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Shares slump as Interserve issues another profits warning

By Simon Penfold | Business | Published:

Shares have tumbled at troubled infrastructure group Interserve after it issued a fresh profits warning.

The support services and construction company, which employs around 1,100 in the Black Country, has also warned it could breach its banking covenants as a further slowdown in its trading will mean operating profits in the second half of its year will be half that of the same period a year ago.

Shares plummeted by more than a third following the announcement and are still down nearly 30 per cent.

Interserve said it has also made an additional £35m provision for abandoning the energy-from-waste market. That brings the total set aside for existing such work to £195m.

Viridor terminated Interserve's contract to build a recycling and renewable energy plant in Glasgow w in February following extensive delays.

Interserve's shares already crashed by more than 50 per cent last month after it issued a profit warning.

The latest falls means the stock is now down by more than 80% this year, valuing Interserve – a company with £3.6bn revenues – at just over £90m.

The company employs about 80,000 people worldwide in 38 countries. Across the Black Country it employs around 1,100. 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 on cleaning and maintenance at Russells Hall Hospital.

Interserve said its support services arm was grappling with escalating staff costs, squeezed margins and a flagging performance from its justice business.

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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 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."

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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.

Simon Penfold

By Simon Penfold
Business Editor - @SPenfold_star

Business Editor based at the Express & Star's head office in Wolverhampton, looking for stories big & small.

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