Interserve shares plunge on profit warning
Interserve’s group operating profit is now expected to be 50% lower than it was in the second half of last year.
Shares in Interserve have crashed more than 36% after the outsourcing and construction group issued another profit warning and said it may breach its banking covenants.
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.
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.
Chief executive Debbie White said: “Despite our challenges, Interserve has a strong client base and many strengths as an organisation and I believe there is considerable potential for business improvement across the company.
“My team will focus on improving our margin performance in UK support services and ensuring good contract selection in UK construction, while reducing our cost base across the company.”
While its energy from waste contracts “made progress”, the finishing dates had slipped, forcing the firm to set aside an extra £35 million on top of the £160 million put forward last year.
To shore up its financial position, Interserve said it would roll out a plan to improve margins.
Russ Mould, AJ Bell investment director, said: “Interserve’s shares plunged after the support services and construction group warned of a 50% drop in second-half operating profits and that it might breach its banking covenants.
“The group’s support services and construction businesses are both facing pressures, which have been exacerbated by an inflexible cost base.”
Interserve’s order book stands at £7.4 billion, boosted by contract wins at the Department for Work and Pensions, Durham University and the Department for Transport.