REG - Serco Group PLC - 2016 Half Year Results <Origin Href="QuoteRef">SRP.L</Origin> - Part 5
04/08/2016 07:09
- Part 5: For the preceding part double click ID:nRSD2055Gd
services operations in
the Indian transport sector, for a consideration of £1.0m, resulting in a loss on disposal of £0.7m.
Other Exceptional Operating Items Arising on Continuing Operations
Six months ended 30 June 2016 (unaudited)£m Six months ended 30 June 2015 (unaudited)(restated*)£m Year ended 31 December 2015 (audited)£m
Impairment of goodwill - - (87.5)
Restructuring costs (6.2) (6.9) (19.7)
Aborted transaction costs 0.3 - (1.7)
Costs associated with UK Government reviews (0.9) (0.1) (1.2)
UK frontline clinical health contract provisions - - 2.8
Impairment of assets transferred to held for sale - (4.7) -
Other exceptional operating items (6.8) (11.7) (107.3)
*Restated to reflect discontinued operations
In the six months ended 30 June 2016, a charge of £6.2m (six months to 30 June 2015: £6.8m) has arisen in relation to the
restructuring programme resulting from the Strategy Review. This includes redundancy payments, external advisory fees and
other incremental costs.
The disposal of the Environmental and Leisure businesses was aborted in 2015 and during the current period costs related to
the aborted transaction were finalised, resulting in the release of a £0.3m credit.
In the six months ended 30 June 2016, there were exceptional costs totalling £0.9m (six months to 30 June 2015 £0.1m)
associated with the UK Government reviews, reflecting external adviser costs related to these reviews.
In the six months ended 30 June 2015 there was a charge of £4.7m in respect of the carrying value of assets held for sale.
This reflected the latest indicative offers received, together with movements of the assets held for sale since the prior
balance sheet date.
5. Exceptional Items (continued)
Exceptional Finance Costs
In December 2014, agreement was reached for the Group to defer its December 2014 covenant test until 31 May 2015. As a
result costs were incurred in 2015 to preserve the existing finance facilities. In addition, payments were made to the US
Private Placement (USPP) Noteholders as a result of early settlement following the Group refinancing. Total charges of
£32.8m in the six months ended 30 June 2015 were treated as exceptional items as they are outside of the normal financing
arrangements of the Group and are significant in size.
Tax on Exceptional Items
The tax impact of these exceptional items was a tax charge of £0.1m (six months ended 30 June 2015 credit of £0.3m; year
ended 31 December 2015: credit of £0.4m).
6. Investment Income
Six months ended 30 June 2016(unaudited)£m Six months ended 30 June 2015(unaudited)(restated*)£m Year ended 31 December 2015(audited)£m
Interest receivable on other loans and deposits 1.9 0.3 1.1
Net interest receivable on retirement benefit obligations 2.3 2.5 4.9
Movement in discount on other receivables 0.5 - 0.1
4.7 2.8 6.1
*restated to reflect discontinued operations.
7. Finance Costs
Six months ended 30 June 2016(unaudited)£m Six months ended 30 June 2015(unaudited)(restated*)£m Year ended 31 December 2015(audited)£m
Interest payable on obligations under finance leases 1.0 1.3 2.5
Interest payable on other loans 7.9 15.1 24.7
Facility fees and other charges 2.0 3.5 6.2
Movement in discount on provisions 0.9 2.9 5.6
11.8 22.8 39.0
*restated to reflect discontinued operations.
8. Tax
The tax charge on pre-exceptional profit from continuing activity of £65.8m was £3.7m. The principal reasons why the
effective rate is lower than the UK rate of 20% is due to taxable profits being made in the UK in the half year, but tax
losses forecast for the year as a whole, the presentation of joint ventures which are consolidated after tax within
Operating Profit and the impact of the deferred tax movement related to defined benefit pension schemes. These effects
have countered the impact of profits being made in jurisdictions where the tax rate is higher than that in the UK.
In the period, a £0.1m tax charge is reflected on the exceptional cost of £12.3m. Only limited deductions are available for
many of the costs incurred, as most are associated with disposals for which no tax deduction is available.
As at 30 June 2016, the total deferred tax asset recognised in respect of UK losses is £10.5m (30 June 2015: £10.5m; 31
December 2015: £10.5m).
9. Earnings per Share
Basic and diluted earnings per ordinary share (EPS) have been calculated in accordance with IAS33 Earnings per Share.
The calculation of the basic and diluted EPS is based on the following:
Number of shares
Six months ended 30 June 2016 Six months ended 30 June 2015 Year ended 31 December 2015
(unaudited) (unaudited) (audited)
Millions Millions Millions
Weighted average number of ordinary shares for the purpose of basic EPS 1,088.8 886.2 986.5
Effect of dilutive potential ordinary shares: share options 40.2 - -
Weighted average number of ordinary shares for the purpose of diluted EPS 1,129.0 886.2 986.5
Earnings per share
Six months ended 30 June 2016 Six months ended 30 June 2015 Year ended 31 December 2015
Continuing and Discontinued Earnings(unaudited) Per share amount(unaudited) Earnings(unaudited) Per share amount(unaudited) Earnings(audited) Per share amount(unaudited)
EPS £m Pence £m Pence £m Pence
Earnings for the purpose of basic EPS 46.5 4.27 (91.5) (10.32) (152.6) (15.47)
Effect of dilutive potential ordinary shares - (0.15) - - - -
Diluted EPS 46.5 4.12 (91.5) (10.32) (152.6) (15.47)
Basic EPS Excluding Exceptional Items
Earnings for the purpose of basic EPS 46.5 4.27 (91.5) (10.32) (152.6) (15.47)
Add back exceptional operating items 11.9 1.09 84.6 9.54 187.5 19.00
Add back exceptional finance costs 0.4 0.04 32.8 3.70 32.8 3.33
Add back tax on exceptional items - - (0.3) (0.03) (3.1) (0.31)
Earnings excluding exceptional items for the purpose of basic EPS 58.8 5.40 25.6 2.89 64.6 6.55
Earnings per share
Six months ended 30 June 2016 Six months ended 30 June 2015 Year ended 31 December 2015
Continuing Earnings(unaudited) Per share amount(unaudited) Earnings(unaudited) Per share amount(unaudited) Earnings(audited) Per share amount(unaudited)
EPS £m Pence £m Pence £m Pence
Earnings for the purpose of basic EPS 54.4 5.00 (25.1) (2.83) (86.6) (8.78)
Effect of dilutive potential ordinary shares - (0.18) - - - -
Diluted EPS 54.4 4.82 (25.1) (2.83) (86.6) (8.78)
Basic EPS Excluding Exceptional Items
Earnings for the purpose of basic EPS 54.4 5.00 (25.1) (2.83) (86.6) (8.78)
Add back exceptional operating items 7.7 0.71 16.6 1.87 109.9 11.14
Add back exceptional finance costs - - 32.8 3.70 32.8 3.33
Add back tax on exceptional items 0.1 - (0.3) (0.03) (0.4) (0.04)
Earnings excluding exceptional items for the purpose of basic EPS 62.2 5.71 24.0 2.71 55.7 5.65
9. Earnings per Share (Continued)
Six months ended 30 June 2016 Six months ended 30 June 2015 Year ended 31 December 2015
Discontinued Earnings(unaudited) Per share amount(unaudited) Earnings(unaudited) Per share amount(unaudited) Earnings(audited) Per share amount(unaudited)
EPS £m Pence £m Pence £m Pence
Earnings for the purpose of basic EPS (7.9) (0.73) (66.4) (7.49) (66.0) (6.69)
Effect of dilutive potential ordinary shares - 0.03 - - - -
Diluted EPS (7.9) (0.70) (66.4) (7.49) (66.0) (6.69)
Basic EPS Excluding Exceptional Items
Earnings for the purpose of basic EPS (7.9) (0.73) (66.4) (7.49) (66.0) (6.69)
Add back exceptional operating items 4.2 0.39 68.0 7.67 77.6 7.87
Add back exceptional finance costs 0.4 0.04 - - (2.7) (0.27)
Earnings excluding exceptional items for the purpose of basic EPS (3.3) (0.30) 1.6 0.18 8.9 0.90
At 30 June 2016, options over 310,493 (30 June 2015: 8,058,314; 31 December 2015: 560,060) shares were excluded from the
weighted average number of shares used for calculating diluted earnings per share because their exercise price was above
the average share price for the year and they were, therefore, anti-dilutive.
10. Goodwill
The value of each CGU is based on value in use calculations derived from forecast cash flows based on past experience,
adjusted to reflect market trends, economic conditions and key risks. These forecasts include an estimate of new business
wins and an assumption that the final year forecast continues on into perpetuity at a CGU specific growth rate.
Goodwill is required to be tested for impairment at least once every financial year, irrespective of whether there is any
indication of impairment. The annual impairment review typically takes place in the final quarter of the year. However, if
there are indicators of impairment a review is also required.
Trading and cash over the five year period used in the impairment review are expected to be materially consistent with
those forecast during the most recent impairment review despite the UK public's decision to leave the European Union.
Although the referendum vote creates some uncertainties in UK markets and could lead to potential delays in new business
opportunities in those markets, given the focus on providing essential frontline services for the UK Government and the
long term nature of the business there is no current expectation that the decision will materially impact cash flows and
long term growth. In addition to cash flows and the growth in those cash flows, a key judgement which could indicate
impairment is an increase in discount rates. However, the vote to leave the European Union has led to a reduction in gilt
rates and as a result discount rates are more likely to decrease than increase and therefore there were no indicators of
goodwill impairment as at 30 June 2016.
11. Analysis of Net Debt
Cash and cash equivalents£m Loans receivable £m Other loans Obligations under finance leases Total£m
£m £m
At 1 January 2015 (audited) 180.1 1.0 (797.3) (26.5) (642.7)
Cash flow (4.7) (0.2) 393.2 5.1 393.4
Reclassified as held for sale (14.4) - - (0.1) (14.5)
Disposals (0.4) - - - (0.4)
Exchange differences (3.5) (0.1) (6.7) 0.2 (10.1)
Non cash movements - 0.2 (1.6) (0.2) (1.6)
At 30 June 2015 (unaudited) 157.1 0.9 (412.4) (21.5) (275.9)
Cash flow 133.5 (0.4) 55.8 4.2 193.1
Reclassified as held for sale 31.6 - (0.8) (26.6) 4.2
Exchange differences 1.4 0.1 (24.1) (0.2) (22.8)
Non cash movements - 19.3 (0.4) 0.3 19.2
At 31 December 2015 (audited) 323.6 19.9 (381.9) (43.8) (82.2)
Cash flow (160.8) - 135.8 8.4 (16.6)
Exchange differences 3.4 0.1 (26.8) (0.3) (23.6)
Non cash movements - 0.4 (0.6) - (0.2)
At 30 June 2016 (unaudited) 166.2 20.4 (273.5) (35.7) (122.6)
12. Provisions
EmployeeRelated & Restructuring£m Property£m Contract£m Other£m Total£m
At 1 January 2015 (audited) 35.1 21.5 430.4 90.9 577.9
Charged to income statement - exceptional 1.9 - - 0.1 2.0
Charged to income statement - other 4.0 0.2 14.4 6.8 25.4
Released to income statement - exceptional (1.0) - (0.3) - (1.3)
Released to income statement - other (0.4) (0.2) (9.3) (6.6) (16.5)
Utilised during the year (5.6) (1.6) (68.7) (1.2) (77.1)
Transferred to assets held for sale (7.1) - (4.0) - (11.1)
Unwinding of discount - 0.1 2.8 - 2.9
Exchange differences (0.6) 0.2 (8.9) (0.4) (9.7)
At 30 June 2015 (unaudited) 26.3 20.2 356.4 89.6 492.5
Reclassified from trade and other payables - - - 15.9 15.9
Charged to income statement - exceptional 3.2 - - 30.6 33.8
Charged to income statement - other 12.6 2.9 74.7 7.2 97.4
Released to income statement - exceptional (0.4) - (2.5) (0.8) (3.7)
Released to income statement - other (0.6) (0.3) (80.9) (6.9) (88.7)
Utilised during the year (5.1) (4.4) (48.1) (15.4) (73.0)
Reclassification - (0.3) 0.3 - -
Transferred (to)/from assets held for sale (0.9) - (0.9) 2.6 0.8
Unwinding of discount - - 2.7 - 2.7
Exchange differences 1.3 0.2 0.4 2.1 4.0
At 31 December 2015 (audited) 36.4 18.3 302.1 124.9 481.7
Reclassified to working capital - - (13.1) - (13.1)
Charged to income statement - exceptional - - - 7.9 7.9
Charged to income statement - other 6.9 1.5 4.4 4.5 17.3
Released to income statement - other (2.3) (0.1) (17.7) (4.8) (24.9)
Utilised during the year (5.6) (3.0) (44.8) (3.6) (57.0)
Reclassification - (3.0) 0.7 2.3 -
Unwinding of discount - - 0.8 - 0.8
Exchange differences 2.9 0.8 6.9 3.2 13.8
At 30 June 2016 (unaudited) 38.3 14.5 239.3 134.4 426.5
Analysed as:
Current 10.9 3.2 72.9 65.8 152.8
Non current 27.4 11.3 166.4 68.6 273.7
12. Provisions (continued)
Total provisions held by the Group at 30 June 2016 amount to £428.5m (30 June 2015: £527.9m; 31 December 2015: £506.2m) and
include £426.5m (30 June 2015: £492.5m; 31 December 2015: £481.7m) shown above and £2.0m (30 June 2015: £35.4m; 31 December
2015: £24.5m) included within amounts held for sale on the balance sheet.
Contract provisions relate to loss making onerous contracts which will be utilised over the life of each individual
contract, up to a maximum of 6.8 years from the balance sheet date. The present value of the estimated future cash outflows
required to settle the contract obligations as they fall due over the life of the contracts has been used in determining
the provision. The individual provisions are discounted where the impact is assessed to be material. A full analysis of
the future profitability of all contracts with low margins is performed at least annually. During the six months ended 30
June 2016 a settlement was reached with the customer in respect of HMAS Bundaberg, the vessel operating under the Armidale
Class Patrol Boat contract which was destroyed by fire in 2014. The provision relating to this claim has been transferred
to other creditors and other debtors, given that the amounts owed to the customer and the associated insurance receivable
are no longer uncertain and therefore do not meet the criteria to be included within the provisions balance.
Employee related provisions are for long term service awards and terminal gratuity liabilities which have been accrued and
are based on contractual entitlement, together with an estimate of the probabilities that employees will stay until
retirement and receive all relevant amounts. There are also amounts included in relation to restructuring. The provisions
will be utilised over various periods driven by local legal or regulatory requirements, the timing of which are not
certain.
Property provisions relate to leased properties which are either underutilised or vacant and where the unavoidable costs
associated with the lease exceed the economic benefits expected to be generated in the future. The provision has been
calculated based on the discounted cash outflows required to settle the lease obligations as they fall due, with the
longest running lease ending in June 2039.
Other provisions are held for indemnities given on disposed businesses, legal and other costs that the Group expects to
incur over an extended period. These costs are based on past experience of similar items and other known factors and
represent management's best estimate of the likely outcome and will be utilised with reference to the specific facts and
circumstances, with the majority expected to be settled by 31 December 2021.
13. Contingent Liabilities
The Company has guaranteed overdrafts, finance leases, and bonding facilities of its joint ventures up to a maximum value
of £20.9m (30 June 2015; £25.7m: 31 December 2015: £21.1m). The actual commitment outstanding at 30 June 2016 was £18.1m
(30 June 2015: £20.9m; 31 December 2015: £20.8m).
The Company and its subsidiaries have provided certain guarantees and indemnities in respect of performance and other
bonds, issued by its banks on its behalf in the ordinary course of business. The total commitment outstanding as at 30 June
2016 was £213.3m (30 June 2015: £196.6m; 31 December 2015: £211.8m).
The Group is aware of other claims and potential claims which involve or may involve legal proceedings against the Group.
The Directors are of the opinion, having regard to legal advice received and the Group's insurance arrangements, that it is
unlikely that these matters will, in aggregate, have a material effect on the Group's financial position.
On 31 May 2011 we filed a claim with the Authority for Advance Rulings (AAR) to seek confirmation that Serco was not
obliged to withhold Indian income tax from the purchase price on the acquisition of Intelenet. The AAR declined to rule on
the matter, so Serco filed a claim with the High Court to decide or direct the AAR to rule on the matter. The High Court
has issued a judgement in favour of Serco, that is, there was no requirement to withhold income tax. Further litigation to
a higher court is a possibility. Should the matter be decided against Serco, it would be liable for unprovided tax of
£30.0m together with accrued interest to 30 June 2016 of £17.3m. Having taken appropriate professional advice, management
considers it likely that Serco will ultimately be successful in this matter.
As we have disclosed before, we are under investigation by the Serious Fraud Office. In November 2013, the UK's Serious
Fraud Office announced that it had opened an investigation, which remains ongoing, into our Group's Electronic Monitoring
Contract. We are cooperating fully with the Serious Fraud Office's investigation but it is not possible to predict the
outcome. However, disclosed in the Principal Risks and Uncertainties in our Annual Report and Accounts for the year ended
31 December 2015 is a description of the range of possible outcomes in the event that the Serious Fraud Office decides to
prosecute the individuals and /or the Serco entities involved.
14. Financial Instruments
The classification of the fair value measurement falls into three levels, based on the degree to which the fair value is
observable. The levels are as follows:
Level 1: inputs derived from unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2: inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or
liability, either directly or indirectly; and
Level 3: inputs are unobservable inputs for the asset or liability.
Based on the above, the derivative financial instruments held by the Group at 30 June 2016 and the comparison fair values
for loans and finance leases, are all considered to fall into Level 2. Market prices are sourced from Bloomberg and third
party valuations. The valuation models incorporate various inputs including foreign exchange spot and forward rates and
interest rate curves. There have been no transfers between levels in the period.
The Group held the following financial instruments:
Carrying amount (measurement basis) Comparison fair value Carrying amount (measurement basis) Comparison fair value
Amortised cost Fair value - Level 2 Level 2 Amortised cost Fair value - Level 2 Level 2
30 June 2016(unaudited) 30 June 2016(unaudited) 30 June 2016(unaudited) 30 June 2015(unaudited) 30 June 2015 (unaudited) 30 June 2015(unaudited)
£m £m £m £m £m £m
Financial assets - current
Cash and bank balances 166.2 - 166.2 157.1 - 157.1
Derivatives designated as FVTPL
Forward foreign exchange contracts - 13.9 - 2.2
Derivative instruments in designated hedge accounting relationships:
Cross currency swaps - - - 1.2
Forward foreign exchange contracts - 0.9 - -
Trade receivables 201.2 - 201.2 201.1 - 201.1
Loan receivables 0.5 - 0.5 0.9 - 0.9
Security deposits 0.2 - 0.2 0.2 - 0.2
Amounts owed by joint ventures 0.8 - 0.8 0.1 - 0.1
Financial assets - non current
Derivative instruments in designated hedge accounting relationships:
Cross currency swaps - 10.7 - 3.3
Loan receivables 19.9 - 19.9 - - -
Other investments 0.6 - 0.6 3.4 - 3.4
Amounts owed by joint ventures 7.0 - 7.0 8.6 - 8.6
Financial liabilities - current
Derivatives designated as FVTPL
Forward foreign exchange contracts - (4.2) - (3.3) -
Derivative instruments in designated hedge accounting relationships:
Cross currency swaps - - - (0.1) -
Forward foreign exchange contracts - - - (10.9) -
Trade payables (80.2) - (80.2) (89.9) - (89.9)
Loans (9.7) - (9.7) (34.9) - (35.2)
Obligations under finance leases (15.3) - (15.3) (9.0) - (9.0)
Financial liabilities - non current
Loans (263.8) - (262.3) (377.5) - (369.4)
Obligations under finance leases (20.4) - (20.4) (12.5) - (12.5)
14. Financial instruments (continued)
Carrying amount (measurement basis) Comparison fair value
Amortised cost Fair value - Level 2 Level 2
31 December 2015(Audited) 31 December 2015(Audited) 31 December 2015(Audited)
£m £m £m
Financial assets - current 323.6 - 323.6
Cash and bank balances
Derivatives designated as FVTPL
Forward foreign exchange contracts - 6.6
Derivative financial instruments in designated hedge accounting relationships:
Cross currency swaps - 2.6
Forward foreign exchange contracts - 0.2
Trade receivables 173.6 - 173.6
Loan receivables 0.4 - 0.4
Security deposits 0.2 - 0.2
Amounts owed by joint ventures 0.8 - 0.8
Financial assets - non current
Derivative financial instruments in designated hedge accounting relationships:
Cross currency swaps - 7.8
Loan receivables 19.5 - 19.5
Other investments 3.4 - 3.4
Amounts owed by joint ventures 7.2 - 7.2
Financial liabilities - current
Derivatives designated as FVTPL
Forward foreign exchange contracts - (2.4)
Derivative instruments in designated hedge accounting relationships:
Cross currency swaps - -
Forward foreign exchange contracts - -
Trade payables (93.6) - (93.6)
Loans (132.2) - (132.2)
Obligations under finance leases (15.8) - (15.8)
Financial liabilities - non current
Loans (249.7) - (246.8)
Obligations under finance leases (28.0) - (28.0)
The Directors estimate that the carrying amounts of cash, trade receivables and trade payables approximate to their fair
value due to the short-term maturity of these instruments.
The fair values of loans and finance lease obligations are based on cash flows discounted using a rate based on the
borrowing rate associated with the tenor of the liability.
The fair value of derivatives is calculated using a discounted cash flow approach applying discount factors derived from
observable market data to actual and estimated future cash flows. Credit risk is considered in the calculation of these
fair values.
15. Defined Benefit Schemes
The costs related to defined benefit pension schemes included within operating profit in the period amount to £7.0m (30
June 2015: £7.0m, 31 December 2015: £11.6m). Included in investment income and finance costs is a credit of £2.3m (30 June
2015: £2.5m, 31 December 2015: £4.9m) relating to the net interest income on our consolidated pension schemes.
Among our non-contract specific schemes, the largest is the Serco Pension and Life Assurance Scheme (SPLAS). The estimated
actuarial deficit of SPLAS as at 30 June 2016 was approximately £10.9m (30 June 2015: £9.0m; 31 December 2015: £28.0m). The
most recent full actuarial valuation of this scheme was undertaken as at 5 April 2012 and resulted in an actuarially
assessed deficit of £24.0m. Following this review, the Group agreed with the Trustees to make a small increase in
contributions, bringing cash contributions of up to 33% of members' pensionable salaries until 2021. An actuarial
valuation of the scheme as at 5 April 2015 is being undertaken and is due to be released in the autumn of 2016. The level
of benefits and contributions under the scheme is kept under continual review in light of the needs of the business and
changes to pension legislation.
Contract specific Non-contract specific Total
At 30 June 2016 (unaudited) £m £m £m
Fair value of scheme assets 5.2 1,487.6 1,492.8
Present value of scheme liabilities (9.2) (1,347.3) (1,356.5)
Net amount recognised (4.0) 140.3 136.3
Franchise adjustment 2.4 - 2.4
Members share of deficit 1.6 - 1.6
Net retirement benefit asset - 140.3 140.3
Retirement benefit obligations - (13.6) (13.6)
Retirement benefit assets - 153.9 153.9
Deferred tax liabilities - (25.2) (25.2)
Net retirement benefit asset (after tax) - 115.1 115.1
Contract specific Non-contract specific Total
At 31 December 2015 (audited) £m £m £m
Fair value of scheme assets 4.6 1,304.3 1,308.9
Present value of scheme liabilities (7.7) (1,188.7) (1,196.4)
Net amount recognised (3.1) 115.6 112.5
Franchise adjustment 1.9 - 1.9
Members share of deficit 1.2 - 1.2
Net retirement benefit asset - 115.6 115.6
Net pension liability - (11.5) (11.5)
Net pension assets - 127.1 127.1
Deferred tax liabilities - (20.8) (20.8)
Net retirement benefit asset (after tax) - 94.8 94.8
Contract specific Non-contract specific Total
At 30 June 2015 (unaudited) £m £m £m
Fair value of scheme assets 30.3 1,327.4 1,357.7
Present value of scheme liabilities (33.5) (1,204.9) (1,238.4)
Net retirement benefit (obligation)/asset (3.2) 122.5 119.3
Net pension liability (3.2) (11.3) (14.5)
Net pension assets - 133.8 133.8
Deferred tax asset/(liabilities) 0.6 (24.5) (23.9)
Net retirement benefit (liability)/asset (after tax) (2.6) 98.0 95.4
15. Defined Benefit Schemes (continued)
At 30 June 2016(unaudited)% At 31 December 2015(audited)% At 30 June 2015(unaudited)%
Main assumptions:
Rate of salary increases 2.3 2.8 2.7
Rate of increase in pensions in payment 1.7 (CPI) and 2.7 (RPI) 2.0 (CPI) and 3.0 (RPI) 2.1 (CPI) and 3.1 (RPI)
Rate of increase in deferred pensions 1.8 (CPI) and 2.8 (RPI) 2.1 (CPI) and 3.1 (RPI) 2.2 (CPI) and 3.2 (RPI)
Inflation assumption 1.8 (CPI) and 2.8 (RPI) 2.1 (CPI) and 3.1 (RPI) 2.2 (CPI) and 3.2 (RPI)
Discount rate 2.9 3.8 3.8
At 30 June 2016(unaudited)Years At 31 December 2015 (audited)Years At 30 June 2015(unaudited)Years
Post-retirement mortality:
Current pensioners at 65 - male 22.6 22.6 22.5
Current pensioners at 65 - female 25.2 25.1 25.0
Future pensioners at 65 - male 24.5 24.4 24.3
Future pensioners at 65 - female 27.1 27.1 27.0
Pension assumption sensitivities
Assumption Change in assumption Change in present value of scheme liabilities 30 June 2016 Change in present value of scheme Liabilities 31 December 2015 Change in present value of scheme liabilities 30 June 2015
Discount rate 2.9% +0.5% (8%) (9%) (8%)
(0.5%) +9% +10% +9%
Inflation 1.7% (CPI) and 2.7% (RPI) +0.5% +8% +9% +8%
(0.5%) (7%) (8%) (8%)
Rate of salary increase 2.3% +0.5% +1% +1% +1%
(0.5%) (1%) (1%) (1%)
Mortality 22.6 - 27.1* Increase by one year +2% +2% +2%
*Post retirement mortality range for male and female, current and future pensioners.
16. Notes to the Consolidated Cash Flow Statement
Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities
Six months ended 30 June 2016Before Exceptional Items(unaudited)£m Six months ended 30 June 2016Exceptional Items(unaudited)£m Six months ended 30 June 2016Total(unaudited)£m Six months ended 30 June 2015Before Exceptional Items (unaudited)£m Six months ended 30 June 2015Exceptional Items(unaudited)£m Six months ended 30 June 2015Total (unaudited)£m
Operating profit/(loss) - continuing operations 72.9 (7.7) 65.2 53.4 (16.6) 36.8
Operating (loss)/profit - discontinued operations (3.2) (4.2) (7.4) 6.4 (68.0) (61.6)
Operating profit/(loss) 69.7 (11.9) 57.8 59.8 (84.6) (24.8)
Adjustments for:
Share of profits in joint ventures (17.7) - (17.7) (13.9) - (13.9)
Non cash items:
Share based payment expense 4.9 - 4.9 4.1 - 4.1
Exceptional impairment of assets held for sale - - - - 70.7 70.7
Exceptional impairment of property, plant and equipment - (0.3) (0.3) - 0.8 0.8
Impairment of property, plant and equipment - other 0.3 - 0.3 1.6 - 1.6
Exceptional impairment of other intangibles - 0.3 0.3 - 0.4 0.4
Depreciation of property, plant and equipment 12.2 - 12.2 10.8 - 10.8
Amortisation of intangible assets 11.8 -
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