Outsourcer Interserve’s share price falls as debts pile up

Embattled outsourcing company Interserve will next year aim to quickly sell off assets to reduce its debt, amid concerns raised this month about its financial situation.

Shares dropped again this morning by as much as eight per cent as the group said it would dispose of non-core businesses while considering options to “bring new capital into the business”.

The company said profit growth so far this year had been “in-line with management expectations” in a trading update for the first nine months of the year ending 31 December, but did not give figures.

Interserve said it expected a “significant operating improvement” for its full-year results, having turned a loss in its interim update, and that a three-year efficiency programme remained on track to deliver £15m savings after its first nine months.

Shares in the business nosedived to their lowest point in more than 30 years earlier this month on concerns that it was close to bankruptcy. And the firm indicated it would be saddled with more debt by the year-end, revising up its expectations from a £575m-£600m range to £625m-£650m.

Yesterday, rival outsourcing firm Mitie said profits had fallen over the last six months in the wake of Carillion's collapse, despite selling off several of its divisions and reporting a rise in revenue.

Interserve today acknowledged a “challenging first half” in equipment services, as continuing delays on major infrastructure projects continued into the third quarter. It said it was due to report a decline in full year profits.

It said its support services division had thus far bounced back in the second half relative to the first half of the year, driven by cost savings made by the company and the winning of new contracts.

Internationally, construction contract wins and completions in the Middle East have driven a stronger second half than the first, it said, with strengthened oil prices in the United Arab Emirates providing “a more favourable backdrop”.

But its UK construction arm continued to see revenue decline, with the division expected to report “a small loss” in the second half.

“Following the combination of the International and UK construction businesses under a single leader, we have completed a comprehensive review of all projects in the UK and confirm that we have adequately provided for anticipated losses,” it said.

The company said the construction of all projects in its energy-from-waste business, which it is closing out, is now complete. All plants are operational, receiving waste, and in the final phase before handover, it added.

Chief executive Debbie White said the company had made “significant progress”. The company continued to “put legacy issues behind us”, such as the energy-from-waste business.

“Overall we remain on track to deliver a significantly improved financial performance this year in line with our plan,” she said.

Russ Mould, AJ Bell investment director, said White and her team were "clearly doing their best to steady the ship at Interserve".

"But the admission that net debt will end the year higher than expected, not helped by how the cash inflow from the troubled energy from waste business will be lower than hoped, means the company has yet to reassure shareholders and potential investors about the key issues that face it,” he said.