Interserve has issued its second profit warning in the space of two months which shows a slow down in trading in the third quarter from that reported in the first half.
The international support services and construction group is now expecting operating profit for the overall group in the second half to be approximately half the level of that which was reported in the second half of last year and believes there is a realistic prospect that it will not meet the net debt to EBITDA test contained in its financial covenants for 31st December 2017.
According to the group its UK support services has been hit by continued employment cost pressures in the business, the cost of contract mobilisations, margin deterioration driven by a cost base which has not been flexible enough and contract performance in the justice business.
The company has also seen the operating profit of its UK construction business deteriorate further as challenging market conditions and cost pressures as well as operational delivery issues have continued to impact performance.
Performance within Interserve’s equipment services business is said to be performing well and as anticipated, the group says its international support services business has started to improve versus the first half performance and in international construction it has maintained a stable performance.
Debbie White, Chief Executive, 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.”
Interserve is now launching a group wide performance improvement plan, Fit for Growth, aimed at improving margin performance to industry norms. As part of this, the company has initiated a series of work streams to address its operating model and the cost base of its operations, as well as ensuring that it is operating in market segments which are both profitable and offer opportunity for growth. Interserve has also initiated a comprehensive contract review across both the support services and construction businesses.
The group is now engaged in constructive and ongoing discussions with its lenders, and has engaged a financial advisor to assist in these discussions, as well as looking at options to maximise the short and medium term cash generation from the business.