CEO describes 2017 as 鈥渁n extremely challenging year鈥� but says plans in place for recovery
Shares in Interserve dived today after the group announced losses of 拢244m, including a further writedown of 拢35m on its Energy from Waste business.
Investors baled out of the group鈥檚 stock, sending it down 17% to 89p before recovering to 91p after the firm revealed the loss on flat turnover of 拢3.25bn, while net debt at the end of December last year ballooned to 拢503m.
Group operating profit slumped 52% to 拢75m, hit by poor performances in construction, which despite a 20% rise in turnover to 拢1.1bn saw a loss of 拢19.4m in the UK, wiping out a similar profit made in its international business. Its support services arm reported an operating profit down 54% at 拢42m on turnover 2% lower at 拢1.7bn.
Chief executive Debbie White warned construction revenues would fall in 2018 as it sought to weed out unprofitable work and that Interserve was looking to restore its fortunes after kick-starting a review of the operation.
It has identified 拢40m to 拢50m of savings she believed will drop through to the bottom line by 2020.
She singled out construction which had experienced 鈥渃hallenging market conditions and pockets of underperformance鈥�, as well as suffering historically 鈥渇rom poor decision-making in project targeting and inadequate project control, reflected in the significant provisions we have made against a number of outstanding projects following our contract review鈥�.
Speaking about Energy from Waste, White said the group expected to complete the remaining projects in the first half of 2018, but added that 鈥渞isks clearly remain and we continue to expend every effort to bring these projects to a satisfactory conclusion鈥�.
Describing 2017 overall as 鈥渁n extremely challenging year鈥� she said the group had a better idea about what it needed to do than before she arrived last September from outsourcing group Sodexo.
鈥淭he business was really unclear about what its role was and how we worked together. There was no coherent approach to the market,鈥� she said.
Interserve鈥檚 鈥楩it For Growth鈥� programme will overhaul numerous business practices, White said. Previous purchasing strategies, the group鈥檚 structure and the cost choices made, 鈥渨ill not enable us even to achieve margins consistent with our peers in the industry鈥�, she added.
White said the business was not paid to 鈥渞e-invent the wheel鈥� and would seek to sub-contract far less work than in the past and focus on self-delivery. 鈥淚 was surprised at the level of sub-contracting going on when I arrived. Margin on margin just does not work.鈥�
Interserve will have a 鈥渓aser-like focus鈥� when it comes to bidding for work and would be 鈥渕uch more selective in our bidding processes鈥�, she said.
Every potential project would go before her and finance director Mark Whiteling for sign-off, she said. Whiteling joined Interserve in October last year from technology products group Premier Farnell, replacing Tim Haywood.
Kevin Cammack of Cenkos Securities said of the results: 鈥淭his was a horrible set of numbers but well trailed and the 拢834m refinancing has been duly formally completed which at least secures the financial health of the group whilst we see if the new management鈥檚 recovery plan has legs, is deliverable and creates value for shareholders.鈥�
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