15 Nov 2010 07:00
15 November 2010
INTERIM MANAGEMENT STATEMENT
Interserve, the international services, maintenance and building group, issues its Interim Management Statement covering the period from 1 July 2010 to date.
Highlights
* Trading in line with expectations
* Stronger second-half performance anticipated
* Group retains a strong financial position
Overall, trading is in line with the Board's expectations and we continue to anticipate a stronger performance in the second half of the year as compared to the first half. Despite the near-term public sector spending environment the Group is benefitting from good progress achieved in the Support Services margin enhancement programme and continued excellent results in Project Services.
Support Services
The division, which has excellent revenue visibility through long-term contracts, continues to make good progress in moving performance in a number of public sector outsourcing contracts to planned levels of profitability. As such, Support Services is on track to generate a significant improvement in earnings in the second half as compared to the first half, despite continuing difficult private sector market conditions.
Future workload of around £4.0 billion comprises secured forward orders and pipeline, which is where we are in bilateral negotiations and final terms are being agreed. This future workload provides an excellent platform for the division's development and is supplemented by identified contract opportunities in the UK with an estimated whole-life value in excess of £6 billion (of which around £3.5 billion is at bid stage), as well as a growing list of opportunities in the Middle East.
We continue to engage in constructive discussions with the UK government on how we can support its public sector cost savings programme. As previously anticipated, whilst this process may result in some near-term volume pressure it is, encouragingly, also leading to a streamlining of procurement processes which we expect will be to our benefit. In particular, our recent selection on a UK government framework contract which pre-qualifies us for work commissioned by public sector bodies in hard, soft and managed services is already leading to an increase in our UK public sector opportunity pipeline.
Project Services
The division has continued to deliver above-trend results, both in the UK and Middle East, as we execute the significant contract portfolio developed in recent years.
International future workload remains robust at around £0.3 billion and customer payments in Dubai continue to show progress, enabling the proportion of profits remitted as dividends from the Middle East to remain at a healthy level.
Future workload in the UK remains stable as compared to the strong half-year position of £1.2 billion, benefitting from the partial reinstatement of the St Helensprogramme and further contract wins, such as the recently announced award of three new schools contracts worth an aggregate £42 million. We are continuing to target new sectors, such as waste and retail, in order to mitigate to some extent the near-term uncertainty surrounding the volume of work available in our public sector markets following the Spending Review.
Equipment Services
Following the record 2009 performance the division has been experiencing cyclical weakness in infrastructure spending in most of its markets, and these conditions have persisted into the second half. However, the Australian business has continued to trade well and the new operation in Saudi Arabia is gaining momentum and is pursuing an exciting pipeline of opportunities. Even so, the growth in these markets has not been sufficient to offset the slowdown in work in the UAE, where the anticipated pick-up in construction activity in Abu Dhabi is yet to materialise. Elsewhere the division's operations continue to face the depressed market conditions experienced in the first half, and await anticipated medium-term resumption of increased spending on major infrastructure projects.
Given the lower demand levels over this period we have continued to focus on cash conversion, maintaining tight control of net capital expenditure and working capital, and transferring equipment to growth markets such as Saudi Arabia.
PFI Investments
The Group retains a portfolio of 20 financially closed projects, of which 13 are operational. These assets represent a significant investment commitment of over £50 million, around half of which has already been paid. There are also a further two projects at preferred bidder stage and an encouraging pipeline of opportunities with a whole-life value of £1 billion, notably in the health sector.
Financial position
Continued tight control of capital expenditure and working capital has led to a stable net debt position as compared to 30 June 2010 (net debt: £53.1 million).
With committed facilities in place of £250 million, expiring in late 2013, the Group retains a strong financial position.
Outlook
The Board remains confident that margin improvement in Support Services and growth from international markets will generate a stronger performance in the second half as compared to the first half. While there continue to be uncertainties around the near-term impact of changes to public sector expenditure plans, our substantial future workload of around £5.5 billion, of which approximately £1.4 billion relates to 2011, provides a platform for long-term growth at attractive margins.
The Board considers the Group's significant exposure to international markets to be a major strength, and expects further growth to be generated by expanding both our overseas service offering and geographical footprint, as exemplified by our recent investments in a construction business in India and a services company in Oman.
In the UK we expect substantial opportunities in the coming years as the government seeks to effect structural changes in public service delivery and social infrastructure investment.
Presentation to analysts and investors
Adrian Ringrose, Chief Executive, and Bruce Melizan, Managing Director of Support Services, will host a series of presentations by senior management in the Support Services division for analysts and investors at 09:30 today. The presentations will provide insight into strategy, operational developments and outlook for the division. No new trading information will be given about the division or Group. For further information about the event contact Elizabeth Morley, Maitland, on 020 7379 5151.
An electronic copy of this Interim Management Statement and the Support Services presentations will be available to download from the Company's website, www.interserve.com, from 09:30 today.
Trading update
An update on trading in 2010 will be issued on 11 January 2011.
* Ends -
For further information please contact:
Adrian Ringrose, Chief Executive 0118 932 0123
Matt Jones, Head of Investor Relations 0118 960 2280
Elizabeth Morley / Tom Eckersley 020 7379 5151 Maitland
About Interserve
Interserve's vision is to be the Trusted Partner of all our stakeholders. We are one of the world's foremost support services and construction companies, operating in the public and private sectors in the UK and internationally. We offer advice, design, construction and facilities management services for society's infrastructure and provide a range of plant and equipment in specialist fields. Interserve is based in the UK. It has revenue of GBP1.9 billion and a workforce of 50,000 people worldwide. Website: www.interserve.com.
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