Interserve schemes hit by Government axe

Support services firm Interserve yesterday said two of its schemes had fallen prey to cuts as the coalition Government took the axe to a £55bn school building scheme this week.

The firm's 150m project in St Helens under the Building Schools for the Future (BSF) programme has been cancelled while the 280m Sandwell scheme has been scaled back.

Although its BSF work in Leeds is safe, the firm predicts "challenging" conditions in 2010 as the squeeze is felt across the public sector, which accounts for around 30 per cent of its profits. Reading-based Interserve is drawing comfort from its international exposure after its business in the Middle East performed well thanks to new awards including a new road maintenance deal in Dubai.

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While the public sector is "in a period of transition" and the full impact of cuts remains uncertain, the firm has visibility over 90 per cent of this year's revenues and 60 per cent of 2011 – although its order book has fallen from 6.5bn to 6bn during the first half.

Interserve remains confident of meeting expectations for the full year, but first-half profits will be lower than last year due to high start-up costs on public sector facilities management contracts for Government departments including the Home Office and Foreign Office.

Tough competition has also squeezed the performance of its specialist arm, which offers services such as security, lift maintenance and electrical engineering. The group said "additional restructuring" of the division is under way which is likely to mean job losses among its 2,700 staff.

Changes at boardroom level are looming after finance director Tim Jones resigned to take up a similar role at All Bar One pubs group Mitchells & Butlers last month.

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Panmure Gordon's Andy Brown said he was "concerned" over the

uncertainty created by Mr Jones' departure.

"Although the medium term opportunities remain exciting, we think the shares will struggle to progress in the short term," he said.

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