Interserve among those monitored by government after Carillion collapse

Under pressure over the government's failure to catch Carillion before it fell, a Cabinet Office team was reported to have begun to watch Interserve, which issued a pair of profit warnings last autumn.

“Ministers are very worried about Interserve, but the team is small and low-key as they are not wanting to unsettle,” one official told the Financial Times, though another said there is "no comparison" with its collapsed rival.

Interserve, which employs more than 50,000 people in the UK out of a 80,000 total worldwide and like Carillion has a business that spans construction, cleaning and other outsourced services, followed one profit warning in September with the revelation in October that it was having talks with its lenders after further costs from its difficult exit from the energy-from-waste programme meant there was a "realistic prospect" that it could breach its banking terms.

In December the FTSE 250 support services and construction group company managed to secure £180m in short-term funding and deferred the debt test until the end of March. Net debt was around £513m at the year-end but is set to peak in the first half of 2018 as a result of the refinancing, new management's restructuring and some much needed cash flow.

In response, Interserve pointed to its update earlier this month, where a more "consistent" trading performance was reported, with net debt at year-end expected to come in at roughly £513m, reflecting the significant outflow in the year relating to the EfW programme, a normalisation of trading terms with its supply chain and other exceptional costs. Discussions with lenders were said to be progressing and a further announcement on its longer-term funding arrangements will be made in due course.

"We are keeping the Cabinet Office closely appraised of our progress as would be expected," the company added.

The Cabinet Office denied that Interserve was on a watch list, denied the existence of any such watch list and insisted that it monitors the financial health of all its strategic suppliers and "do not believe that any of our suppliers are in a comparable position to Carillion".

Interserve's shares, which had earlier this week had recovered more than 80% from their trough in December, fell more than 11% in early trade on Wednesday but had rebounded somewhat to 115.75p by 0830 GMT, a fall of just over 4%. The shares are one of the most heavily shorted on the FTSE 350, with almost 9% of the stock out on loan.

“Interserve has had its problems for sure, but it’s no Carillion," said analyst Neil Wilson at ETX Capital, pointing to net debt that could top £600m this half-year versus Tuesday’s closing market cap of £176m, while Carillion's market cap declined to just £61m against liabilities of around £1.5bn.

"[Interserve's] latest update showed improvement and the news will do no good for sentiment given there may be some twitchiness among investors in the sector following Carillion’s collapse."

He acknowledged that there was work to be done but overall felt the company's recent announcement gave nothing to suggest that it was being put on a financial health watch list.

"Comparisons with Carillon are all too easy to make of course – a diverse business operating on thin margins. It has faced pressure from employment and contract mobilisation costs and margin deterioration from a cost base which has not been flexible enough."