Interserve Share News (IRV)

LONDON (Alliance News) - Interserve PLC said Friday it expects to record a significant improvement in operating profit for 2018, although its UK construction business is likely to post a small loss.

Revenue from the UK Construction business has continued to decline in first nine months of the calendar year, Interserve said, and will report a small loss for the second half of the year.

However, the group's overall 2018 operating profit is predicted to improve significantly over 2017, as the Support Services arm makes progress.

Interserve said it has reviewed all of its UK projects and "adequately provided for anticipated losses".

This is the first full year of Interserve's three-year transformation programme, Fit For Growth. The goal of the plan it to raise organisational efficiency and improve its procurement process through standardisation.

Fit For Growth is on track to meet its GBP15 million savings target for 2018, and Interserve said it has progressed plans for its GBP40 million to GBP50 million annualised savings target for 2020.

Interserve posted a pretax loss of GBP244.4 million on revenue of GBP3.25 billion in 2017. It then recorded a pretax loss of GBP6.0 million on GBP1.67 billion in revenue in the first half of 2018.

The Support Services unit has made good progress against both its performance in the first half of the year and in the first nine months of 2017, Interserve said Friday.

Meanwhile the order book for its International Construction business is lower than expected, but a number of contract wins in the period have taken place and it anticipates a stronger second half.

In the first half of 2018, operating profit from International Construction was GBP3.3 million, a significant year-on-year decline from GBP8.3 million.

Interserve's Equipment Services business has suffered continuing delays on major infrastructure projects and is set to post a similar percentage of profit decline as in the first half of 2018. In the six months to June, Equipment Services reported an GBP18.4 million operating profit, 26% below its GBP24.9 million profit the year prior.

Interserve is closing out the remainder of its energy-from-waste projects, although delays to the programme continue. Net cash flow in the second half is expected, although delays mean that this will be below the approximately GBP15 million expected at the time of its 2018 first half report.

Year-end net debt is likely to fall between GBP625 million and GBP650 million. Interserve expects to announce a de-leveraging plan in early 2019.

"Following the successful completion of the refinancing in April, the business has traded robustly in some challenging markets and continued to win significant new contracts. The 'Fit for Growth' programme is delivering material cost savings and a simpler and more effective business structure. Overall we remain on track to deliver a significantly improved financial performance this year in line with our plan," said Interserve Chief Executive Debbie White.

Shares in Interserve were down 3.9% at 33.64 pence on Friday morning.