Interserve plays big role in the riot clean-up

The group, which yesterday reported growing half-year profits but falling sales, offers outsourcing services to retailers including Boots, Sainsbury’s, William Hill, HSBC and Ladbrokes. It also operates CCTV services for London councils including Ealing and Croydon.

“We’ve been fairly closely involved in helping the authorities and I guess a lot of what we’ve gathered will be evidence,” said chief executive Adrian Ringrose. “Many of our customers are fairly large retailers. We are there to secure customers that have been impacted by damage to their properties.

“We are arranging for windows to be boarded up, for cash points to be repaired and generally trying to get our customers back on their feet. The priority is just to help our customers with their problems.

“Clearly, unfortunate events as they are, do enable us to show our clients what we can do.”

Interserve, a diverse group with services ranging from pylon repairs to building new schools, serves around 8,000 UK retail locations.

The group predicts a growing wave of outsourcing as cash-strapped councils and central government departments cut spending.

It reported a 10 per cent increase in pre-tax profits to £30.1m during the first six months of the year, although revenues fell 1.7 per cent to £928m.

Support services, its biggest division, reported flat revenues of £538m but a 76 per cent increase in operating profits to £15.7m.

“We’re in a growth market,” said Mr Ringrose. “It (outsourcing) has been steadily growing, maybe at four to five per cent.

“We see certainly an increase in the rate of activity from private sector clients. We see a growth opportunity from our government clients, be that local authorities looking to outsource more. The state really is looking to do less directly.”

Interserve’s support services division generates more than 40 per cent of its sales from the private sector, which has so far helped offset weakness in discretionary spending from the public sector.

However, it believes the desire to reform UK public services opens up opportunities for firms which can devise “innovative ways of delivering public services”.

The group’s construction arm saw sales fall 5.5 per cent to £484m. Operating profits slid 14.5 per cent to £20.1m and Mr Ringrose said they may suffer further as public sector spending dries up. It typically works on smaller projects ranging from about £50,000 to £15,000.

Interserve remains busy on education projects, including schemes in Leeds such as a £30m contract to design and build the new Leeds West Academy.

“Yorkshire has been a very fruitful ground for us,” said Mr Ringrose. “The re-emergence of Leeds as an important city going places has been something we have contributed to and benefited from.”

Despite the tough economic climate, Interserve maintained its guidance for 2011 and reiterated plans to double its earnings per share over five years.

The group said it has a £1.1bn workload for 2012, with a £5.4bn future workload.

“It’s ambitious, but equally it’s do-able,” said Mr Ringrose.

He added he saw growth coming from the company’s international markets, particularly the Middle East and India.

Earlier this week, Interserve said it won projects in two developments in Qatar through its associate company, Gulf Contracting (GCC), worth a total £70m.

Net debt was slashed by a third to £35.8m. Interserve also hiked its interim dividend by seven per cent to 6p per share.

Analysts at Liberum Capital said the group is a “conviction buy”. Its shares leapt 10.5 per cent to 325p, a 31p increase.

“The outlook for the operating businesses are very different,” they said.

“The pension deficit has steadily reduced for three years. Notwithstanding the pension deficit recovery, Interserve is generating strong cash flows. It does not have the same size balance sheet as some of the more pure play constructors.”

Brewin Dolphin analyst Michael Parkinson raised the stock to ‘buy’ from ‘add’.

Benefit from outsourcing

Interserve believes a growing trend of outsourcing public services will play into its hands.

It believes the Government white paper, Open Public Services, opens up opportunities for firms which can devise new ways of delivering public services.

Earlier this year it was awarded, together with charity The Rehab Group, a £130m contract over five years, to deliver the Department for Work and Pensions’ new Work Programme in Wales and the south-west of England.

The scheme aims to get more people off benefits and into work and replaces all existing welfare-to-work programmes. Over 100,000 people are expected to benefit from the service.