Interserve ready for shift with £250m warchest

The company, which competes with firms including G4S, Serco and Capita to run services for public bodies and companies, posted growing profits and revenues, plus a bigger order book.

“We believe that demand for public services will continue to accelerate from a growing and ageing population, and that we are only now beginning to see the long-anticipated shift in thinking that will lead to the more widespread use of outsourcing as the most efficient way to maintain such services while reducing unit costs,” said the company.

Interserve extended its reach in healthcare late last year when it bought home care provider Advantage Healthcare for £26.5m.

Advantage manages the care of more than 500 people, offering live-in and palliative care.

It also hopes to win more work in the justice sector, as Government shakes up the prison and probation services.

“Pursuing this idea of the state shrinking and contractors stepping in to do more of that, that’s a direction of travel we want to push further in,” said Interserve chief executive Adrian Ringrose.

Mr Ringrose said it estimates the traditional outsourcing market – such as maintenance, cleaning and security at public sector bodies – is probably 60-65 per cent tendered.

“But perhaps the more exciting opportunity is that the definition of the market is expanding,” he said. “What’s ‘outsourcable’ is being stretched.”

Interserve is part of a consortium, headed by Sodexo, which runs prisons in the UK for HM Prison Service – HMP Forest Bank in Salford, HMP Peterborough, HMP Bronzefield in London and HMP Addiewell in Scotland.

It believes a shake-up of the prison service, where services rather than whole prisons will be tendered out, “adds up to a bigger and better opportunity”.

Interserve also has a 10-year tie-up with Leeds Council to manage, build and refurbish schools under the £290m Building Schools for the Future programme. It will provide their maintenance, security, caretaking and cleaning for the next 25 years.

Last year Interserve also won a £150m contract to design, build, finance and maintain two new divisional headquarters for West Yorkshire Police in Leeds and Normanton, plus custody suites and a training facility. Again, Interserve will maintain the facilities for 25 years.

It designed, financed, constructed and operates two new build units for the elderly in Leeds, under a deal with Leeds Partnerships NHS Foundation Trust.

Interserve also has Government contracts to get the long-term unemployed in South and West Yorkshire back into work after buying training and development firm Business Employment Services Training (Best) Ltd for up to £18.25m in May.

Mr Ringrose defended the welfare-to-work sector after it was criticised by MPs. The Public Accounts Committee recently said the Work Programme’s performance was “extremely poor”, with only 3.6 per cent of people referred to it moved off benefit and into work between summer 2011 and summer 2012.

“We are trying to do something different,” said Mr Ringrose. “It’s massively more efficient from a taxpayers’ point of view. We only get paid if we are successful.

“We are getting people who had been written off back into the work place.”

Interserve, which employs almost 50,000 people, posted 7.7 per cent growth in underlying profits to £78.4m in 2012. Revenues surged six per cent to almost £2bn. Its future workload is up 12.5 per cent to £6.3bn. Interserve increased its full-year dividend 7.9 per cent to 20.5p. It also plans to grow in the Middle East, where it increasingly provides building, maintenance and training to the oil and gas industry.

Tough for the construction sector

Interserve forecast another “tough” year for the construction sector. The group earned construction revenues of £737.2m in the UK, up 0.8 per cent on 2011.

But operating profits slumped almost 19 per cent to £14.6m.

“We’re really pleased with how we’ve done but we expect at least another year of pretty tough market conditions,” said chief executive Adrian Ringrose.

“There’s work if you’re determined and innovative.”

More competition drove margins down to two per cent, from 2.5 per cent a year ago.

“Whilst we’re not making as much money, our margins today are much more consistent with historical margins,” said Mr Ringrose.