Interserve shares plunge on reports of Government concerns over financial health
Interserve has moved to reassure investors after shares in the compan plunged amid reports that the Government is keeping a close eye on the outsourcing giant's financial health following Carillion's collapse.
The FTSE 250 firm was down more than 14 per cent in morning trading on the London Stock Exchange after reports that the Cabinet Office had pulled together a team to watch over Interserve, which employs 80,000 staff worldwide.
Like Carillion, it is a services and construction business with revenues of around £3.6 billion and employs 25,000 in the UK providing cleaning, security, probation, healthcare and construction services, including more than 1,100 across the Black Country.
It also built the £70 million Hadley Learning Community in Telford and continues to provide maintenance services for the 39 acre site.
The move follows a warning by the group in September over its results after being hit by disappointing trading in July and August.
It was followed by an even gloomier update in October when it issued a profit warning and said it may breach its banking covenants as it grappled with escalating staff costs, squeezed margins and a flagging performance from its justice business.
But it has continued to win a range of work at home and abroad and won a reprieve last month by securing £180 million of additional short term funding and its lenders agreed to defer a test of its banking covenants until the end of March.
The Government remains on high alert after Carillion filed for liquidation on Monday, putting 20,000 UK jobs at risk.
Responding this morning, an Interserve spokesperson, said: “Last week we announced that we expect our 2017 performance to be in-line with expectations outlined in October and that our transformation plan is expected to deliver £40m-£50m benefit by 2020.
"This remains the case and we expect our 2018 operating profit to be ahead of current market expectations and we continue to have constructive discussions with lenders over longer-term funding.
"We are keeping the Cabinet Office closely appraised of our progress as would be expected.”
A Cabinet Office spokesperson added: "We monitor the financial health of all of our strategic suppliers, including Interserve. We are in regular discussions with all these companies regarding their financial position. We do not believe that any of our strategic suppliers are in a comparable position to Carillion."
Neil Wilson, ETX Capital's senior market analyst, said: "Interserve has had its problems for sure, but it's no Carillion.
"Its latest update showed improvement and the news will do no good for sentiment given there may be some twitchiness among investors in the sector following Carillion's collapse.
"The FT report suggests that Interserve is being monitored by the Government. While one official says ministers are 'very worried', another said there is 'no comparison' with Carillion - mixed messages but hardly likely to engender confidence."
Despite flagging financial troubles towards the end of last year, Interserve has landed a number of hefty wins, including an extension on facility management services at the BBC worth £140 million and a £227 million Government contract to provide similar services for the Department for Work and Pensions.
Interserve has 1,600 employees across the West Midlands. That includes around 120 at specialist construction work business RMD Kwikform’s two sites in Aldridge, staff at offices in West Bromwich and Dudley and another 600 working at Russells Hall Hospital.
The company is currently completing work on a new regional headquarters building next to Birmingham Airport which will bring together around 1,200 people from sites across the West Midlands later this year.
Last week Interserve provided a bullish update, saying that 2018 operating profit would be ahead of current market expectations due to its ‘Fit for Growth’ turnaround plan.
The three-year programme, which was launched in October, is expected to deliver £40 million to £50m benefit by 2020 through increasing organisational efficiency and other measures.
The construction group said constructive discussions with lenders over longer-term funding are progressing.
The group anticipated net debt at year end 2017 would be around £513m, reflecting the significant outflow in the year relating to energy from waste, a normalisation of trading terms with our supply chain and exceptional costs.
Debbie White, Interserve’s chief executive, said: “The new management team, and the board, have been working to stabilise the business and provide a sound foundation to continue to serve our customers effectively, underpin our future growth and to restore shareholder value.”