Interserve shares rocket after nipping contract problems in the bud

Oliver Gill
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Interserve performs a wide range of contracts including corporate cleaning (Source: Getty)

Interserve investors were sent into a frenzy this morning on an announcement the contract and support services firm had nipped its woes in the bud.

Determined not to be tarred with the same brush as rival Carillion, Interserve said annual performance would be in line with October guidance.

Interserve, which employs 80,000 people worldwide, had previously shocked investors in September with a surprise trading announcement.

Today, shares rocketed over 20 per cent.

Read more: Carillion conqueror hedgie sets sights on rival Interserve

Concerns of contractor contagion surfaced in September when new Interserve boss Debbie White revealed "disappointing" trading in July and August alongside a statement costs to exit its misadventure into the waste business would "significantly exceed" the £160m previously guided.

The firm's stock market valuation halved within a day in September.

With worries about a shock July announcement by Carillion, worries grew Interserve was facing similar contract write-downs stretching into hundreds of millions of pounds. The firm said it would breach covenants in October and convinced lenders to defer their testing until the end of March.

Accountants from PwC were drafted in to review contracts, while consultants from Oliver Wyman are helping to sort out strategic objectives. EY is advising a syndicate of lenders that includes Lloyds, Royal Bank of Scotland, HSBC and Santander.

Interserve said today it expects to net debt to spike to £513m by the end of the year and peak in the middle of 2018 as a result of its waste business experiment.

The firm said:

In order to establish a strong foundation from which the group can move forward, the new management team has been engaged in a comprehensive review of the group’s contract portfolio and a thorough review of the group’s non-trading balance sheet items.

White added: “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.

"This work has focused on managing the balance sheet, conducting a thorough assessment of the contract portfolio, and introducing new management disciplines, processes and cost controls under the ‘Fit for Growth’ programme.”

Read more: Ailing Interserve calls in consultant architects of failed Monarch strategy

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