Sunday 22 September 2019

Interserve secures contract extension with BBC worth £140 million

It is the second major contract announced by Interserve in recent days.

BBC pay
BBC pay

By Kalyeena Makortoff, Press Association City Reporter

Interserve has clinched a BBC contract extension worth £140 million, marking its second major deal since being forced to issue a profit warning last week.

The troubled outsourcing and construction group will continue providing services to the BBC until 2023, extending an account that was first awarded in 2014.

The company will provide facilities management services ranging from engineering, energy and utilities to cleaning, portering and security across the BBC’s 150-site UK estate, including major offices and production sites in Salford, London and Glasgow.

Interserve shares were up 1.3% or 1p at 77.5p following the announcement, which comes just days after the company said it had won a £227 million Government contract to provide similar services for the Department for Work and Pensions (DWP).

But the contracts have been overshadowed by last week’s profit warning and news that Interserve could breach its banking covenants, which sent shares plunging more than 30% last Thursday.

Group operating profit is now expected to be 50% lower than it was in the second half of last year, as the services arm grappled with escalating staff costs, squeezed margins and a flagging performance from its justice business.

Interserve share chart

Its construction unit also endured a triple-whammy hit, with profits coming under pressure from added costs, tough trading conditions and “operational delivery issues”.

Interserve, which has a workforce of around 80,000 and gross revenues of £3.6 billion, said it may not hit its earnings to net debt test in its financial covenants and had hired a financial adviser to help talks with its lenders.

Joe Brent, head of research at Liberum, said: “This is positive for Interserve, who also won a five-year £227 million DWP contract last week.

“We believe that like Serco and Mitie, thoughts will quickly turn to the recovery potential in the business.”

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