“Interserve, one of the biggest outsourcing companies serving the government, scrambled to calm market jitters yesterday, rebuffing claims that it was teetering on the brink and could follow Carillion into receivership unless it could raise fresh capital.
Shares in the group slumped by as much as 26 per cent to less than 29p, before retracing almost all of the losses and ending the day at 38.5p, down 2 per cent, when a positive statement was rushed out mid-afternoon. This said that the implementation of strategy “remains on track” and the group continued to expect a significant operating profit improvement this year “in line with management’s expectations”.
The latest flurry of investor nerves began last week after a joint venture partner, Renewi, disclosed that Interserve had missed a deadline on an important energy-from-waste project in Derby. They intensified yesterday when the BBC reported that it was planning to tap investors for more cash, citing sources close to the company.
The group provides meals for schools and hospitals, constructs and maintains government buildings and provides a string of other services, from asbestos removal to repairing flood barriers. It employs 75,000 people worldwide, 25,000 of them in the UK, and has a turnover of £3.2 billion.
The Cabinet Office has been on alert to be prepared for another outsourcer collapse after the National Audit Office said that the Carillion failure had cost taxpayers £148 million. Ministers were accused of mishandling that failure.
A Cabinet Office spokeswoman said yesterday: “We monitor the financial health of all of our strategic suppliers, including Interserve, and have regular discussions with the company’s management. The company refinanced earlier this year and we fully support them in their recovery plan.
“It is in the taxpayers’ interest to have a well financed and stable group of key suppliers, so we welcome the actions that the company is taking as part of their planned strategy.” More than £900 million has been wiped from the value of the company, which now stands at just £56 million, since the share price high of 700p in April 2014.
In March, Interserve agreed a complex £800 million rescue refinancing with lenders, bondholders and pension trustees, which it said would provide sufficient capital to see it through to September 2021. Most of the £197 million in new cash was provided by Emerald Investment, the family office of the Punch Taverns tycoon Alan McIntosh.
Yesterday’s statement said nothing about the speculation that new capital was needed, however. Simon Jack, the BBC’s business editor, quoted a former shareholder saying that it would need £500 million in new capital — a huge amount that would all but wipe out existing shareholders.
At the half-year results in August, Interserve reported a slide from profits of £24.9 million to a £6 million loss, but promised £40-50 million per year of cost savings by 2020. Net debt was £614 million, up from £503 million a year earlier.
The company has previously said it aims to deleverage eventually, with most analysts assuming this meant a rights issue at some point, but it had hoped to make enough progress to get the share price higher first.
Stephen Rawlinson, an analyst with the research firm Applied Value, said: “Interserve has been failing at a trading level for some time. Now it seems to be failing at a financial level too. ”
Interserve’s biggest shareholders, according to Thomson Reuters, are Coltrane Asset Management, a New York fund, with 17.5 per cent, Goldman Sachs with 9.1 per cent and Valkendorf, a Danish hedge fund, with 8.2 per cent.
Memories of Carillion debacle still raw.
Behind the story
One big outsourcing company going bust on the government may be regarded as misfortune. Two would look like carelessness. Which, 11 months after the collapse of Carillion, is why the Cabinet Office is on red alert to ensure public services would not be disrupted if Interserve were to fail (Patrick Hosking writes).
The group is a large supplier to the public sector. Seventy per cent of its £3 billion of annual revenues come from government, whether it is cleaning and maintaining 1,100 offices and depots for the Department for Transport or building the Defence National Rehabilitation Centre in Loughborough — a £150 million project to help rehabilitate and care for injured servicemen and women.
It is also a significant supplier to the private sector. It provides the cleaners for Boots stores and the Walgreens Boots head office, as well as providing interior fittings for John Lewis department stores.
But it is its role in creating centres converting waste into energy which is at the heart of the latest concern about the group. These have fallen behind schedule and Interserve, after making a provision of £195 million, is still trying to extricate itself from the disastrous diversification.
That was the brainchild of Adrian Ringrose, the former chief executive, who shareholders blame for much of the group’s troubles. He and two other departing executives received a combined payoff of £1 million last year after presiding over several profit warnings.
His successor, Debbie White, a former executive at Sodexho, the French catering group, who joined in September 2017, is trying to cut costs, simplify the business, reduce the myriad services offered to clients and introduce more discipline in bidding for new work.
But the sliding share price suggests the market is sceptical about her progress. It also explains why, according to one source, civil servants, who are under pressure to make contingency plans after the Carillion debacle, have been quietly asking rival outsourcers if they could take on Interserve’s projects in the unlikely event of its failure.”
Source: The Times (pay wall)
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