Interserve rebounds as interim results show progress

Revenue in the six months to 30 June of £1.63bn was 2.4% higher than the same period last year and, excluding the £70m expected loss from its Glasgow EfW gas project, profit before tax was just above flat £53.8m, beating forecasts.

At the reported level, Interserve reversed into a £33.8m loss before tax due to issues in the EfW business, versus a £33.7m profit last time.

Headline earnings per share were up 1% to 31.3p and the interim dividend was lifted 2.5% to 8.1p after a strong performance for gross operating cash flow up to £128.3m from the £19.9m in the comparative period.

Underlying profits benefited from a stronger than expected contribution from Middle Eastern construction operations, while the UK support services arm, which accounts for the majority of group earnings, performing in line with expectations.

Net debt was trimmed to £275.6m from £308.8m a year before, with guidance improved to a year-end range of £300-£320m.

Chief Executive Adrian Ringrose said Interserve was taking action to exit the EfW sector, calculating that the aggregate impact of exiting this sector will be around £70m of exceptional charge, with the board deciding to "no longer undertake contracts for the construction of EfW facilities involving contractual responsibility for process risk".

The group now expects that much of the cash impact will take place in the current year, having previously indicated a 50/50 split with the coming financial year.

A strategic review of the Equipment Services division is "proceeding as planned" and will conclude later this year.

Despite the increased political and macro-economic uncertainty following the EU referendum, Ringrose reiterated guidance for the full year, highlighting the group's geographical diversity, sectoral breadth and £7.6bn order book.

Support services saw some orderbook decline in the period, down 33% to £205m, but construction orderbook has risen by around 17% over the same period.

House broker Numis said the fact that the group has reduced net debt figure was all the more impressive given the front-loading of charges for the EfW exit.

"We retain the view that the regional market will remain competitive and tough but that current conditions are broadly sustainable," analysts said.

Shares in the company, which have endured a torrid time in 2016 and were hit by the Brexit vote due to sentiment turning against UK-focused companies with public sector contracts, were up 12% to 359p on Wendesday morning, reaching their highest level since early May.