.4) 20.9 (19.8)

Net increase/(decrease) in cash and cash equivalents 35.0 24.5 (6.1)

Cash and cash equivalents at beginning of period 70.6 76.6 76.6

Effect of foreign exchange rate changes 3.9 (1.0) 0.1

Cash and cash equivalents at end of period 109.5 100.1 70.6

Cash and cash equivalents comprise

Cash and deposits 115.1 108.2 86.1

Bank overdrafts (5.6) (8.1) (15.5)

109.5 100.1 70.6

Reconciliation of net cash flow to movement in net debt

Net increase/(decrease) in cash and cash equivalents 35.0 24.5 (6.1)

Increase in bank loans (5.0) (52.5) (32.5)

Movement in obligations under finance leases (0.7) - (1.4)

Change in net debt resulting from cash flows 29.3 (28.0) (40.0)

Effect of foreign exchange rate changes 3.9 (1.0) 0.1

Change in net debt during the period 33.2 (29.0) (39.9)

Net debt - opening (308.8) (268.9) (268.9)

Net debt - closing (275.6) (297.9) (308.8)

Unaudited condensed consolidated statement of cash flows continuedFor the six months ended 30 June 2016

23INTERSERVE HALF-YEAR REPORT 2016 FINANCIAL STATEMENTS

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1. General informationInterserve Plc (the Company) is a company incorporated in the United Kingdom. The half-year results and condensed consolidated financial statements for the six months ended 30 June 2016 (the interim financial statements) comprise the results of the Company and its subsidiaries (together referred to as the Group) and the Group’s interest in joint ventures and associates.

The directors have considered the Group’s financial position with reference to latest forecasts and the actual performance for the half-year period. Whilst the current economic environment continues to be uncertain, the directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future, noting in particular that: the majority of the Group’s revenue is derived from long-term contracts; the Group had visibility of £1.8 billion of work scheduled for 2017 at the balance sheet date; and the Group has access to committed debt facilities of $350 million with a weighted average maturity of eight years and £300 million until at least 2019. Accordingly, the Group continues to adopt the going concern basis in preparing the interim financial statements.

A copy of the statutory accounts for the year ended 31 December 2015 has been delivered to the Registrar of Companies. The auditors’ report on those accounts was unqualified and did not contain statements made under sections 498(2) or (3) of the Companies Act 2006.

The interim financial statements for the six months ended 30 June 2016 have been reviewed by Grant Thornton UK LLP but have not been audited (see page 17).

2. Accounting policies and principal risksThe interim financial statements have been prepared in accordance with IAS 34 Interim financial reporting, the recognition and measurement criteria of International Financial Reporting Standards (IFRSs) as adopted by the European Union and the disclosure requirements of the Listing Rules. The financial information set out in this half-year report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The interim financial statements do not include all information required for full annual financial statements and should be read in conjunction with the Annual Report and Financial Statements for the year ended 31 December 2015.

The accounting policies and methods of computation followed in the interim financial statements are consistent with those published in the Group’s Annual Report and Financial Statements for the year ended 31 December 2015 and which are available on the Group’s website at www.interserve.com. Various presentational changes have been made, as described in note 2(c) below.

In addition, the accounting policies used are consistent with those that the directors intend to use in the Annual Report and Financial Statements for the year ending 31 December 2016. Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual earnings.

(a) Adoption of new and revised standardsAt the date of authorisation of these interim financial statements the following standards and interpretations were in issue but not yet effective, and therefore have not been applied in these interim financial statements:

IFRS 9 Financial instrumentsThe impact of the sections of IFRS 9 currently issued will result in the Group’s project finance interests that are currently treated by the joint-venture companies as being available-for-sale, being treated as a debt carried at ‘fair value through profit or loss’ or ‘amortised cost’. As a result, movements in the fair value will no longer be taken to ‘Other comprehensive income’.

IFRS 15 Revenue from contracts with customersThe new standard will replace IAS 18 Revenue and IAS 11 Construction contracts. It will become effective for accounting periods on or after 1 January 2018, at the earliest.

IFRS 16 LeasesThe new standard will replace IAS 17 Leases. It will become effective for accounting periods on or after 1 January 2019, at the earliest. It will require nearly all leases to be recognised on the balance sheet as liabilities, with corresponding assets being created.

In advance of the adoption of IFRS 15 and 16, the Group will conduct a systematic review of all existing major contracts and leases to ensure that the impact and effect of the new standards are fully understood, and changes to the current accounting procedures are highlighted and acted upon. Any impact is neither known nor possible to estimate at this time.

Except for IFRS 9, IFRS 15 and IFRS 16 noted above, the directors do not currently anticipate that the adoption of any other standard and interpretation that has been issued but is not yet effective will have a material impact on the financial statements of the Group in future periods.

Notes to the unaudited interim financial statementsFor the six months ended 30 June 2016

INTERSERVE HALF-YEAR REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 24

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Notes to the unaudited interim financial statements continuedFor the six months ended 30 June 2016

2. Accounting policies and principal risks continued(b) Principal risksIn the directors’ view, there have been no changes to the principal risks and uncertainties facing the Group from those described on pages 28 and 30 of the Group’s Annual Report and Financial Statements for the year ended 31 December 2015. The directors expect that the Group’s profits will continue to be weighted to the second half.

(c) Restatement of comparatives(i) During the second half of 2015 a number of updates to the provisional assessments of fair value of net assets acquired during

2014 in the acquisition of esg were made. These reduced the provisional assessment by £1.4 million, primarily reflecting the fair value of property, plant and equipment (£0.6 million) and the impact of loss-making contracts on which constructive and legal obligations existed at the time of acquisition (£0.8 million). These updates have been reflected in the comparative balance sheet at June 2015, in accordance with IFRS 3.

(ii) During the second half of 2015 it was identified that balances owed under the US Private Placement loan notes had been incorrectly translated at 30 June 2015 and deferred taxation had not been recognised on the gain on cash flow hedging instruments. The comparatives for June 2015 have been restated to correct this. The effect of this restatement on those financial statements is to increase statutory borrowings by £15.4 million, increase deferred taxation assets by £1.7 million and reduce other comprehensive income by £13.7 million, primarily as a result of recycling the cash flow hedge reserve to the profit and loss account to match the foreign exchange impact of retranslation of the loan notes. There is no impact on the income statement or the reported net debt.

(iii) Following the decision to exit from the business of constructing energy from waste facilities, where there was contractual responsibility taken for the process risk, and given the materiality and non-recurring nature of the results from these activities, these results have been presented as exceptional in nature (see note 4) and excluded from the calculation of headline earnings per share (see note 7). The presentation of comparative information has been restated to be consistent with this presentation. There is no impact on comparative net assets or statutory profit before taxation.

25INTERSERVE HALF-YEAR REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS

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Notes to the unaudited interim financial statements continuedFor the six months ended 30 June 2016

3. Business and geographical segments(a) Business segmentsThe Group is organised into three operating divisions, as set out below. Information reported to the Executive Board for the purposes of resource allocation and assessment of segment performance is based on the products and services provided.

• Support Services: provision of outsourced support services to public- and private-sector clients, both in the UK and internationally.

• Construction: design, construction and maintenance of buildings and infrastructure, both in the UK and internationally.

• Equipment Services: design, hire and sale of formwork, falsework and associated access equipment.

Costs of central services, including the financial impact of our PFI investments, are shown in “Group Services”.

Revenue including share of associates and joint ventures Consolidated revenue Result

Six months ended

30 June 2016

£million

Six months ended

30 June2015

£millionrestated #

Year ended

31 December2015

£millionrestated #

Six monthsended

30 June2016

£million

Six months ended

30 June2015

£millionrestated #

Year ended

31 December2015

£millionrestated #

Six monthsended

30 June2016

£million

Six months ended

30 June2015

£millionrestated #

Year ended

31 December2015

£millionrestated #

Support Services – UK 908.5 963.2 1,881.5 899.3 933.1 1,834.4 36.7 40.0 92.2

Support Services – International 147.2 102.6 224.3 113.1 74.2 170.4 6.5 4.0 8.2

Support Services 1,055.7 1,065.8 2,105.8 1,012.4 1,007.3 2,004.8 43.2 44.0 100.4

Construction – UK 468.3 432.2 894.9 468.3 432.2 894.9 4.5 6.6 10.7

Construction – International 141.0 130.3 279.0 – – – 6.0 4.9 13.0

Construction 609.3 562.5 1,173.9 468.3 432.2 894.9 10.5 11.5 23.7

Equipment Services 109.9 104.2 211.0 109.9 104.2 211.0 23.5 18.6 41.9

Group Services 49.0 25.1 53.9 12.6 4.6 9.6 (14.3) (12.5) (23.6)

Inter-segment elimination (32.6) (21.7) (61.6) (32.6) (21.7) (61.6) – – –

1,791.3 1,735.9 3,483.0 1,570.6 1,526.6 3,058.7 62.9 61.6 142.4

Exceptional items and amortisation of acquired intangible assets (note 4)

62.3 68.5 145.9 62.3 68.5 145.9 (87.6) (19.6) (46.5)

Revenue/Total operating profit/(loss)

1,853.6 1,804.4 3,628.9 1,632.9 1,595.1 3,204.6 (24.7) 42.0 95.9

Investment revenue 2.5 2.2 4.7

Finance costs (11.6) (10.5) (21.1)

Profit/(loss) before tax (33.8) 33.7 79.5

Tax charge (1.9) (4.4) (9.3)

Profit/(loss) after tax (35.7) 29.3 70.2

# See note 2

INTERSERVE HALF-YEAR REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 26

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Notes to the unaudited interim financial statements continuedFor the six months ended 30 June 2016

3. Business and geographical segments continued(b) Geographical segmentsThe Support Services and Construction divisions are located in the United Kingdom and in the Middle East. Equipment Services has operations in all of the geographic segments listed below.

The table below provides an analysis of the Group’s sales by geographical market, irrespective of the origin of the goods/services.

Revenue including share of associates and joint ventures Consolidated revenue

Six months ended

30 June 2016

£million

Six monthsended

30 June 2015

£millionrestated #

Year ended

31 December 2015

£millionrestated #

Six months ended

30 June 2016

£million

Six months ended

30 June 2015

£millionrestated #

Year ended

31 December 2015

£millionrestated #

United Kingdom 1,363.7 1,373.1 2,751.6 1,354.5 1,343.0 2,704.5

Rest of Europe 26.6 21.9 49.4 26.6 21.9 49.4

Middle East & Africa 343.8 298.5 612.1 168.7 139.8 279.2

Australasia 12.1 12.1 24.1 12.1 12.1 24.1

Far East 13.5 13.0 24.7 13.5 13.0 24.7

Americas 15.2 13.9 28.8 15.2 13.9 28.8

Group Services 49.0 25.1 53.9 12.6 4.6 9.6

Inter-segment elimination (32.6) (21.7) (61.6) (32.6) (21.7) (61.6)

1,791.3 1,735.9 3,483.0 1,570.6 1,526.6 3,058.7

Exceptional items and amortisation of acquired intangible assets (note 4)

62.3 68.5 145.9 62.3 68.5 145.9

1,853.6 1,804.4 3,628.9 1,632.9 1,595.1 3,204.6

Total operating profit

Six months ended

30 June 2016

£million

Six months ended

30 June 2015

£millionrestated #

Year ended

31 December 2015

£millionrestated #

United Kingdom 47.9 47.4 108.5

Rest of Europe 0.2 (0.5) (0.1)

Middle East & Africa 23.3 22.0 46.1

Australasia 0.9 1.4 3.8

Far East 5.2 4.8 8.5

Americas (0.3) (1.0) (0.8)

Group Services (14.3) (12.5) (23.6)

62.9 61.6 142.4

Exceptional items and amortisation of acquired intangible assets (note 4) (87.6) (19.6) (46.5)

(24.7) 42.0 95.9

# See note 2

27INTERSERVE HALF-YEAR REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS

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Notes to the unaudited interim financial statements continuedFor the six months ended 30 June 2016

4. Exceptional items and amortisation of acquired intangible assets

Six months ended 30 June 2016

Exited Business1

£million

Transaction and

integration costs£million

Amortisation of acquired

intangible assets£million

Total£million

Consolidated revenue 62.3 - - 62.3

Cost of sales (138.0) - - (138.0)

Gross profit/(loss) (75.7) - - (75.7)

Directly associated management costs 3.7 - - 3.7

Amortisation of acquired intangible assets - - (15.5) (15.5)

Transaction costs on acquisitions - - - -

Integration costs on acquisitions - - - -

Earnout arrangements on the acquisition of Paragon Management UK Ltd

- - - -

Total administration expenses 3.7 - (15.5) (11.8)

Operating profit/(loss) (72.0) - (15.5) (87.5)

Amortisation of acquired intangible assets of associates - - (0.1) (0.1)

Profit for the period/(loss) (72.0) - (15.6) (87.6)

Tax on exceptional items

Exited Business 2.0 - - 2.0

Amortisation of acquired intangible assets - - 2.9 2.9

Transaction costs on acquisitions - - - -

Integration costs on acquisitions - - - -

Earnout arrangements on the acquisition of Paragon Management UK Ltd

- - - -

Tax on exceptional items 2.0 - 2.9 4.9

Profit/(loss) after taxation (70.0) - (12.7) (82.7)

1 The revenues and losses in respect of the construction of Energy from Waste facilities, where there was contractual responsibility taken for the process risk, along with directly associated costs, are presented as exceptional items and are excluded from the calculation of headline earnings per share (reflecting their material and non-recurring nature). The Exited Business does not meet the definition of discontinued operations as stipulated by IFRS 5 Non-current assets held for sale and discontinued operations because the business has not been disposed of and there are no assets classified as held for sale. Accordingly the disclosures within exceptional items differ from those applicable for discontinued operations.

INTERSERVE HALF-YEAR REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 28

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Notes to the unaudited interim financial statements continuedFor the six months ended 30 June 2016

4. Exceptional items and amortisation of acquired intangible assets continuedSix months ended 30 June 2015

Exited Business1

£million

Transaction and

integration costs£million

Amortisation of acquired

intangible assets£million

Total£million

Consolidated revenue 68.5 - - 68.5

Cost of sales (76.5) - - (76.5)

Gross profit/(loss) (8.0) - - (8.0)

Directly associated management costs 6.7 - - 6.7

Amortisation of acquired intangible assets - - (15.4) (15.4)

Transaction costs on acquisitions - (0.2) - (0.2)

Integration costs on acquisitions - (2.1) - (2.1)

Earnout arrangements on the acquisition of Paragon Management UK Ltd

- (0.5) - (0.5)

Total administration expenses 6.7 (2.8) (15.4) (11.5)

Operating profit/(loss) (1.3) (2.8) (15.4) (19.5)

Amortisation of acquired intangible assets of associates - - (0.1) (0.1)

Profit for the period/(loss) (1.3) (2.8) (15.5) (19.6)

Tax on exceptional items

Exited Business 0.3 - - 0.3

Amortisation of acquired intangible assets - - 2.7 2.7

Transaction costs on acquisitions - - - -

Integration costs on acquisitions - 0.6 - 0.6

Earnout arrangements on the acquisition of Paragon Management UK Ltd

- - - -

Tax on exceptional items 0.3 0.6 2.7 3.6

Profit/(loss) after taxation (1.0) (2.2) (12.8) (16.0)

1 The revenues and losses in respect of the construction of Energy from Waste facilities, where there was contractual responsibility taken for the process risk, along with directly associated costs, are presented as exceptional items and are excluded from the calculation of headline earnings per share (reflecting their material and non-recurring nature). The Exited Business does not meet the definition of discontinued operations as stipulated by IFRS 5 Non-current assets held for sale and discontinued operations because the business has not been disposed of and there are no assets classified as held for sale. Accordingly the disclosures within exceptional items differ from those applicable for discontinued operations.

29INTERSERVE HALF-YEAR REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS

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Notes to the unaudited interim financial statements continuedFor the six months ended 30 June 2016

4. Exceptional items and amortisation of acquired intangible assets continuedYear ended 31 December 2015

Exited Business1

£million

Transaction and

integration costs£million

Amortisation of acquired

intangible assets £million

Total£million

Consolidated revenue 145.9 - - 145.9

Cost of sales (167.4) - - (167.4)

Gross profit/(loss) (21.5) - - (21.5)

Directly associated management costs 10.9 - - 10.9

Amortisation of acquired intangible assets - - (31.0) (31.0)

Transaction costs on acquisitions - (0.2) - (0.2)

Integration costs on acquisitions - (2.8) - (2.8)

Earnout arrangements on the acquisition of Paragon Management UK Ltd

- (1.8) - (1.8)

Total administration expenses 10.9 (4.8) (31.0) (24.9)

Operating profit/(loss) (10.6) (4.8) (31.0) (46.4)

Amortisation of acquired intangible assets of associates - - (0.1) (0.1)

Profit for the period/(loss) (10.6) (4.8) (31.1) (46.5)

Tax on exceptional items

Exited Business 2.1 - - 2.1

Amortisation of acquired intangible assets - - 5.8 5.8

Transaction costs on acquisitions - - - -

Integration costs on acquisitions - 0.6 - 0.6

Earnout arrangements on the acquisition of Paragon Management UK Ltd

- - - -

Tax on exceptional items 2.1 0.6 5.8 8.5

Profit/(loss) after taxation (8.5) (4.2) (25.3) (38.0)

1 The revenues and losses in respect of the construction of Energy from Waste facilities, where there was contractual responsibility taken for the process risk, along with directly associated costs, are presented as exceptional items and are excluded from the calculation of headline earnings per share (reflecting their material and non-recurring nature). The Exited Business does not meet the definition of discontinued operations as stipulated by IFRS 5 Non-current assets held for sale and discontinued operations because the business has not been disposed of and there are no assets classified as held for sale. Accordingly the disclosures within exceptional items differ from those applicable for discontinued operations.

INTERSERVE HALF-YEAR REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 30

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Notes to the unaudited interim financial statements continuedFor the six months ended 30 June 2016

5. TaxationSix months ended 30 June 2016 Six months ended 30 June 2015 Year ended 31 December 2015

Profit before tax

£millionTax

£millionRate

%

Profit before tax

£millionTax

£millionRate

%

Profit before tax

£millionTax

£millionRate

%

Subsidiaries 44.5 (6.8) 15.3% 42.7 (8.0) 18.7% 103.4 (17.8) 17.2%

Post-tax earnings from associates 9.3 - n/a 10.6 - n/a 22.6 - n/a

Headline total 53.8 (6.8) 12.6% 53.3 (8.0) 15.0% 126.0 (17.8) 14.1%

Amortisation of acquired intangible assets (15.6) 2.9 18.6% (15.5) 2.7 17.4% (31.1) 5.8 18.6%

Transaction and integration costs - - n/a (2.8) 0.6 21.4% (4.8) 0.6 12.5%

Exited Business (72.0) 2.0 2.8% (1.3) 0.3 23.1% (10.6) 2.1 19.8%

(33.8) (1.9) (5.6%) 33.7 (4.4) 13.1% 79.5 (9.3) 11.7%

In addition to the income tax charged to the income statement, the following deferred tax charges/(credits) have been recorded directly in equity in the period:

Six months ended30 June 2016

£million

Six months ended30 June 2015

£millionrestated #

Year ended31 December 2015

£million

Tax on actuarial gains/(losses) on defined benefit pension schemes (10.8) 6.2 1.1

Tax on movements in cash flow hedging instruments 5.2 0.3 4.0

Tax on exchange movements on hedged financial instruments (3.9) 0.5 (2.2)

Tax on the intrinsic value of share-based payments - - 0.9

(9.5) 7.0 3.8

# See note 2

6. DividendsDividendper share

pence

Six months ended30 June 2016

£million

Six months ended30 June 2015

£million

Year ended31 December 2015

£million

Final dividend for the year ended 31 December 2014 15.5 - 22.2 22.2

Interim dividend for the year ended 31 December 2015 7.9 - - 11.5

Final dividend for the year ended 31 December 2015 16.4 23.7 - -

Amount recognised as distribution to equity holders in the period 23.7 22.2 33.7

The 2016 interim dividend of 8.1p per share, amounting to £11.8 million, was approved by the directors on 10 August 2016 and has therefore not been included as a liability as at 30 June 2016.

31INTERSERVE HALF-YEAR REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS

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Notes to the unaudited interim financial statements continuedFor the six months ended 30 June 2016

7. Earnings/(loss) per shareThe calculation of earnings per share is based on the following data:

Earnings/(loss)

Six months ended30 June 2016

£million

Six months ended30 June 2015

£million restated #

Year ended31 December 2015

£million restated #

Net profit/(loss) attributable to equity holders of the parent (for basic and basic diluted earnings per share)

(37.1) 28.8 68.9

Adjustments:

Exceptional items and amortisation of acquired intangible assets (note 4) 82.7 16.0 38.0

Headline earnings (for headline and headline diluted earnings per share) 45.6 44.8 106.9

Weighted average number of shares

Six months ended30 June 2016

Numberthousand

Six months ended30 June 2015

Numberthousand

Year ended31 December 2015

Numberthousand

Weighted average number of ordinary shares for the purposes of basic and headline earnings per share

145,497 144,662 144,937

Effect of dilutive potential ordinary shares:

Share-based payments 79 1,079 942

Weighted average number of ordinary shares for the purposes of basic and headline diluted earnings per share

145,576 145,741 145,879

Earnings/(loss) per share

Six months ended 30 June 2016

pence

Six months ended 30 June 2015

pencerestated #

Year ended 31 December 2015

pencerestated #

Basic earnings/(loss) per share (25.5) 19.9 47.5

Diluted basic earnings/(loss) per share (25.5) 19.8 47.2

Headline earnings per share 31.3 31.0 73.8

Diluted headline earnings per share 31.3 30.7 73.3

# See note 2

INTERSERVE HALF-YEAR REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 32

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Notes to the unaudited interim financial statements continuedFor the six months ended 30 June 2016

8. Financial assets/(liabilities) held at fair valueTrade and other receivables, trade and other payables and long-term borrowings are held at amortised cost. The directors consider these values to approximate their fair values. The interest rate and foreign exchange hedges are held at fair value at each balance sheet date.

Classification of financial assets/(liabilities) held at fair value according to the definitions set out in IFRS 7:

30 June 2016£million

30 June 2015£million

31 December 2015£million

Level 2 56.4 7.0 25.1

Derivatives used for hedging financial liabilities are considered to be within the grouping referred to as “Level 2”. Their fair values are calculated based on the valuation models operated by the relevant counterparty bank, based on market interest rates in force on the date of valuation.

No financial instruments have been transferred between levels during the period.

9. Share capitalSix months ended

30 June 2016Shares thousand

Six months ended30 June 2015

Shares thousand

Year ended 31 December 2015

Shares thousand

At 1 January 145,208 143,918 143,918

Share awards issued 506 1,290 1,290

At the end of the period 145,714 145,208 145,208

33INTERSERVE HALF-YEAR REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS

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Notes to the unaudited interim financial statements continuedFor the six months ended 30 June 2016

10. Defined benefit retirement schemesThe following table sets out the key IAS 19 assumptions used to assess the present value of the defined benefit obligation.

Six months ended30 June 2016

Six months ended30 June 2015

Year ended 31 December 2015

Significant actuarial assumptions

Retail prices index (pa) 2.8% 3.3% 3.1%

Discount rate (pa) 2.9% 3.8% 3.8%

Consumer prices index (pa) 1.8% 2.3% 2.1%

Pension increases in payment:

LPI/RPI 2.7%/2.8% 3.1%/3.3% 3.0%/3.1%

Fixed 5% 5.0% 5.0% 5.0%

3% or RPI if higher (capped at 5%) 3.5% 3.7% 3.6%

General salary increases (pa) 2.3% 2.3%-2.8% 2.6%

The amount included in the balance sheet arising from the Group’s obligations in respect of the various pension schemes is as follows:

30 June 2016 £million

30 June 2015£million

31 December 2015£million

Present value of defined benefit obligation 982.6 910.1 880.9

Fair value of schemes’ assets (957.1) (944.4) (898.1)

(Asset)/liability recognised in the balance sheet 25.5 (34.3) (17.2)

The amounts recognised in the income statement are as follows:

Six months ended30 June 2016

£million

Six months ended30 June 2015

£million

Year ended31 December 2015

£million

Employer’s part of current service cost 3.2 4.0 7.2

Administration costs 0.6 1.2 1.9

Past service (gains)/losses (2.6) – –

Losses/(gains) on settlements (0.1) – (1.1)

Net interest (income)/expense on the net pension liability/(asset) (0.5) – (0.3)

Total expense recognised in the income statement 0.6 5.2 7.7

Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised directly in equity and presented in the statement of comprehensive income.

The Group has assessed that no further liability arises under IFRIC 14 IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction on the basis that the scheme rules allow the Company an unconditional right to refunds, as a result of the Trustees not having a unilateral power to wind up the scheme and assuming the gradual settlement of plan liabilities over time until all members have left the scheme.

INTERSERVE HALF-YEAR REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 34

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Notes to the unaudited interim financial statements continuedFor the six months ended 30 June 2016

11. Reconciliation of non-statutory measuresThe Group uses a number of key performance indicators to monitor the performance of its business. This note reconciles these key performance indicators to individual lines in the financial statements.

Six months ended30 June 2016

£million

Six months ended30 June 2015

£millionrestated #

Year ended31 December 2015

£millionrestated #

(a) Headline total operating profit

Profit/(loss) before tax (33.8) 33.7 79.5

Adjusted for:

Amortisation of acquired intangible assets 15.5 15.4 31.0

Share of associates’ amortisation of acquired intangible assets 0.1 0.1 0.1

Exceptional items – transaction and integration costs – 2.8 4.8

Exceptional items – Exited Business 72.0 1.3 10.6

Investment revenue (2.5) (2.2) (4.7)

Finance costs 11.6 10.5 21.1

Headline total operating profit 62.9 61.6 142.4

(b) Operating cash flow

Cash generated by operations 56.6 20.6 38.7

Adjusted for:

Cash generated by operations – Exited Business 52.8 1.3 10.4

Pension contributions in excess of income statement charge 10.6 8.1 16.1

Exceptional items cash impact – 2.3 3.0

Proceeds on disposal of plant and equipment - non-hire fleet 9.6 0.5 1.6

Capital expenditure - non-hire fleet (15.9) (17.4) (31.2)

Operating cash flow 113.7 15.4 38.6

(c) Free cash flow

Operating cash flow 113.7 15.4 38.6

Adjusted for:

Pension contributions in excess of income statement charge (10.6) (8.1) (16.1)

Taxes paid (4.3) (2.7) (6.8)

Dividends received from associates and joint ventures 14.6 4.5 13.6

Interest received 2.0 2.2 4.4

Interest paid (11.6) (10.5) (21.1)

Effect of foreign exchange rate change 3.9 (1.0) 0.1

Free cash flow 107.7 (0.2) 12.7

(d) Operating cash conversion

Operating cash flow 113.7 15.4 38.6

Operating profit, before exceptional items and amortisation of acquired intangible assets 53.6 51.0 119.8

Current period operating cash conversion 212.1% 30.2% 32.2%

Three-year rolling operating cash flow 190.7 72.1 99.5

Three-year rolling operating profit, before exceptional items and amortisation of acquired intangible assets

312.2 251.2 289.8

Operating cash conversion, three-year rolling average 61.1% 28.7% 34.3%

# See note 2

35INTERSERVE HALF-YEAR REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS

Page 37: INGENUITY AT WORK - Interserve · Highlights Strategic highlights INTERIM DIVIDEND 8.1p +2.5% HEADLINE TOTAL OPERATING PROFIT1 £62.9m +2.1% FUTURE WORKLOAD1 £7.6bn +0.9% HEADLINE

Notes to the unaudited interim financial statements continuedFor the six months ended 30 June 2016

11. Reconciliation of non-statutory measures continued

Six months ended30 June 2016

£million

Six months ended30 June 2015

£millionrestated #

Year ended31 December 2015

£millionrestated #

(e) Gross operating cash conversion

Operating cash flow 113.7 15.4 38.6

Dividends received from associates and joint ventures 14.6 4.5 13.6

Gross operating cash flow 128.3 19.9 52.2

Operating profit, before exceptional items and amortisation of acquired intangible assets

53.6 51.0 119.8

Share of result of associates and joint ventures, before exceptional items and amortisation of acquired intangible assets

9.3 10.6 22.6

Total operating profit, before exceptional items and amortisation of acquired intangible assets

62.9 61.6 142.4

Current period gross operating cash conversion 204.0% 32.3% 36.7%

Three-year rolling gross operating cash flow 241.5 117.2 144.6

Three-year rolling total operating profit, before exceptional items and amortisation of acquired intangible assets

369.7 308.0 346.3

Gross operating cash conversion, three-year rolling average 65.3% 38.1% 41.8%

(f) Gross revenue

Consolidated revenue 1,632.9 1,595.1 3,204.6

Share of revenue of associates and joint ventures 220.7 209.3 424.3

Gross revenue 1,853.6 1,804.4 3,628.9

(g) Net debt

Cash and deposits A 115.1 108.2 86.1

Bank overdrafts (5.6) (8.1) (15.5)

Bank loans (175.0) (190.0) (170.0)

US Private Placement Loans (261.2) (222.6) (236.1)

(441.8) (420.7) (421.6)

Finance leases (2.9) (0.8) (2.2)

Total borrowings B (444.7) (421.5) (423.8)

Per balance sheet A+B (329.6) (313.3) (337.7)

less: Impact of hedges on US Private Placement loan notes 54.0 15.4 28.9

Net debt (275.6) (297.9) (308.8)

# See note 2

INTERSERVE HALF-YEAR REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 36

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ChairmanGlyn Barker1A 3

Executive directorsAdrian Ringrose1 – Chief ExecutiveTim Haywood – Group Finance DirectorBruce MelizanDougie Sutherland

Non-executive directorsAnne Fahy 1 2A 3

Russell King 1 2 3 4

Keith Ludeman 1 2 3A

Nick Salmon 1 2 3

1 Member of the Nomination Committee

1A Chairman of the Nomination Committee

2 Member of the Audit Committee

2A Chairman of the Audit Committee

3 Member of the Remuneration Committee

3A Chairman of the Remuneration Committee

4 Senior Independent Director

Group Company SecretaryTrevor Bradbury

Registered officeInterserve HouseRuscombe ParkTwyfordReadingBerkshire RG10 9JU

T +44 (0)118 932 0123F +44 (0)118 932 [email protected]

Registered number88456

Registrar and share transfer officeCapita Asset ServicesThe Registry34 Beckenham RoadBeckenhamKent BR3 4TU

T: +44 (0)20 8639 3399F: +44 (0)1484 [email protected]

AuditorsGrant Thornton UK LLP

StockbrokersJ.P. Morgan Cazenove LimitedNumis Securities Limited

LawyersAshurst LLP

Directors and advisers

37INTERSERVE HALF-YEAR REPORT 2016 DIRECTORS AND ADVISERS

Page 39: INGENUITY AT WORK - Interserve · Highlights Strategic highlights INTERIM DIVIDEND 8.1p +2.5% HEADLINE TOTAL OPERATING PROFIT1 £62.9m +2.1% FUTURE WORKLOAD1 £7.6bn +0.9% HEADLINE

REGISTERED OFFICE

Interserve Plc Interserve House, Ruscombe Park, Twyford Reading, Berkshire, RG10 9JU

T +44 (0)118 932 0123

F +44 (0)118 932 0206

E [email protected]

www.interserve.com