REG - Serco Group PLC - Half-year Report <Origin Href="QuoteRef">SRP.L</Origin> - Part 5
03/08/2017 07:07
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delivering the
contract.
The level of uncertainty in the estimates made, either in determining whether a provision is required, or in the
calculation of a provision booked, is linked to the complexity of the underlying contract and the form of service
delivery.
In the six months ended 30 June 2017, no revisions have been made to contract provisions.
To mitigate the level of uncertainty in making these estimates, Management regularly compares actual performance of the
contracts against previous forecasts and considers whether there have been any changes to significant judgements. A
detailed bottom up review of the provisions is performed as part of the Group's formal annual budgeting process.
The individual provisions are discounted where the impact is assessed to be material. Discount rates used are calculated
based on the estimated risk free rate of interest for the region in which the provision is located and matched against the
ageing profile of the provision. Rates applied are in the range of 0.17% and 3.30%.
Impairment of assets
Identifying whether there are indicators of impairment for assets involves a high level of judgement and a good
understanding of the drivers of value behind the asset. At each reporting period an assessment is performed in order to
determine whether there are any such indicators, which involves considering the performance of our business and any
significant changes to the markets in which we operate.
We seek to mitigate the risk associated with this judgement by putting in place processes and guidance for the finance
community and internal review procedures.
Determining whether assets with impairment indicators require an actual impairment involves an estimation of the expected
value in use of the asset (or CGU to which the asset relates). The value in use calculation involves an estimation of
future cash flows and also the selection of appropriate discount rates, both of which involve considerable judgement. The
future cash flows are derived from approved forecasts, with the key assumptions being revenue growth, margins and cash
conversion rates. Discount rates are calculated with reference to the specific risks associated with the assets and are
based on advice provided by external experts. Our calculation of discount rates are performed based on a risk free rate of
interest appropriate to the geographic location of the cash flows related to the asset being tested, which is subsequently
adjusted to factor in local market risks and risks specific to Serco and the asset itself. Discount rates used for
internal purposes are post tax rates, however for the purpose of impairment testing in accordance with IAS36 Impairment of
assets we calculate a pre tax rate based on post tax targets.
A key area of focus in recent years has been in the impairment testing of goodwill as a result of the pressure on the
results of the Group. However, no impairment of goodwill was noted in the six months ended 30 June 2017.
Deferred tax
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be
available against which the losses can be utilised. Significant management judgement is required to determine the amount
of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits.
Recognition has been based on forecast future taxable profits.
Current tax
Liabilities for tax contingencies require management judgement and estimates in respect of tax audits and also tax
exposures in each of the jurisdictions in which we operate. Management is also required to make an estimate of the current
tax liability together with an assessment of the temporary differences that arise as a consequence of different accounting
and tax treatments. Key judgement areas include the correct allocation of profits and losses between the countries in which
we operate and the pricing of intercompany services. Where management conclude that a tax position is uncertain, a current
tax liability is held for anticipated taxes that are considered probable based on the current information available.
These liabilities can be built up over a long period of time but the ultimate resolution of tax exposures usually occurs at
a point in time, and given the inherent uncertainties in assessing the outcomes of these exposures, these estimates are
prone to change in future periods. It is not currently possible to estimate the timing of potential cash outflows, but on
resolution, to the extent this differs from the liability held, this will be reflected through the tax charge/(credit) for
that period. Each potential liability and contingency is revisited on an annual basis and adjusted to reflect any changes
in positions taken by the company, local tax audits, the expiry of the statute of limitations following the passage of time
and any change in the broader tax environment.
On the basis of the currently available information, the Group does not anticipate a material change to the estimated
liability in the short term.
Retirement benefit obligations
Identifying whether the Group has a retirement benefit obligation as a result of contractual arrangements entered into
requires a level of judgement, largely driven by the legal position held between the Group, the customer and the relevant
pension scheme.
The calculation of retirement benefit obligations is dependent on material key assumptions including discount rates,
mortality rates, inflation rates and future contribution rates.
In accounting for the defined benefit schemes, the Group has applied the following principles:
· The asset recognised for the Serco Pension and Life Assurance Scheme is based on the assumption that the full
surplus will ultimately be available to the Group as a future refund of surplus.
· No foreign exchange item is shown in the disclosures as the non UK liabilities are not material.
· No pension assets are invested in the Group's own financial instruments or property.
· Pension annuity assets are remeasured to fair value at each reporting date based on the share of the defined benefit
obligation covered by the insurance contract.
2. Discontinued operations
The Global Services division, representing private sector BPO operations, was classified as a discontinued operation in
2015 and 2016. The most significant part of this business was disposed in 2015, and the disposal of one of the two
remaining elements of the offshore business was completed in March 2016 and the final element completed in December 2016.
The residual UK onshore private sector BPO operations were sold or exited in 2016 with the exception of one business
consisting of a single contract, where disposal was completed in July 2017. Total revenues for the remaining operations
were £5.3m and UTP was £0.1m for the six months ended 30 June 2017, and therefore the results have been included in
continuing operations in 2017 due to their relative immateriality.
The results of the discontinued operations in prior periods were as follows:
Six months ended 30 June 2017(unaudited)£m Six months ended 30 June 2016(unaudited)£m Year ended 31 December 2016(audited)£m
Revenue - 24.7 36.8
Expenses - (27.9) (40.1)
Operating loss before exceptional items - (3.2) (3.3)
Exceptional loss on disposal of subsidiaries and operations - (0.3) (2.8)
Other exceptional operating items - (3.9) (11.4)
Operating loss - (7.4) (17.5)
Investment revenue - - -
Finance costs - - -
Exceptional finance costs - (0.4) (0.4)
Loss before tax - (7.8) (17.9)
Tax charge on loss before exceptional items - (0.1) (0.1)
Tax credit on exceptional items - - -
Net loss attributable to discontinued operations presented in the income statement - (7.9) (18.0)
Attributable to:
Equity owners of the Company - (7.9) (18.1)
Non controlling interests - - 0.1
Included above were items classified as exceptional as they were considered to be material, non recurring and outside of
the normal course of business. These were summarised as follows:
Six months ended 30 June 2017(unaudited)£m Six months ended 30 June 2016(unaudited)£m Year ended 31 December 2016(audited)£m
Exceptional items arising on discontinued operations
Exceptional loss on disposal - (0.3) (2.8)
Other exceptional operating items
Restructuring costs - (0.4) (1.1)
Movements in indemnities provided on business disposals - (7.8) (13.7)
Movement in the fair value of assets transferred to held for sale - 4.3 3.4
Other exceptional operating items - (3.9) (11.4)
Exceptional operating items arising on discontinued operations - (4.2) (14.2)
3. Segmental information
The Group's operating segments reflecting the information reported to the Board in 2017 under IFRS 8 Operating segments are
as set out below.
Reportable segments Operating segments
UK Central Government Services for sectors including Defence, Justice & Immigration and Transport delivered to the UK Government and devolved authorities;
UK & Europe Local & Regional Government Services for sectors including Health and Citizen Services delivered to UK and European public sector customers;
AsPac Services for sectors including Defence, Justice & Immigration, Transport, Health and Citizen Services in the Asia Pacific region including Australia, New Zealand and Hong Kong;
Middle East Services for sectors including Defence, Transport, Health and Citizen Services in the Middle East region;
Americas Services for sectors including Defence, Transport and Citizen Services delivered to US federal and civilian agencies, selected state and municipal governments and the Canadian Government; and
Corporate Central and head office costs.
Each operating segment is focused on a narrow group of customers in a specific geographic region and is run by a local
management team which report directly to the CODM on a regular basis. As a result of this focus, the sectors in each
region have similar economic characteristics and are aggregated at the operating segment level in these financial
statements. The accounting policies of the reportable segments are the same as the Group's accounting policies.
Geographic information
Six months ended 30 June 2017(unaudited) Six months ended 30 June 2016(unaudited) Year ended 31 December 2016(audited)
Revenue Non current assets* Revenue Non current assets* Revenue Non current assets*
£m £m £m £m £m £m
United Kingdom 583.1 308.9 665.5 448.5 1,244.9 444.7
United States 335.3 286.4 300.3 283.2 632.9 309.1
Australia 296.0 155.2 271.6 139.2 593.1 146.0
Middle East 173.9 20.0 153.8 21.0 324.8 19.7
Other countries 119.9 21.5 102.0 18.5 215.3 20.4
1,508.2 792.0 1,493.2 910.4 3,011.0 939.9
* Non current assets exclude financial instruments, deferred tax assets and loans to joint ventures and associates.
Revenues from external customers are attributed to individual countries on the basis of the location of the customer.
Information about major customers
The Group has three major governmental customers which each represent more than 10% of Group revenues. The customers'
revenues were £574.7m for the UK Government across the UK Central Government and UK & Europe Local & Regional Government
segments, £304.6m for the US Government within the Americas segment, and £294.7m for the Australian Government within the
AsPac and Middle East segments.
The following is an analysis of the Group's revenue, results, assets and liabilities by reportable segment:
Six months ended 30 June 2017 (unaudited) CG £m LRG £m AsPac £m Middle East £m Americas £m Corporate £m Total £m
Revenue 323.3 334.8 307.4 174.2 368.5 - 1,508.2
Result
Trading profit / (loss) from continuing operations* 20.9 (4.9) 10.5 6.8 22.2 (20.2) 35.3
Amortisation and impairment of intangibles arising on acquisition - - (0.7) - (1.5) - (2.2)
Operating profit / (loss) before exceptional items 20.9 (4.9) 9.8 6.8 20.7 (20.2) 33.1
Exceptional profit / (loss) on disposal of subsidiaries and operations 0.1 - - - - - 0.1
Other exceptional operating items** - 1.0 (0.7) - - (11.8) (11.5)
Operating profit / (loss) 21.0 (3.9) 9.1 6.8 20.7 (32.0) 21.7
Investment revenue 3.6
Finance costs (11.2)
Loss before tax 14.1
Tax charge (32.3)
Tax on exceptional items -
Loss for the period from continuing operations (18.2)
* Trading profit / (loss) is defined as operating (loss) / profit before exceptional items and amortisation and
impairment of intangible assets arising on acquisition.
** Exceptional items incurred by the Corporate segment are not allocated to other segments. Such items may represent
costs that will benefit the wider business.
Supplementary information
Share of profits in joint ventures and associates, net of interest and tax 13.6 0.4 0.6 - - - 14.6
Depreciation of plant, property and equipment (1.2) (6.6) (2.6) (0.4) (1.6) (0.7) (13.1)
Impairment of plant, property and equipment - - - - - - -
Total depreciation and impairment of plant, property and equipment (1.2) (6.6) (2.6) (0.4) (1.6) (0.7) (13.1)
Amortisation of intangible assets arising on acquisition - - (0.7) - (1.5) - (2.2)
Amortisation of other intangible assets (0.1) (0.5) (2.3) (0.1) (0.8) (7.4) (11.2)
Impairment and write down of other intangible assets - - - - - (2.8) (2.8)
Total amortisation and impairment of intangible assets (0.1) (0.5) (3.0) (0.1) (2.3) (10.2) (16.2)
Segment assets
Interests in joint ventures and associates 13.5 - 2.1 0.4 - - 16.0
Other segment assets*** 162.1 313.2 249.1 113.8 417.2 100.0 1,355.4
Total segment assets 175.6 313.2 251.2 114.2 417.2 100.0 1,371.4
Unallocated assets 202.1
Consolidated total assets 1,573.5
Segment liabilities
Segment liabilities*** (239.4) (162.0) (184.6) (84.2) (139.2) (132.2) (941.6)
Unallocated liabilities (359.4)
Consolidated total liabilities (1,301.0)
*** The Corporate segment assets and liabilities include balance sheet items which provide benefit to the wider Group,
including defined benefit pension schemes and corporate intangible assets.
Six months ended 30 June 2016 (restated*) (unaudited) CG £m LRG £m AsPac £m Middle East £m Americas £m Corporate £m Total £m
Revenue 349.0 376.7 284.7 153.9 328.9 - 1,493.2
Result
Trading profit / (loss) from continuing operations* ** 52.0 5.1 7.9 11.5 16.8 (18.9) 74.4
Amortisation and impairment of intangibles arising on acquisition - - (0.6) - (1.3) - (1.9)
Operating profit / (loss) before exceptional items* 52.0 5.1 7.3 11.5 15.5 (18.9) 72.5
Exceptional profit / (loss) on disposal of subsidiaries and operations - 0.6 0.4 - - (1.9) (0.9)
Other exceptional operating items*** - (0.1) - (0.1) - (6.6) (6.8)
Operating profit / (loss)* 52.0 5.6 7.7 11.4 15.5 (27.4) 64.8
Investment revenue 4.7
Finance costs* (11.4)
Profit before tax 58.1
Tax charge (3.7)
Tax on exceptional items (0.1)
Profit for the period from continuing operations 54.3
* Administrative expenses included within Trading Profit and operating profit has been restated following the change
in accounting policy regarding foreign exchange movements on investment and financing arrangements which has also resulted
in a restatement of finance costs. See note 1.
** Trading profit / (loss) is defined as operating profit / (loss) before exceptional items and amortisation and
impairment of intangible assets arising on acquisition.
*** Exceptional items incurred by the Corporate segment are not allocated to other segments. Such items may represent
costs that will benefit the wider business.
Supplementary information
Share of profits in joint ventures and associates, net of interest and tax 17.0 0.3 0.4 - - - 17.7
Depreciation of plant, property and equipment (1.0) (6.5) (1.9) (0.4) (1.5) (0.6) (11.9)
Impairment of plant, property and equipment (0.1) - (0.2) - - - (0.3)
Total depreciation and impairment of plant, property and equipment (1.1) (6.5) (2.1) (0.4) (1.5) (0.6) (12.2)
Amortisation of intangible assets arising on acquisition - - (0.6) - (1.3) - (1.9)
Amortisation of other intangible assets (0.1) (0.2) (0.8) (0.3) (0.7) (7.6) (9.7)
Impairment and write down of other intangible assets - - - - - - -
Total amortisation and impairment of intangible assets (0.1) (0.2) (1.4) (0.3) (2.0) (7.6) (11.6)
Segment assets
Interests in joint ventures and associates 2.7 6.7 2.8 0.4 - - 12.6
Other segment assets**** 200.6 306.6 247.7 105.0 406.3 220.0 1,486.2
Total segment assets 203.3 313.3 250.5 105.4 406.3 220.0 1,498.8
Unallocated assets, including assets held for sale 269.9
Consolidated total assets 1,768.7
Segment liabilities
Segment liabilities**** (315.4) (165.7) (199.0) (81.3) (109.6) (138.3) (1,009.3)
Unallocated liabilities, including liabilities held for sale (359.0)
Consolidated total liabilities (1,368.3)
**** The Corporate segment assets and liabilities include balance sheet items which provide benefit to the wider Group,
including defined benefit pension schemes and corporate intangible assets.
Year ended 31 December 2016 (audited) CG £m LRG £m AsPac £m Middle East £m Americas £m Corporate £m Total £m
Revenue 678.6 696.5 619.7 324.8 691.4 - 3,011.0
Result
Trading profit / (loss) from continuing operations* 94.9 (10.4) 34.2 18.8 6.4 (40.3) 103.6
Amortisation and impairment of intangibles arising on acquisition (0.3) - (2.0) - (2.8) - (5.1)
Operating profit / (loss) before exceptional items 94.6 (10.4) 32.2 18.8 3.6 (40.3) 98.5
Exceptional profit / (loss) on disposal of subsidiaries and operations (0.1) 4.5 0.4 - - (1.9) 2.9
Other exceptional operating items** (11.1) (14.8) (0.9) - - (32.4) (59.2)
Operating profit / (loss) 83.4 (20.7) 31.7 18.8 3.6 (74.6) 42.2
Investment revenue 9.3
Finance costs (21.9)
Profit before tax 29.6
Tax charge (15.8)
Tax on exceptional items 3.1
Profit for the year from continuing operations 16.9
* Trading profit / (loss) is defined as operating (loss) / profit before exceptional items and amortisation and
impairment of intangible assets arising on acquisition.
** Exceptional items incurred by the Corporate segment are not allocated to other segments. Such items may represent
costs that will benefit the wider business.
Supplementary information
Share of profits in joint ventures and associates, net of interest and tax 31.3 - 2.0 - - 0.1 33.4
Depreciation of plant, property and equipment (2.1) (12.9) (4.5) (0.9) (3.1) (1.3) (24.8)
Impairment of plant, property and equipment (0.3) - (0.4) - - - (0.7)
Total depreciation and impairment of plant, property and equipment (2.4) (12.9) (4.9) (0.9) (3.1) (1.3) (25.5)
Amortisation of intangible assets arising on acquisition (0.3) - (1.3) - (2.8) - (4.4)
Impairment and write down of intangible assets arising on acquisition - - (0.7) - - - (0.7)
Amortisation of other intangible assets (0.1) (0.5) (3.3) (0.7) (1.5) (15.7) (21.8)
Total amortisation and impairment of intangible assets (0.4) (0.5) (5.3) (0.7) (4.3) (15.7) (26.9)
Segment assets
Interests in joint ventures and associates 12.3 - 1.7 0.4 - - 14.4
Other segment assets*** 168.7 298.3 252.1 108.7 428.8 228.6 1,485.2
Total segment assets 181.0 298.3 253.8 109.1 428.8 228.6 1,499.6
Unallocated assets 265.0
Consolidated total assets 1,764.6
Segment liabilities
Segment liabilities*** (279.1) (163.8) (182.8) (79.3) (140.7) (139.7) (985.4)
Unallocated liabilities (380.4)
Consolidated total liabilities (1,365.8)
*** The Corporate segment assets and liabilities include balance sheet items which provide benefit to the wider Group,
including defined benefit pension schemes and corporate intangible assets.
4. Joint ventures and associates
AWE Management Limited (AWEML), Merseyrail Services Holding Company Limited (MSHCL) and Northern Rail Holdings Limited
(NRHL) were the only equity accounted entities which were material to the Group during the six months ended 30 June 2017
and 30 June 2016. Dividends of £9.9m (2016: £12.2m), £3.3m (2016: £3.3m) and £0.5m (2016: £4.0m) respectively were
received from these companies in the period. The NRHL franchise ended on 31 March 2016.
Summarised financial information of the material entities and an aggregation of the other equity accounted entities in
which the Group has an interest is as follows:
30 June 2017 (unaudited)
Summarised financial information AWEML(100% of results) £m MSHCL(100% of results) £m NRHL(100% of results)£m Group portion of material joint ventures and associates* £m Group portion of other joint venture arrangements and associates* £m Total £m
Revenue 480.2 78.2 0.1 156.8 23.4 180.2
Operating profit 49.5 8.2 1.1 16.7 1.1 17.8
Net investment revenue 0.1 - - - - -
Income tax charge (9.8) (1.6) - (3.2) - (3.2)
Profit from continuing operations 39.8 6.6 1.1 13.5 1.1 14.6
Other comprehensive income - 1.8 - 0.9 (0.1) 0.8
Total comprehensive income 39.8 8.4 1.1 14.4 1.0 15.4
Non-current assets 1,092.5 11.8 - 273.5 3.3 276.8
Current assets 155.0 39.4 11.3 62.8 17.4 80.2
Current liabilities (139.9) (35.6) (7.7) (55.4) (14.8) (70.2)
Non-current liabilities (1,090.9) (1.2) - (267.8) (3.0) (270.8)
Net assets 16.7 14.4 3.6 13.1 2.9 16.0
Proportion of Group ownership 24.5% 50.0% 50.0% - - -
Carrying amount of investment 4.1 7.2 1.8 13.1 2.9 16.0
AWEML(100% of results) £m MSHCL(100% of results) £m NRHL(100% of results)£m Group portion of material joint ventures and associates* £m Group portion of other joint venture arrangements and associates* £m Total £m
Cash and cash equivalents 85.6 31.9 11.3 42.6 4.9 47.5
Current financial liabilities excluding trade and other payables and provisions (7.8) (1.6) 0.2 (2.6) (0.9) (3.5)
Non current financial liabilities excluding trade and other payables and provisions - (0.5) - (0.3) (2.9) (3.2)
Depreciation and amortisation - (1.1) - (0.6) (0.8) (1.4)
Interest income 0.1 - - - - -
Interest expense - - - - - -
* Total results of the joint ventures and associates multiplied by the respective proportion of Group ownership.
30 June 2016 (unaudited)
Summarised financial information AWEML(100% of results) £m MSHCL(100% of results)£m NRHL(100% of results)£m Group portion of material joint ventures and associates* £m Group portion of other joint venture arrangements and associates* £m Total £m
Revenue 508.9 75.6 131.5 273.0 20.6 293.6
Operating profit 37.8 7.4 8.4 20.5 0.9 21.4
Net investment revenue / (finance costs) 0.2 (0.6) - (0.2) (0.1) (0.3)
Income tax charge (3.3) (1.7) (2.5) (3.2) (0.2) (3.4)
Profit from continuing operations 34.7 5.1 5.9 17.1 0.6 17.7
Other comprehensive income - - 1.2 0.6 0.2 0.8
Total comprehensive income 34.7 5.1 7.1 17.7 0.8 18.5
Non-current assets 464.5 13.3 - 161.3 12.0 173.3
Current assets 168.3 31.1 33.9 88.5 17.5 106.0
Current liabilities (154.0) (33.1) (22.5) (79.1) (13.9) (93.0)
Non-current liabilities (462.0) (33.8) - (170.7) (3.0) (173.7)
Net assets / (liabilities) 16.8 (22.5) 11.4 - 12.6 12.6
Proportion of Group ownership 33.3% 50.0% 50.0% - - -
Carrying amount of investment 5.6 (11.3) 5.7 - 12.6 12.6
AWEML(100% of results) £m MSHCL(100% of results)£m NRHL(100% of results)£m Group portion of material joint ventures and associates* £m Group portion of other joint venture arrangements and associates* £m Total £m
Cash and cash equivalents 0.2 1.8 27.2 14.6 28.5 43.1
Current financial liabilities excluding trade and other payables and provisions - (0.2) (1.2) (0.7) (3.4) (4.1)
Non current financial liabilities excluding trade and other payables and provisions - (0.1) - - (3.1) (3.1)
Depreciation and amortisation - (1.0) (1.7) (1.4) (0.6) (2.0)
Interest income 0.2 (0.6) - (0.2) 0.4 0.2
Interest expense - - - - (0.5) (0.5)
* Total results of the joint ventures and associates multiplied by the respective proportion of Group ownership.
31 December 2016 (audited)
Summarised financial information AWEML(100% of results) £m MSHCL(100% of results)£m NRHL(100% of results)£m Group portion of material joint ventures and associates* £m Group portion of other joint venture arrangements and associates* £m Total £m
Revenue 968.1 150.3 132.7 437.5 43.3 480.8
Operating profit 72.9 18.9 13.2 37.4 3.3 40.7
Net investment revenue / (finance costs) 0.2 (1.3) 0.1 (0.5) (0.1) (0.6)
Income tax (charge) / credit (11.3) (3.7) (3.4) (6.8) 0.1 (6.7)
Profit from continuing operations 61.8 13.9 9.9 30.1 3.3 33.4
Other comprehensive income - 34.0 0.8 17.4 (1.6) 15.8
Total comprehensive income 61.8 47.9 10.7 47.5 1.7 49.2
Non-current assets 1,097.0 12.5 - 275.1 3.2 278.3
Current assets 149.3 32.8 14.2 60.1 16.0 76.1
Current liabilities (133.9) (31.9) (10.7) (54.2) (14.0) (68.2)
Non-current liabilities (1,095.2) (0.9) - (268.7) (3.1) (271.8)
Net assets 17.2 12.5 3.5 12.3 2.1 14.4
Proportion of group ownership 33.3% / 24.5% 50.0% 50.0% - - -
Carrying amount of investment 4.2 6.3 1.8 12.3 2.1 14.4
AWEML(100% of results) £m MSHCL(100% of results)£m NRHL(100% of results)£m Group portion of material joint ventures and associates* £m Group portion of other joint venture arrangements and associates* £m Total £m
Cash and cash equivalents 72.4 21.1 14.5 35.4 4.7 40.1
Current financial liabilities excluding trade and other payables and provisions (7.0) (2.3) (0.5) (3.1) (0.9) (4.0)
Non current financial liabilities excluding trade and other payables and provisions - (0.6) - (0.3) (3.0) (3.3)
Depreciation and amortisation - (2.3) (1.7) (2.1) (1.0) (3.1)
Interest income 0.2 - 0.1 0.2 - 0.2
Interest expense - (1.3) - (0.6) (0.1) (0.7)
* Total results of the joint ventures and associates multiplied by the respective proportion of Group ownership.
5. Acquisitions
There were no acquisitions in the six months ended 30 June 2017.
6. Exceptional items
Exceptional items are non recurring items of financial performance that are outside normal operations and are material to
the results of the Group either by virtue of size or nature. As such, the items set out below require separate disclosure
on the face of the income statement to assist in the understanding of the underlying performance of the Group.
Exceptional profit / (loss) on disposal of subsidiaries and operations
There were no material disposals of continuing operations in the six months ended 30 June 2017 or the six months ended 30
June 2016.
Other exceptional operating items arising on continuing operations
Six months ended 30 June 2017 (unaudited)£m Six months ended 30 June 2016 (unaudited)£m Year ended 31 December 2016 (audited)£m
Impairment of goodwill - - (17.8)
Restructuring costs (13.3) (6.2) (17.2)
Costs associated with UK Government review (0.4) (0.9) (0.1)
Aborted transaction costs - 0.3 (0.1)
Release of UK frontline clinical health contract provisions - - 0.6
Settlement of defined benefit pension obligations - - (10.7)
Impairment of interest in joint venture and related loan balances 2.2 - (13.9)
Other exceptional operating items (11.5) (6.8) (59.2)
In the six months ended 30 June 2017, a charge of £13.3m (2016: £6.2m) arose in relation to the restructuring programme
resulting from the Strategy Review, as discussed in the Chief Executive's Review in the Group's 2016 Annual Report and
Accounts. This included redundancy charges, asset impairments and other incremental costs. Due to the nature and scale of
the impact of the transformation stage of our Strategy Review, the incremental costs associated with this programme were
considered to be exceptional in the prior year and have been treated consistently in 2017.
There were exceptional costs totalling £0.4m (2016: £0.9m) associated with the UK Government reviews and the programme of
Corporate Renewal. These costs were treated as exceptional when the matter first arose and consistent treatment is applied
in the 2017.
In the second half of 2016 the equity investment of a joint venture and the related loan balances with this business were
impaired. In the six months ended 30 June 2017 a payment of £2.2m was received against the impaired loan.
Exceptional tax items in the six months ended 30 June 2017 resulted in a tax charge of £15.9m (2016: charge of £0.1m on
continuing operations), including a £0.2m credit on exceptional items within operating profit and a £16.1m charge in
respect of other exceptional tax items. The other exceptional tax item relates to the tax impact of the pension buy-in
disclosed in note 15, which led to a £95.0m movement in the valuation of the Group's defined benefit pension schemes and
consequently to a deferred tax charge to the income statement of £16.1m. Further detail of the reason for the impact of
movements in the valuation of defined benefit pension schemes is discussed in the tax section of this Finance Review.
7. Investment revenue
Six months ended 30 June 2017 (unaudited)£m Six months ended 30 June 2016 (unaudited)£m Year ended 31 December 2016 (audited)£m
Interest receivable on other loans and deposits 1.4 1.9 3.6
Net interest receivable on retirement benefit obligations 1.6 2.3 4.7
Movement in discount on other debtors 0.6 0.5 1.0
3.6 4.7 9.3
8. Finance costs
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