1Interim ISG plc Report and Financial Statements 2011 .../media/files/publications... · ISG plc Interim report and accounts 2011 9 01 - Hospitality & Leisure Gordon Ramsay’s Bread

1 ISG plc Report and Financial Statements 2011

Interim report and accounts 2011


01 Our performance at a glance02 ChiefExecutiveOfficer’sstatement22 Condensed consolidated income

statement24 Condensed consolidated statement

of comprehensive income25 Condensed consolidated

balance sheet26 Condensed consolidated statement

of changes in equity27 Condensed consolidated cash

flowstatement28 Notes to the condensed consolidated

financialstatements40 Responsibility statement

31 December 2011

* from continuing operations** adjusted profit before tax is calculated from profit before tax from continuing operations before exceptional items and amortisation of intangible assets (Note 4)*** adjusted basic earnings per share is calculated from profit after tax from the earnings attributable to owners of the company from continuing operations before exceptional items

and amortisation of intangible assets (Note 8)**** basic earnings per share is calculated from profit after tax from the earnings attributable to owners of the company from continuing and discontinued operations (Note 8)

Our performance at a glance

Revenue*

£623m+0% (2010: £621m)

Adjusted profit before tax**

£3.6m-33% (2010: £5.4m)

Adjusted earnings per share***

8.37p-32% (2010: 12.34p)

Net cash

£29.5m-21% (2010: £37.4m)

Dividend per share

4.41p+0% (2010: 4.41p)

Order book

£704m-12% (2010: £797m)

Profit before tax

£1.8m-59% (2010: £4.5m)

Basic earnings per share****

4.20p-59% (2010: 10.20p)

I am pleased to report that our overseas businesses have continued to grow – now accounting for 27% (2010: 6%) of Group trading operating profit**. However, while trading in the first half of the financial year is in line with expectations, the UK continues to experience difficult market conditions, which is resulting in tighter margins.

Chief Executive Officer’s statement

Retail - Louis Vuitton, Marina Bay Sands, Singapore

ISG plc Interim report and accounts 2011 3

* from continuing operations** from continuing operations before exceptional items and amortisation of intangible assets (Note 4)*** from earnings attributable to owners of the company from continuing operations before exceptional items and amortisation of intangible assets (Note 8)**** of the total order book, £497m (2010: £472m) relates to the current financial year

Trading: Below is a summary of revenue and order book for each of the Group’s business segments.

Revenue (£m)* Order Book (£m)****

6 months to 31 Dec

2011

6 months to 31 Dec

2010 Change

As at 31 Dec

2011

As at 31 Dec

2010 Change

UK Fit Out 177 193 -9% 143 178 -20%

Continental Europe Fit Out 53 41 +28% 49 20 +147%

Middle East Fit Out 10 10 -1% 10 11 -7%

Asia Fit Out 47 33 +45% 27 32 -16%

Food Retail 110 107 +2% 116 148 -22%

Construction 227 237 -4% 359 408 -12%

Total 623 621 – 704 797 -12%

ResultsFor the six months ended 31 December 2011, revenue from continuing operations was maintained at £623m (2010: £621m) and adjusted profit before tax** was £3.6m (2010: £5.4m). Adjusted earnings per share*** decreased by 32% to 8.37p (2010: 12.34p). Profit before tax was £1.8m (2010: £4.5m).

Net cash as at 31 December 2011 of £29.5m was lower than prior year (2010: £37.4m) reflecting the current lower level of larger contracts in comparison with prior year. In the period, the Group repaid £2.1m (2010: £2.8m) of bank borrowings. Net cash outflow from continuing operating activities for the period was £0.3m (2010 inflow: £10.9m). We retain a working capital revolving credit facility of £10.0m which expires in May 2013.

We have an increased order book as at 31 January 2012 of £841m (2011: £794m), as we continue to benefit from our broad range of services.

DividendsThe Board has declared a maintained interim dividend of 4.41p (2010: 4.41p). The dividend will be payable on 1 May 2012 to shareholders on the register on 16 March 2012. The ex-dividend date will be 14 March 2012. The closing date for elections for the Dividend Re-Investment Plan is 5 April 2012.

David LawtherChief Executive Officer

Our overseas businesses have continued to grow– now accounting for27% of Group tradingoperating profit**

The Board has declareda maintained interim dividend of 4.41p


OverviewWe continue to focus our effort and investment on areas where we see compelling opportunities and attractive long-term growth prospects. In particular we are entering growth markets such as technology in the UK and retail, leisure and technology overseas.

In summary, our markets are performing as follows:

Our London Fit Out business, in a competitive market, maintained revenues in line with the second half of last year, with a continuing trend of smaller sized projects. We are steadily improving our reputation, offer and volumes in the technology and hotel sectors.

Our UK Retail Fit Out and Food Retail businesses have maintained their market leading position, with volumes in the first half ahead of prior year. However, as previously announced, customers across this sector are

re-evaluating their investment programmes in response to slower economic growth prospects and we expect this to affect second half volumes.

In Continental Europe, our volumes have risen due to increased demand from our international client base in both the commercial office and retail sectors, particularly in Germany and Italy. In addition we acquired Alpha International (Alpha), a retail design and fit out specialist based in Paris, and this alongside our existing retail operations has considerably enhanced our capabilities.

In the Middle East revenues have been maintained in line with prior year. In Abu Dhabi, delays to the completion of base builds which in turn have affected the timing of our fit out projects have impacted margins. However, we have a strong pipeline of opportunities and expect increased volumes and margins in the second half.

Forward order book by sector

31%

22%

11%

9%

9%

8%5%

5%

2011

28%

32%

8%

13%

7%

8%

1%

3%

2010

Revenue by segment

2011

28%

9%

1%18% 8%

36%

2010

31%

7%

2%17% 5%

38%

UK Fit OutContinental Europe Fit Out Middle East Fit OutAsia Fit OutFood RetailConstruction

OfficeRetailHospitality & LeisureTechnology & Industry

Public & CommunityEducation

Health

Living


Office - Marks & Spencer Project Carmine, London, UK


Education - Blessed Thomas Holford College, Altrincham, UK


In Asia our volumes and margins are now benefiting from increased investment in the region by international companies. We are building upon our reputation in the commercial office and retail sectors, and are now extending our offer into the hotel sector.

As has been widely publicised, the health of the UK construction sector continues to be mixed, and is largely dependent on market sector and geography. In our UK Construction business volumes were largely in line with prior year, but margins continue to be under pressure, due in part to the residual contract issues previously reported in the South West. With increased allocations from the London Organising Committee of the Olympic and Paralympic Games (LOCOG) together with other positive trends in the South East, we anticipate increased volumes in the second half.

At the end of December 2011 our total order book was £704m (2010: £797m), of which £497m (2010: £472m) is for delivery in the current financial year and £203m (2010: £313m) for the next financial year. Our order book is heavily weighted towards the private sector at 77% (2010: 75%), with the public sector at 23% (2010: 25%).

Since the end of the period we have secured a data centre project in excess of £100m, which has contributed to increasing our order book as at 31 January 2012 to £841m (2011: £794m), of which £361m (2011: £358m) is for delivery in the next financial year.

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United Kingdom

Hong KongMacau

Malaysia

BelgiumLuxembourg

FranceSpain

Sw

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South A

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Qatar

Abu D

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Singapore

Australia

Where we work


Revenues are 19%higher than second halfof last year

Worked on the fit out ofthe London 2012 Stadium

UK Fit Out had an orderbook of £143m at theend of December

UK Fit OutOur UK Fit Out division, which comprises our London Fit Out and UK Retail Fit Out businesses, saw an increased operating margin of 1.9% (2010: 1.7%) resulting in a rise in operating profit of 3% to £3.4m (2010: £3.3m). Revenues were up 19% compared with the second half of last year, although year on year there has been a decline to £177m (2010: £193m).

Corporate office projects completed in London included a 160,000 sq ft project in Paddington Basin for Marks and Spencer. We also completed two projects totalling 100,000 sq ft for the Royal Bank of Canada alongside other projects for RBC Dexia, Credit Suisse and Deutsche Bank.

We are seeing an increasing trend by our customers towards refurbishment

projects, an area in which we have market leading capabilities. During the period we were awarded an office retrofit project for Scottish Widows Investment Partnership in Reading valued at £12m, a 170,000 sq ft refit project at 99 Bishopsgate, London for Hammerson and major infrastructure upgrades and reconfiguration projects for two international banking organisations in the City. In addition, we have been awarded a 120,000 sq ft fit out for NBCUniversal International, which will include the installation of both a screening room and a cinema.

We have also continued to achieve success outside the corporate office market. Notably, we worked on the fit out of the London 2012 Stadium for LOCOG, two data centres for an international banking organisation, and the new Bread Street Kitchen for Gordon Ramsay.

01 02


01 - Hospitality & LeisureGordon Ramsay’s Bread Street Kitchen, London, UK

02 - OfficeRBC, London, UK

03 - RetailSwarovski, Canterbury, UK

04 - Technology & IndustryInternational banking organisation, London, UK

03

04

Other highlights include an extensive services replacement at London’s Lancaster Hotel, the technical refit of the Archives and Quarantine facilities at the London Natural History Museum and a number of high-end London residential schemes.

Our retail banking framework agreements with The Royal Bank of Scotland (RBS), Barclays, HSBC and Lloyds Banking Group (Lloyds) have provided a stream of projects across their respective branch networks, ranging from access improvements to new flagship branch fit outs. During the period we were successfully reappointed to the Lloyds framework from which we anticipate increased activity in the next financial year. In December we were also appointed by Nationwide Building Society as a framework partner for their major branch refurbishment programme across the UK. However, during the period the banks have re-evaluated their branch roll out programmes, resulting in the deferral of volumes into the next financial year.

Despite the difficult market background, we saw a modest increase in demand from our high street retail clients, completing several projects for Everything Everywhere, Monsoon, Foot Locker and Carphone Warehouse.

At 31 December 2011 our UK Fit Out division had an order book of £143m (2010: £178m), of which £113m (2010: £102m) is to be delivered in the current financial year. As referred to above, since the period end, we have been awarded a data centre project for Santander in excess of £100m and a £20m contract to refurbish a Central London hotel. We anticipate that revenue for the full year will be maintained at the same level as the prior year.


Continental Europe Fit OutIn Continental Europe, we have seen revenues in the period increase by 28% to £53m (2010: £41m). Operating margin increased to 2.4% (2010: 0.2%) resulting in an increase in operating profit to £1.3m (2010: £0.1m).

We have invested in management and infrastructure across our retail and commercial office fit out businesses to build our capability. Additionally, in October 2011 we successfully completed the acquisition of Alpha, a Paris-based retail design and fit out company, and this alongside our existing retail operations, has considerably enhanced our capabilities to service our international retail clients.

In France, we completed the first phase of the new Southern European headquarters for Google in Paris. Comprising 119,000 sq ft, the office was officially inaugurated by President Sarkozy in December 2011. We have now commenced the second phase of this project which will complete in late 2012. We also secured and commenced working on retail projects for Louis Vuitton and Marks & Spencer. The latter follows our successful delivery of Marks & Spencer’s new store on the Champs Élysées, which marked the return of the retailer to Continental Europe. In addition,

during the period we delivered projects for Uniqlo, Apple, Patek Philippe, Aéroports de Paris, Disney and Pret A Manger.

During the period we delivered several projects under a roll out programme for Foot Locker across France, Germany and the Czech Republic.

In Germany we undertook three projects for Google, including the refit of its 94,000 sq ft headquarters in Hamburg. In Frankfurt we have completed the 27,000 sq ft fit out of GE’s new European headquarters. We are also delivering an Abercrombie and Fitch flagship store in Hamburg.

In Italy we delivered a project in Rome comprising 64,000 sq ft under our global framework with one of the world’s largest petrochemical organisations. In addition, we also completed projects for Société Générale, GAP and Longchamp in Milan.

As at December 2011 the order book has grown to £49m (2010: £20m), of which £35m is to be delivered in the current financial year (2010: £18m). We expect the improvement in revenue experienced in the first half to be maintained, and therefore anticipate revenue in the current financial year will be substantially ahead of last year.

01 02

Revenues have increasedby 28% in the period

Our operations willbenefit fromsignificant investmentin strengthening management and infrastructure

We completed theacquisition of Alpha, a Paris-based retail designand fit out company


01 - RetailMarks & Spencer, Paris, France

02 - OfficeGoogle, Düsseldorf, Germany

03 - OfficeMizuho, Moscow, Russia

04 - Hospitality & LeisurePret A Manger, Paris, France

03

04


01 - OfficeClyde & Co, Dubai, UAE

02 - LivingEtihad Towers, Abu Dhabi, UAE

03 - OfficeISG, Dubai, UAE

01


Middle East Fit OutIn the Middle East, revenue was successfully maintained at £10m (2010: £10m). However with margins impacted due to delays to the completion of base builds in Abu Dhabi which in turn have affected the timing of our fit out projects, the business made a loss of £0.3m (2010 profit: £0.2m).

In the period we have worked on the corporate offices for management consultancy Booz & Co and law firm Latham & Watkins in Abu Dhabi. In Dubai we completed several projects for RBS and also completed our work on a 55,000 sq ft office for Clyde & Co. Importantly in December, we secured our first high-end residential fit out, which we anticipate will be a growth sector for the business.

In recognition of the growing significant market opportunities in Qatar, we are preparing to open a new office in Doha.

The order book at the end of December 2011 is £10m (2010: £11m). However, we have a strong pipeline of opportunities and as a result we anticipate activity levels in the second half to be ahead of the first half.

Revenue was successfullymaintained at £10m

Recognising marketopportunities, we arepreparing to open a new office in Doha

03

02


01

Asia Fit OutRevenue for our Asia division in the period increased by 45% to £47m (2010: £33m). Operating margin increased to 1.6% (2010: 0.6%) resulting in an increase in operating profit to £0.7m (2010: £0.2m).

In North Asia our reputation for excellence in the luxury retail market saw us continuing to work on a number of roll out programmes in China, including completing seven projects for UGG, five projects for TOD’S, four projects for Dior and three projects for Hogan. In Hong Kong we completed Apple’s first flagship store on the island, and began work on Abercrombie and Fitch’s flagship store

within a Grade II historic building. In addition in Hong Kong, we are working on a new bank branch facade project for Standard Chartered Bank, completed new offices for Daiwa Capital and Jynwel Capital, delivered a number of projects for HSBC, and worked again for the Hong Kong Jockey Club on the refurbishment of the racecourse’s private boxes.

Realys, our Shanghai-based, design-led project management company, worked on 17 projects with Porsche during the period, having now delivered over 1,000,000 sq ft of retail space for Porsche in China alone. However, with Eurozone uncertainty a number of larger R&D

Revenue for our Asiadivision increased by45% for the period

We completed thefit out of the largest Louis Vuitton flagshipstore at Marina Bay Sands in Singapore

We are carrying forwardan order book of £27m

02


01 - RetailLouis Vuitton flagship, Singapore

02 - OfficeAir Asia’s ASEAN, Jakarta, Indonesia

03 - OfficeCrystal Plaza, Kuala Lumpur, Malaysia

04 - RetailTOD’S, China

04

centre projects for European clients operating in China are currently on hold. Our commissioning management business, Commtech Asia, has continued to grow, delivering projects for Barclays Capital and Bank of America in Singapore, as well as for Deutsche Bank, Credit Suisse, Pacnet and The Hong Kong Exchange in Hong Kong. It has also been awarded retro-commissioning roles by GIC Real Estate for two projects in South Korea.

In South East Asia, we completed the fit out of the largest Louis Vuitton flagship store at Marina Bay Sands in Singapore, as well as 100,000 sq ft of offices for Nomura and 180,000 sq ft of offices for ANZ. In Malaysia, we have completed 100,000 sq ft of refurbishment works for Crystal Plaza in Kuala Lumpur. We also expanded our service offering into Indonesia, completing our first project in Jakarta for Air Asia’s ASEAN office.

As at 31 December 2011 the division’s order book was £27m (2010: £32m). Since period end, we have secured three additional projects in Hong Kong with a total value of £10m, and in China we have been appointed by Tesco to work on the refurbishment of a shopping mall. We anticipate that revenues for the year will be substantially ahead of last year.

03


02

01 - RetailASDA, Weymouth, UK

02 - RetailSainsbury’s, Dawlish, UK

01


Revenue in the first half slightly ahead of last year

During the year we worked with all the top five major UK supermarket brands

The order book at the endof December is £116m

Food RetailWe continue to be a framework supplier to all the major food retailers with revenue in the first half slightly ahead of last year at £110m (2010: £107m). However, almost uniformly, we have seen a marked increase in pressure on margins. As a result, operating profits have fallen to £1.3m (2010: £2.3m).

Many of these customers have also revisited their capital expenditure programmes and this has led to the deferment and cancellation of a number of projects. With confidence across the sector in the UK generally lower and with an ongoing pressure on margins we believe that results in this business will continue to be affected in the second half.

During the period we completed three new build projects for Tesco at Seaton, Yate and Fareham, and two for Sainsbury’s at Melksham and Dawlish, where the latter received widespread praise for its groundbreaking approach to sustainability.

During the period we successfully completed our work on Asda’s “Netto to Asda” conversion programme. We are now into our first year on Morrison’s new strategic framework and have commenced work on a large new build project in Edgbaston.

For Marks & Spencer we completed a number of extensions and refurbishments, with a particular highlight being awarded their first “Concept 11” remodelling project, on High Street Kensington, London. The concept is now being rolled out to a number of other stores.

The order book at the end of December 2011 is £116m (2010: £148m), of which £71m (2010: £86m) is for delivery in the current financial year. We anticipate revenue for the full year to be lower than prior year.

To ensure a more seamless service offering to our retail customers, we are proceeding with the integration of all our retail businesses in the UK.

03 0403 & 04 - RetailTesco, Ashford, UK


UK ConstructionOur UK Construction division experienced a modest decline in revenue to £227m (2010: £237m). During the period residual contract issues in our South West operations continued to impact profits, and in general margins across the UK remain under pressure. As a result, operating profits for the period fell to £0.1m (2010: £2.0m).

In the South, we continue to see a modest improvement in the pipeline of opportunities. During the period, we were appointed by LOCOG to manage all overlay works on the Olympic Park site in London. This win was quickly followed by our appointment to 24 Off-Park Olympic venues around the UK. In addition, in London, we won the groundbreaking O2 Rooftop Walk scheme, and completed our work on No 1 Kingsway and the striking new library at Canada Water, an inverted pyramid which overhangs

the Canada Water Basin. We have also been appointed by Hammerson to the Queensgate Shopping Centre project in Peterborough and, in the South West, we continue to successfully secure and deliver projects for Aspire Defence, Persimmon and Cardiff City Council as we re-focus the business. In the North, the decline in demand from the public sector is likely to affect volumes in the future. During the period, we secured projects through our established frameworks, such as the North West Construction Hub and the Ministry of Justice, as well as our relationships with key customers such as De Vere and Alliance Leisure. We continue to focus the business and manage the cost base in line with opportunities. In addition, our new Scotland office completed Diageo’s £24m bottling plant in Leven, its largest site in Scotland, and has subsequently been awarded further

We were appointed byLOCOG to manage alloverlay works on theOlympic Park site and24 Off-Park Olympic venues around the UK

In London we won thegroundbreaking O2Rooftop Walk scheme

Our new Scotland office completed Diageo’s £24m bottlingplant, its largest sitein Scotland

01

02

03


04

05

01 - ResidentialGlasgow Housing Association, Glasgow, UK

02 - OfficeCrown House, London, UK

03 - Technology & IndustryCooperage, Cambus, UK

04 - EducationNorth Warwickshire & Hinckley College, Hinckley, UK

05 - Public & CommunityCanada Water Library, London, UK

projects with Diageo. In the North West, we secured a 25,000 sq ft office fit out for SIS Media, our third project on Salford’s MediaCityUK development, and a major refurbishment for BAE Warton near Preston, our twelfth project with this customer. In the Midlands, we won projects at Rugby School and at the Dudley Sixth Form College, following our successful delivery of the Dudley Evolve scheme.

The order book at 31 December 2011 is £359m (2010: £408m) of which £249m (2010: £225m) is for delivery in the current financial year. We therefore anticipate that revenues in the current financial year will be ahead of prior year, although margins will continue to be under pressure.


Office - RBC Dexia, London, UK


Discontinued operations and exceptional itemsAs set out in Notes 4 and 5 of the interim report, during the period our UK Construction business discontinued its Affordable Housing activity in the South West, resulting in a loss before tax of £1.7m being treated as a discontinued operation. In addition, we have re-assessed the deferred contingent consideration payable to the vendors of Realys based on latest forecasts, and this has resulted in a reduction of £1.3m in the estimated amount payable, which has been treated as an exceptional gain.

OutlookISG as a whole has a unique offering with its blend of businesses both in and outside the UK. Our strategy of continuing to diversify and balance our portfolio is helping to ensure that we are not overexposed to any single sector.

The outlook for our key markets is as follows:

The London corporate office market remains stable, with a steady stream of smaller sized projects. We anticipate an improvement in the market in 2013/14 as a large number of lease reversions are completed.

We have invested in our UK technology and hotel capabilities and are starting to see an increasing return and a growing reputation reflected in the significant projects secured in January 2012.

Our retail businesses in the UK remain profitable and robust but our retail customers are scaling back their investment plans in the UK whilst increasing their investment overseas. This is generating opportunities for our overseas businesses.

Our UK Construction division is divided between a stronger South East market (where the recently secured LOCOG work demonstrates our reputation) and falling demand elsewhere. We will continue to position and size the business to reflect market opportunities in the short to medium term.

Outside the UK, our businesses are benefiting from a growing reputation. Our major international clients continue their capital investment plans. As we widen our offer beyond corporate office fit out into retail, leisure, technology and other growth sectors, we are seeing increased demand for our services.

Overall our market leadership in the corporate office fit out, food retail and retail fit out sectors continues to deliver repeat business with a reliable order book, which will enable us to benefit from any upturn particularly in the UK. The slowdown in the UK retail sector has affected our short-term expectations of our retail business. Overseas, we will continue to invest in our growth organically and, as opportunities arise, in bolt-on acquisitions. We remain confident that our strategy will generate long-term value for our shareholders.

David LawtherChief Executive Officer6 March 2012

Condensed consolidated income statementfor the 6 months ended 31 December 2011

Unaudited 6 months to

31 December 2011


31 December 2010

Audited Year to

30 June 2011

Continuing Operations

Discontinued Operations

Total Operations



Total Operations



TotalOperations

Notes £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Revenue 3 623,312 5,856 629,168 621,342 14,020 635,362 1,173,753 21,844 1,195,597Cost of sales (589,791) (7,309) (597,100) (588,845) (13,716) (602,561) (1,107,150) (22,812) (1,129,962)

Gross profit 33,521 (1,453) 32,068 32,497 304 32,801 66,603 (968) 65,635

Share of profits of associates and joint ventures 15 - 15 7 - 7 16 - 16Amortisation of intangibles 10 (1,386) - (1,386) (702) - (702) (1,592) - (1,592)Administrative expenses (29,603) (216) (29,819) (26,913) 3 (26,910) (53,908) 12 (53,896)

Operating profit before exceptional items 3 2,547 (1,669) 878 4,889 307 5,196 11,119 (956) 10,163Administrative expenses - exceptional items 5 - - - (553) - (553) (611) (231) (842)

Operating profit after exceptional items 3 2,547 (1,669) 878 4,336 307 4,643 10,508 (1,187) 9,321

Non-operating - exceptional items 5 1,250 - 1,250 - - - - - -Finance income 3 22 - 22 76 6 82 169 12 181Finance costs 3 (312) - (312) (235) - (235) (459) - (459)

Profit before tax 3 3,507 (1,669) 1,838 4,177 313 4,490 10,218 (1,175) 9,043Taxation 6 (921) 430 (491) (1,175) (88) (1,263) (2,324) 320 (2,004)Profit for the period 2,586 (1,239) 1,347 3,002 225 3,227 7,894 (855) 7,039

Attributable to:Owners of the company 2,563 (1,239) 1,324 3,002 225 3,227 7,882 (855) 7,027Non-controlling interests 23 - 23 - - - 12 - 12

2,586 (1,239) 1,347 3,002 225 3,227 7,894 (855) 7,039

Earnings per share1

Basic earnings per share 8 8.14p (3.94p) 4.20p 9.49p 0.71p 10.20p 24.86p (2.69p) 22.17pDiluted earnings per share 8 8.01p (3.87p) 4.14p 9.36p 0.70p 10.06p 24.43p (2.65p) 21.78p

Adjusted profit before tax2 4 3,643 - 3,643 5,432 - 5,432 12,421 - 12,421

Adjusted earnings per share3

Basic earnings per share 8 8.37p - 8.37p 12.34p - 12.34p 29.19p - 29.19pDiluted earnings per share 8 8.24p - 8.24p 12.18p - 12.18p 28.68p - 28.68p

1 from earnings attributable to owners of the company2 from continuing operations before exceptional items and amortisation of intangible assets3 from earnings attributable to owners of the company from continuing operations before exceptional items and amortisation of intangible assets



31 December 2011


31 December 2010

Audited Year to

30 June 2011



Total Operations



Total Operations



TotalOperations

Notes £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Revenue 3 623,312 5,856 629,168 621,342 14,020 635,362 1,173,753 21,844 1,195,597Cost of sales (589,791) (7,309) (597,100) (588,845) (13,716) (602,561) (1,107,150) (22,812) (1,129,962)

Gross profit 33,521 (1,453) 32,068 32,497 304 32,801 66,603 (968) 65,635

Share of profits of associates and joint ventures 15 - 15 7 - 7 16 - 16Amortisation of intangibles 10 (1,386) - (1,386) (702) - (702) (1,592) - (1,592)Administrative expenses (29,603) (216) (29,819) (26,913) 3 (26,910) (53,908) 12 (53,896)

Operating profit before exceptional items 3 2,547 (1,669) 878 4,889 307 5,196 11,119 (956) 10,163Administrative expenses - exceptional items 5 - - - (553) - (553) (611) (231) (842)

Operating profit after exceptional items 3 2,547 (1,669) 878 4,336 307 4,643 10,508 (1,187) 9,321

Non-operating - exceptional items 5 1,250 - 1,250 - - - - - -Finance income 3 22 - 22 76 6 82 169 12 181Finance costs 3 (312) - (312) (235) - (235) (459) - (459)

Profit before tax 3 3,507 (1,669) 1,838 4,177 313 4,490 10,218 (1,175) 9,043Taxation 6 (921) 430 (491) (1,175) (88) (1,263) (2,324) 320 (2,004)Profit for the period 2,586 (1,239) 1,347 3,002 225 3,227 7,894 (855) 7,039

Attributable to:Owners of the company 2,563 (1,239) 1,324 3,002 225 3,227 7,882 (855) 7,027Non-controlling interests 23 - 23 - - - 12 - 12

2,586 (1,239) 1,347 3,002 225 3,227 7,894 (855) 7,039

Earnings per share1

Basic earnings per share 8 8.14p (3.94p) 4.20p 9.49p 0.71p 10.20p 24.86p (2.69p) 22.17pDiluted earnings per share 8 8.01p (3.87p) 4.14p 9.36p 0.70p 10.06p 24.43p (2.65p) 21.78p

Adjusted profit before tax2 4 3,643 - 3,643 5,432 - 5,432 12,421 - 12,421

Adjusted earnings per share3

Basic earnings per share 8 8.37p - 8.37p 12.34p - 12.34p 29.19p - 29.19pDiluted earnings per share 8 8.24p - 8.24p 12.18p - 12.18p 28.68p - 28.68p

1 from earnings attributable to owners of the company2 from continuing operations before exceptional items and amortisation of intangible assets3 from earnings attributable to owners of the company from continuing operations before exceptional items and amortisation of intangible assets

Condensed consolidated statement of comprehensive incomefor the 6 months ended 31 December 2011


31 December


31 December

Audited Year to

30 June2011 2010 2011

£’000 £’000 £’000

Profit for the period 1,347 3,227 7,039

Other comprehensive income for the periodExchange differences on translation of foreign operations 415 1,102 2,162Total comprehensive income for the period 1,762 4,329 9,201

Attributable to:Owners of the company 1,739 4,329 9,183Non-controlling interests 23 - 18

1,762 4,329 9,201


UnauditedAs at

31 December2011

UnauditedAs at

31 December2010

AuditedAs at

30 June2011

Notes £’000 £’000 £’000

Non-current assetsGoodwill 9 86,555 81,469 84,720Other intangible assets 10 8,752 5,815 7,616Property, plant and equipment 6,325 5,950 6,322Investment in associates and joint ventures 132 48 56Deferred tax assets 1,636 1,627 1,731Trade and other receivables 796 1,704 917

104,196 96,613 101,362Current assetsInventories 1,478 1,944 1,318Trade and other receivables 177,012 158,103 170,795Due from customers for contract work 85,699 70,841 90,390Cash and cash equivalents 11 36,268 48,098 44,619

300,457 278,986 307,122Total assets 404,653 375,599 408,484

Current liabilitiesBorrowings 12 (4,822) (4,038) (4,589)Trade and other payables (317,288) (293,888) (323,221)Due to customers for contract work (18,472) (12,547) (14,125)Provisions (88) (509) (88)Current tax liabilities (527) (782) (1,342)

(341,197) (311,764) (343,365)Non-current liabilitiesBorrowings 12 (1,937) (6,687) (3,909)Deferred tax liabilities (2,353) (1,742) (1,976)Trade and other payables (4,300) (2,806) (2,209)Provisions (82) (749) (82)

(8,672) (11,984) (8,176)Total liabilities (349,869) (323,748) (351,541)TOTAL NET ASSETS 54,784 51,851 56,943

EquityCalled up share capital 334 332 334Share premium account 22,855 22,355 22,841Foreign currency translation reserve 3,582 3,832 4,546Investment in own shares (4,372) (3,658) (3,658)Retained earnings 32,019 28,990 32,537Equity attributable to owners of the company 54,418 51,851 56,600Non-controlling interests 366 - 343TOTAL EQUITY 54,784 51,851 56,943

Condensed consolidated balance sheetas at 31 December 2011

Sharecapital

Sharepremium

Foreigncurrencytransla-

tionreserve

Invest-ment

in ownshares

Retainedearnings Total

Non-control-

linginterests

Totalequity

£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Balance at 1 July 2010 332 22,355 2,877 (3,770) 28,702 50,496 - 50,496

Profit for the period - - - - 3,227 3,227 - 3,227Exchange differences arising on translation of foreign operations - - 955 - 147 1,102 - 1,102

Total comprehensive income - - 955 - 3,374 4,329 - 4,329

Payment of dividends - - - - (3,209) (3,209) - (3,209)Recognition of investment in own shares - - - 112 - 112 - 112Recognition of share-based payments - - - - 123 123 - 123

Balance at 31 December 2010 332 22,355 3,832 (3,658) 28,990 51,851 - 51,851

Profit for the period - - - - 3,800 3,800 12 3,812Exchange differences arising on translation of foreign operations - - 714 - 340 1,054 6 1,060

Total comprehensive income - - 714 - 4,140 4,854 18 4,872

Payment of dividends - - - - (1,396) (1,396) - (1,396)

Issue of shares 2 486 - - - 488 - 488Added on acquisition of subsidiary - - - - - - 325 325Recognition of share-based payments - - - - 691 691 - 691Deferred tax on share-based payments - - - - 112 112 - 112

Balance at 30 June 2011 334 22,841 4,546 (3,658) 32,537 56,600 343 56,943

Profit for the period - - - - 1,324 1,324 23 1,347Exchange differences arising on translation of foreign operations - - (964) - 1,379 415 - 415Total comprehensive income - - (964) - 2,703 1,739 23 1,762Payment of dividends - - - - (3,392) (3,392) - (3,392)Issue of shares - 14 - - - 14 - 14Recognition of investment in own shares - - - (714) 28 (686) - (686)Recognition of share-based payments - - - - 143 143 - 143Balance at 31 December 2011 334 22,855 3,582 (4,372) 32,019 54,418 366 54,784

The foreign currency translation reserve is used to record cumulative translation differences on the goodwill and other intangibles of foreign operations (Notes 9 and 10). The cumulative translation differences are recycled to the income statement on disposal of the foreign operation.

Condensed consolidated statement of changes in equityfor the 6 months ended 31 December 2011


Unaudited6 months to

31 December2011


31 December2010

AuditedYear to

30 June2011

Notes £’000 £’000 £’000

Cash flows from operating activitiesOperating profit from continuing operations 3 2,547 4,336 10,508Exceptional items - administrative expenses 5 - 553 611Share of profit of associates and joint ventures (15) (7) (16)Amortisation of intangibles 10 1,386 702 1,592Depreciation on property, plant and equipment 1,266 1,179 2,511Gain on disposal of property, plant and equipment (4) (3) (10)Share based payment expense adjustment for share schemes 143 123 814Movements in working capital:

(Increase)/decrease in inventories (183) 1,616 2,242(Increase)/decrease in trade and other receivables (636) 7,285 (24,225)(Decrease)/increase in trade and other payables (3,329) (3,373) 21,568

Cash generated from operations 1,175 12,411 15,595Taxation (1,521) (1,496) (2,605)Net cash (outflow)/inflow from operating activities from continuing operations (346) 10,915 12,990Net cash (outflow)/inflow from operating activities from discontinued operations (1,239) (231) 843Net cash (outflow)/inflow from operating activities (1,585) 10,684 13,833

Cash flows from investing activitiesInterest received 22 76 169Interest paid (114) (150) (272)Payments for property, plant and equipment (1,172) (1,056) (2,813)Proceeds from disposal of property, plant and equipment 42 18 46Acquisition of subsidiaries 15 (1,751) - (1,892)Net cash acquired with subsidiaries 15 1,021 - 166Net cash outflow from investing activities from continuing operations (1,952) (1,112) (4,596)Net cash inflow from investing activities from discontinued operations - 6 12Net cash outflow from investing activities (1,952) (1,106) (4,584)

Cash flows from financing activitiesDividends paid 7 (3,392) (3,209) (4,605)Cash receipts from issuing shares 14 - 15Purchase of own shares (686) - -Payments for hire purchase contracts principals - (9) (9)Proceeds from borrowings 291 888 959Repayment of borrowings (2,059) (2,822) (5,148)Net cash outflow from financing activities from continuing operations (5,832) (5,152) (8,788)Net cash outflow from financing activities from discontinued operations - - -Net cash outflow from financing activities (5,832) (5,152) (8,788)

Net (decrease)/increase in cash and cash equivalents (9,369) 4,426 461Cash and cash equivalents at the beginning of the period 44,619 43,676 43,676Effects of exchange rate changes on balances of cash held in foreign currencies 1,018 (4) 482

Cash and cash equivalents of continuing operations at the end of the period 36,343 45,857 43,455Cash and cash equivalents of discontinued operations at the end of the period (75) 2,241 1,164Cash and cash equivalents at the end of the period 11 36,268 48,098 44,619

Condensed consolidated cash flow statementfor the 6 months ended 31 December 2011

1. Basis of preparation and significant accounting policies

General informationThe results for the half years ended 31 December 2010 and 2011 and the balance sheets at those dates have not been audited and do not constitute statutory accounts. The financial information for the year ended 30 June 2011 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor’s report on those accounts was not qualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the audit report and did not contain statements under section 498 of the Companies Act 2006.

The Group’s activities and the key risks facing its future development, performance and position are set out in the interim report and accounts. The directors have reviewed the current and projected position of the Group and have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half yearly condensed consolidated financial statements.

Statement of complianceThe condensed set of financial statements included in this interim report have been prepared in accordance with International Accounting Standard (IAS) 34 ‘Interim Financial Reporting’, as adopted by the European Union and the Disclosure and Transparency Rules of the Financial Services Authority. The Group’s condensed financial statements should be read in conjunction with the annual financial statements for the year ended 30 June 2011, which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

Restatement of companies’ balancesCertain prior period comparative balances have been reclassified to conform to the current period’s presentation of the discontinued operations. The directors consider that the restatement of the income statement has no material impact on the Group’s reported balance sheet at 31 December 2010 and consequently no comparative balance sheet for the six months to 31 December 2009 has been presented in these financial statements.

Accounting policiesThe same accounting polices and methods of consolidation are followed in this condensed set of financial statements as applied in the Group’s latest annual report and accounts for the year ended 30 June 2011.

During the current period, the following accounting standards were adopted and either had no impact on the financial statements or resulted in changes to presentation and disclosure only: • IFRIC19‘Extinguishing financial liabilities with equity instruments’

2. Seasonality

The Group’s activities are generally not subject to significant seasonal variation.

3. Segmental information

For management purposes, the Group is organised into operating segments on both a product and geographic perspective. The performances of these segments are considered by the Board when making strategic decisions. These segments include Fit Out, Food Retail and Construction, whilst Fit Out is further segregated by geography into the UK, Continental Europe, Middle East and Asia.

Although the Continental Europe, Middle East and Asia geographical segments do not meet the quantitative thresholds required by IFRS 8 ‘Operating Segments’, management has concluded that these segments should be reported. All are closely monitored by the Board as potential growth regions and are expected to materially contribute to Group revenue in the future.

Notes to the condensed consolidated financial statements


The principal activities of each of these divisions are as follows:

UK Fit Out provision of specialist fit out services in the UKContinental Europe Fit Out provision of fit out services in Continental EuropeMiddle East Fit Out provision of fit out, refurbishment and project management services in the Middle EastAsia Fit Out provision of fit out, refurbishment, design, project management and commissioning management services in AsiaFood Retail provision of fit out, new build and refurbishment services to national food retail customers in the UKConstruction provision of new build, refurbishment and ancillary fit out services in the UK

The segmental information provided to the Board for the reportable segments for the period ended 31 December 2011 is as follows:

Unaudited 6 months to31 December 2011

RevenueOperating

profitOperating

profit marginFinance

income/(costs)Profit

before tax£’000 £’000 % £’000 £’000

UK Fit Out 176,584 3,400 1.9 51 3,451Continental Europe Fit Out 53,006 1,280 2.4 (60) 1,220Middle East Fit Out 9,668 (289) - (20) (309)Asia Fit Out 47,400 742 1.6 (4) 738Food Retail 109,791 1,255 1.1 34 1,289Construction 226,863 97 - 95 192Segment total “Group Trading” 623,312 6,485 1.0 96 6,581Unallocated:

Group activities - (2,552) - (124) (2,676)Cost of acquisition finance - - - (262) (262)

Adjusted 623,312 3,933 0.6 (290) 3,643Amortisation of intangibles - (1,386) - - (1,386)Before exceptional items 623,312 2,547 0.4 (290) 2,257Non-operating exceptional items - - - 1,250 1,250Consolidated continuing operations 623,312 2,547 0.4 960 3,507Discontinued operations 5,856 (1,669) - - (1,669)Consolidated 629,168 878 0.1 960 1,838

Unaudited6 months to31 December 2010

RevenueOperating

profitOperating profit

marginFinance

income/(costs)Profit

before tax£’000 £’000 % £’000 £’000

UK Fit Out 193,342 3,292 1.7 15 3,307Continental Europe Fit Out 41,419 93 0.2 (29) 64Middle East Fit Out 9,807 239 2.4 (7) 232Asia Fit Out 32,692 190 0.6 5 195Food Retail 107,332 2,265 2.1 46 2,311Construction1 236,750 1,973 0.8 88 2,061Segment total “Group Trading” 621,342 8,052 1.3 118 8,170Unallocated:


Adjusted 621,342 5,591 0.9 (159) 5,432Amortisation of intangibles - (702) - - (702)Before exceptional items 621,342 4,889 0.8 (159) 4,730Exceptional items1 - (553) - - (553)Consolidated continuing operations 621,342 4,336 0.7 (159) 4,177Discontinued operations 14,020 307 - 6 313Consolidated 635,362 4,643 0.7 (153) 4,490

1 restated for classification of Affordable Housing as discontinued operations

3. Segmental information (continued)

Audited Year to30 June 2011

Revenue£’000

Operatingprofit£’000

Operating profit margin

%

Finance income/(costs)

£’000

Profit before tax

£’000

UK Fit Out 342,290 7,997 2.3 31 8,028Continental Europe Fit Out 72,746 (782) - 2 (780)Middle East Fit Out 19,505 702 3.6 (19) 683Asia Fit Out 66,547 1,022 1.5 (7) 1,015Food Retail 218,035 5,150 2.4 154 5,304Construction1 454,630 3,625 0.8 508 4,133Segment total “Group Trading” 1,173,753 17,714 1.5 669 18,383Unallocated:


Adjusted 1,173,753 12,711 1.1 (290) 12,421Amortisation of intangibles - (1,592) - - (1,592)Before exceptional items 1,173,753 11,119 0.9 (290) 10,829Exceptional items1 - (611) - - (611)Consolidated continuing operations 1,173,753 10,508 0.9 (290) 10,218Discontinued operations 21,844 (1,187) - 12 (1,175)Consolidated 1,195,597 9,321 0.8 (278) 9,043

1 restated for classification of Affordable Housing as discontinued operations

4. Adjusted profit

Adjusted profit before tax is calculated from profit before tax from continuing operations before exceptional items and amortisation of intangible assets.


31 December2011


31 December2010

AuditedYear to

30 June2011

£’000 £’000 £’000

Profit before tax from continuing and discontinued operations 1,838 4,490 9,043Discontinued operations 1,669 (313) 1,175Profit before tax from continuing operations 3,507 4,177 10,218Exceptional items (1,250) 553 611Profit before tax before exceptional items 2,257 4,730 10,829Amortisation of intangible assets 1,386 702 1,592Adjusted profit before tax 3,643 5,432 12,421

Notes to the condensed consolidated financial statements (continued)


5. Exceptional items


31 December2011


31 December2010

AuditedYear to

30 June2011

£’000 £’000 £’000

Administrative expenses – exceptional itemsOFT related costs and provisions - - 1,725Restructuring costs - - (1,783)Loss on disposal of joint venture - (553) (553)Administrative expenses – exceptional items from continuing operations - (553) (611)Administrative expenses – exceptional items from discontinued operations - - (231)

- (553) (842)Non-operating – exceptional items

Revaluation of contingent consideration on acquisition of Realys 1,250 - -

Total exceptional items 1,250 (553) (842)

The acquisition of 85% of the issued share capital of Realys Group Ltd (Realys) was completed on 8 April 2011, for which the initial consideration was valued at £2.4m, with a further deferred contingent element payable (in cash and shares) over the following three years depending on achieving certain performance targets in each of those years. As at 30 June 2011, the fair value of this contingent consideration was estimated to be £2.1m, based on the profit forecasts produced at that time. This amount was recognised as contingent consideration in the Group’s consolidated financial statements.

In line with IAS 39 ‘Financial Instruments - Recognition and Measurement’, the Group reviews all contingent consideration outstanding at each reporting date. Based on the latest forecasts produced at the time of reporting and the revised amount of consideration estimated to be payable, £1.3m of the previously accrued contingent consideration has been released.

As reported in last year’s financial statements, Pearce Construction (Midlands) Limited (Pearce Midlands), a dormant subsidiary of ISG Pearce Limited, was investigated by the Office of Fair Trading (OFT) for technical breaches of competition law in earlier years prior to ISG’s ownership.

The OFT announced the findings of its investigation on 20 November 2009 and fined Pearce Midlands £5.2m of which £4.4m was on a joint and several basis with the company’s former owner, Crest Nicholson plc. Appeals were submitted by both parties to the Competition Appeal Tribunal (CAT) on 24 November 2009.

On 15 April 2011, the CAT announced their findings in respect of the appeal and reduced the fine against Pearce Midlands to £950k of which £760k was on a joint and several basis with Crest Nicholson plc. The fine and associated interest were paid in July 2011.

In the prior year, a restructuring provision of £1.7m was accrued in respect of the South West Construction business which was slow to respond to more difficult market conditions, and resulted in the business being reorganised and fully integrated with the rest of our Construction operations in the UK.

With effect from 1 July 2010, the Al Habtoor ISG International LLC joint venture agreement in the Middle East was terminated with the Group retaining the fit out business and our former joint venture partner retaining the joinery business. The Group has incurred costs during the course of the joint venture separation which have been treated as a loss on disposal of joint venture in prior period.

Given the nature of these items, the Board has considered that they should be treated as exceptional items in accordance with the Group’s accounting policies.

6. Taxation


31 December2011


31 December2010

AuditedYear to

30 June2011

£’000 £’000 £’000

UK current taxUnited Kingdom corporation tax 665 1,044 2,673Double tax relief (65) - (108)Adjustment in respect of prior years - - (209)

600 1,044 2,356Foreign current tax

Overseas taxation - current year 722 193 524Adjustment in respect of prior years - 65 (17)

Total current tax expense 1,322 1,302 2,863

Deferred taxDeferred tax expense relating to the origination and reversal of temporary differences (401) (127) (508)Effect of change in tax rates - - (31)

Total tax expense from continuing operations 921 1,175 2,324Total tax expense from discontinued operations (430) 88 (320)Total tax expense 491 1,263 2,004

Income tax for the six month period is charged at 27% (Dec 2010: 28%), being the estimated annual effective tax rate expected for the full financial year, applied to the profit before income tax expense excluding the share of net profit/loss of equity accounted joint ventures for the six month period (which are stated net of income tax).

7. Dividends

UnauditedAs at

31 December2011

UnauditedAs at

31 December2010

AuditedAs at

30 June2011

£’000 £’000 £’000

Final dividend paid for the period to 30 June 2011 of 10.65p per ordinary share (2010: 10.14p) 3,392 3,209 3,209

Interim dividend proposed for the period to 31 December 2011 of 4.41p per ordinary share (2010: 4.41p) 1,474 1,396 1,396

In accordance with IAS 10 ‘Events after the Reporting Date’, interim dividends are accounted for in the period in which they are paid. Accordingly the interim dividend proposed in respect of the half year ended 31 December 2011 has not been included as a liability as at 31 December 2011.



8. Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to owners of the company by the weighted average number of ordinary shares during the period, determined in accordance with the provisions of IAS 33 ‘Earnings per Share’.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all dilutive potential ordinary shares. The Group has two categories of dilutive potential ordinary shares, being share options granted where the exercise price is less than the average price of the company’s ordinary shares during the period, and conditional shares not vested where contingent consideration conditions are yet to be met.

Adjusted basic earnings per share is calculated by dividing the earnings attributed from continuing operations to owners of the company, before exceptional items and amortisation of intangible assets, by the weighted average number of ordinary shares during the period. The Group believes that this measure of earnings from continuing operations before exceptional items is more reflective of the ongoing trading of the Group.

A total of 3,213,508 share options that could potentially dilute earnings per share in the future were excluded from the calculations below because they were fairly priced and were neither dilutive nor anti-dilutive at 31 December 2011 (Dec 2010: 3,248,336).

UnauditedAs at

31 December2011

UnauditedAs at

31 December2010

AuditedAs at

30 June2011

£’000 £’000 £’000

Profit for the period attributable to owners of the company 1,324 3,227 7,027Post tax discontinued operations 1,239 (225) 855Basic and diluted earnings from continuing operations attributable to owners of the company 2,563 3,002 7,882Post tax exceptional items (937) 398 192Basic and diluted earnings before exceptional items attributable to owners of the company 1,626 3,400 8,074Post tax amortisation of intangible assets 1,010 505 1,178Adjusted earnings attributable to owners of the company 2,636 3,905 9,252

UnauditedAs at

31 December2011

UnauditedAs at

31 December2010

AuditedAs at

30 June2011

Number Number Number

Weighted average number of ordinary shares for the purpose of basic earnings per share 31,498,115 31,646,150 31,701,680Effect of dilutive potential ordinary shares:

Share options 379,079 418,340 510,977Conditional shares not vested 115,955 - 50,793

Diluted weighted average number of ordinary shares for the purpose of diluted earnings per share 31,993,149 32,064,490 32,263,450

8. Earnings per share (continued)

UnauditedAs at

31 December2011

UnauditedAs at

31 December2010

AuditedAs at

30 June2011

From continuing and discontinued operationsBasic earnings per ordinary share 4.20p 10.20p 22.17pDiluted earnings per ordinary share 4.14p 10.06p 21.78p

From continuing operationsBasic earnings per ordinary share 8.14p 9.49p 24.86pDiluted earnings per ordinary share 8.01p 9.36p 24.43pBasic earnings per ordinary share before exceptional items 5.16p 10.74p 25.47pDiluted earnings per ordinary share before exceptional items 5.08p 10.60p 25.03pAdjusted basic earnings per ordinary share 8.37p 12.34p 29.19pAdjusted diluted earnings per ordinary share 8.24p 12.18p 28.68p

From discontinued operationsBasic earnings per ordinary share (3.94p) 0.71p (2.69p)Diluted earnings per ordinary share (3.87p) 0.70p (2.65p)



9. Goodwill

£’000

CostBalance as at 1 July 2010 79,890Transfer from investment in joint venture 643Net foreign currency exchange differences 936Balance as at 31 December 2010 81,469Recognised on acquisition of subsidiary 2,601Net foreign currency exchange differences 650Balance as at 30 June 2011 84,720Recognised on acquisition of subsidiary 2,694Net foreign currency exchange differences (859)Balance as at 31 December 2011 86,555

Carrying amountAs at 31 December 2011 86,555As at 30 June 2011 84,720As at 31 December 2010 81,469

Goodwill has been allocated for impairment testing purposes to six groups of cash-generating units (CGUs) identified according to operating segments, being UK Fit Out, Continental Europe Fit Out, Middle East Fit Out, Asia Fit Out, Food Retail and Construction as disclosed in Note 3. The allocation of goodwill is dependent on the CGU that is expected to benefit from the business combination.

The additional goodwill in the current period relates to the acquisition of the trade and business assets of the French branch of Alpha International SARL (Alpha). Further details of this acquisition are provided in Note 15. The additions to goodwill in the prior year relates to the transfer of the fit out business as a going concern to the Group following the separation of the Al Habtoor ISG International LLC joint venture as referred to in Note 5 and the acquisition of 85% of the issued share capital of Realys.

The Group tests goodwill bi-annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates and growth rates for the period. The Board estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the business, giving a pre-tax discount rate of 11.5% (Dec 2010: 11.1%). The Group discount rate is applied to all CGUs, on a pre-tax basis. The long term growth rate of 2.25% is based on the estimated industry growth forecasts and long-term growth in gross domestic product.

The Group prepares cash flow forecasts derived from the most recent financial forecasts approved by the Board for the next two years and extrapolates cash flows for the following three years based on the estimated growth rate of 2.25% and thereafter applied into perpetuity.

The Group’s impairment review is sensitive to changes in the key assumptions used. The major assumptions that result in significant sensitivities are the growth rate, the discount rate and the forecast year two cash flows.

A reasonably possible change in a single assumption will not cause impairment in any of the Group’s CGUs. However, a significant adverse change in the key assumptions would result in an impairment in the Construction CGU as its fair value currently exceeds its carrying value by approximately 24%. The carrying value of the goodwill of Construction CGU is £24m.

10. Other intangible assets

Customerrelationships

Customercontracts Total

£’000 £’000 £’000

CostBalance as at 1 July 2010 11,009 956 11,965Net foreign currency exchange differences 214 - 214Balance as at 31 December 2010 11,223 956 12,179Recognised on acquisition of subsidiary 2,253 374 2,627Net foreign currency exchange differences 234 - 234Balance as at 30 June 2011 13,710 1,330 15,040Recognised on acquisition of subsidiary 2,254 373 2,627Net foreign currency exchange differences (160) (16) (176)Balance as at 31 December 2011 15,804 1,687 17,491

Accumulated amortisationBalance as at 1 July 2010 4,511 956 5,467Charge for the period 702 - 702Net foreign currency exchange differences 195 - 195Balance as at 31 December 2010 5,408 956 6,364Charge for the period 816 74 890Net foreign currency exchange differences 170 - 170Balance as at 30 June 2011 6,394 1,030 7,424Charge for the period 962 424 1,386Net foreign currency exchange differences (96) 25 (71)Balance as at 31 December 2011 7,260 1,479 8,739

Carrying amountAs at 31 December 2011 8,544 208 8,752As at 30 June 2011 7,316 300 7,616As at 31 December 2010 5,815 - 5,815

11. Analysis of net cash position

UnauditedAs at

31 December2011

UnauditedAs at

31 December2010

AuditedAs at

30 June2011

£’000 £’000 £’000

Cash and cash equivalents 36,268 48,098 44,61936,268 48,098 44,619

Loans due after one year (1,937) (6,687) (3,909)Loans due within one year (4,822) (4,038) (4,589)Net cash 29,509 37,373 36,121



12. Borrowings

UnauditedAs at

31 December2011

UnauditedAs at

31 December2010

AuditedAs at

30 June2011

£’000 £’000 £’000

Non-currentBank loans 1,961 6,768 3,962Unamortised cost of debt (24) (81) (53)Total non-current 1,937 6,687 3,909

CurrentBank loans 4,879 4,095 4,646Unamortised cost of debt (57) (57) (57)Total current 4,822 4,038 4,589Total 6,759 10,725 8,498

The Group has a loan of £6.0m (Dec 2010: £10.0m), which was drawn down between May 2007 and May 2008. Repayments commenced on 22 February 2009 and are scheduled to continue until 24 May 2013. The loan carries a variable interest rate of 2.28% as at 31 December 2011.

In addition, the Group has borrowings of £0.8m (Dec 2010: £0.6m) in Asia for working capital purposes. This was drawn down between August 2010 and December 2011. Repayments on the facility commenced on 29 October 2010 and are scheduled to continue until 29 August 2015. The loan carries a variable interest rate of 1.87% as at 31 December 2011.

Bank covenants include total interest cover, net debt to earnings before interest, tax, depreciation and amortisation and total debtors to total utilisation. There have been no breaches of bank covenants during all periods. The bank loans are guaranteed by material subsidiaries of the Group by way of a debenture. The Group does not have any of its property and equipment pledged as security over bank loans.

The Group had the following committed undrawn borrowing facilities at 31 December 2011:

UnauditedAs at

31 December2011

UnauditedAs at

31 December2010

AuditedAs at

30 June2011

£’000 £’000 £’000

Expiry dateIn more than one year 10,000 10,000 10,000

10,000 10,000 10,000

Undrawn facilities comprise a joint revolving credit facility of £10.0m with Bank of Scotland plc and Royal Bank of Scotland plc (Dec 2010: £10.0m). The facility bears a floating interest rate (with reference to LIBOR) and remained undrawn throughout the current period and the prior year. This facility expires on 24 May 2013.

13. Contingent liabilities

There are Group cross guarantees from the company for all monies due to certain of the Group’s banks and surety lenders. No monies were outstanding as at 31 December 2011 (Dec 2010: £nil). In the normal course of business there are contingent liabilities including the provision of bonds in respect of completed and uncompleted contracts.

14. Related party transactions

Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note in the current and prior periods. There have been no material transactions between the Group and its associates or joint ventures during the period (Dec 2010: £nil).

15. Acquisition of subsidiaries

On 28 October 2011 the Group acquired the trade and business assets of the French branch of Alpha, a retail design and fit out specialist based in Paris servicing international retail companies. The acquisition is expected to accelerate the growth of the Group’s existing European retail fit out business, provide a design and fit out turnkey solution for the Group’s international retail customers in France and Italy and further strengthen its management team with people who have a successful retail design and fit out track record in Europe.

Book Value Fair Value£’000 £’000

Recognised amounts of identifiable assets acquired and liabilities assumed:Financial assets 3,459 3,459Property, plant and equipment 10 10Identifiable intangible assets - 2,627Financial liabilities (3,008) (3,884)Total identifiable net assets 461 2,212Goodwill 2,694

4,906Satisfied by:Cash 1,751Contingent consideration 3,155Total consideration transferred 4,906

Net cash outflow arising on acquisition:Cash consideration 1,751Less: cash and cash equivalent balances acquired (1,021)

730

The provisional fair value of the financial assets includes trade receivables with a fair value and gross contractual value of £1.6m. These are expected to be fully collectible. The goodwill of £2.7m arising from the acquisition is attributable to the expansion of the Group’s client base and geographical spread. None of the goodwill is expected to be deductible for income tax purposes.

The contingent consideration arrangements require the achievement of certain profit targets. The potential undiscounted amount of all future payments that the Group could be required to make under the contingent consideration arrangement is up to £5.9m. The fair value of the contingent consideration arrangement of £3.2m was estimated by applying the likelihood of meeting the profit targets as assessed by current management.

Acquisition related costs (included in administrative expenses) amount to £0.2m.

Alpha contributed £5.0m revenue and £0.2m to the Group’s profit for the period between the date the Group had effective control of the acquired trade and business assets and the balance sheet date. If the acquisition of Alpha had been completed on the first day of the financial year, Group revenues for the period would have been £631m and the Group’s profit for the period would have been £2.0m.



16. Principal risk and uncertainties

The weaknesses in some of the world’s major economies due to the global economic and banking crises were highlighted in the Annual Report and Accounts 2011 and these continue to put pressure on margins, particularly in the UK, and the continuing lack of liquidity in the global credit and bonding markets.

In addition to the above, the directors consider that the nature of the principal risks and uncertainties which may have a material effect on the Group’s performance in the second half of the year is unchanged from those identified on page 45 of the Annual Report and Accounts 2011. These include the impact of the current macro economic trends on the Group’s clients and its supply chain with the risk of clients or key subcontractors defaulting, the ongoing financial risk including currency rate risk, the market risk of reduced demand for construction services in the public sector, and the risk of failing to attract and retain key staff, particularly project leaders.

17. Approval of interim financial statements

The Interim Financial Statements for the six months ended 31 December 2011 were approved by the Board of directors on 6 March 2012.

We confirm that to the best of our knowledge:

• theGroup’scondensedfinancialstatementshavebeenpreparedinaccordancewithIAS34‘Interim Financial Reporting’;

• theinterimmanagementreportincludesafairreviewofimportanteventsduringthefirstsixmonthsandtheirimpactonthe Group’s condensed financial statements and a description of the principal risks and uncertainties for the remaining six months of the year, as required by the Disclosure and Transparency Rule 4.2.7R; and

• theinterimmanagementreportincludesafairreviewofrelatedparties’transactionsandchangestherein,asrequiredbythe Disclosure and Transparency Rule 4.2.8R.

On behalf of the Board

S D Lawther J C B HoultonChief Executive Officer Group Finance Director

6 March 2012

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Interior Services Group plcAldgate House, 33 Aldgate High Street, London EC3N 1AGT +44 (0)20 7247 1717 F +44 (0)20 7392 4999E [email protected]

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Documents

1Interim ISG plc Report and Financial Statements 2011 .../media/files/publications... · ISG plc Interim report and accounts 2011 9 01 - Hospitality & Leisure Gordon Ramsay’s Bread