Interserve’s chief executive Debbie White appeared in front of MPs on the public accounts committee this week to answer questions about the government’s strategic suppliers.
The PAC is collecting evidence about how the government interacts with its strategic suppliers in the wake of Carillion’s collapse, and is exploring whether the suppliers provide good value for money to the taxpayer.
On Monday, Ms White alongside G4S chief executive Peter Neden answered questions from MPs for almost two hours.
This what we learned from her response to the MPs’ grilling.
Interserve claims to be a 30-day payer
Treatment of suppliers has been thrust into the spotlight since Carillion’s collapse, with questions about the subject being raised regularly in parliament.
PAC member Sir Geoffrey Clifton-Brown asked Ms White what Interserve’s average duration to pay its suppliers was.
“This is an interesting one for Interserve,” Ms White said.
“When I joined Interserve, the company’s supplier terms were a little bit disbursed, if I can use that term, and in October we decided to aim to pay all of our suppliers on 30-day terms, which is what we have signed up to do.”
Ms White said the company’s prompt payment practices and supply chain relationships helped it through its recent refinancing period.
Sir Geoffrey went on to ask what percentage of contracts Interserve was paying beyond 30 days.
“I cannot give you the exact figure, I would say it’s very small,” Ms White replied. “We are paying absolutely on 30 days.”
Last month, however, Interserve construction managing director Gordon Kew told Construction News the construction business had extended its payment terms from 30 to 42 days in 2017.
Interserve has been contacted for comment.
Financial situation ‘surprised’ new bosses
Interserve has faced mounting losses over the last couple of years with well-publicised problems on its energy-from-waste contracts.
However, Ms White said she was not aware of the company’s financial problems before she joined.
“I joined Interserve for a number of reasons and I did not know the financial situation of Interserve before I joined,” Ms White said.
She added: “What wasn’t clear was that the average net debt, day by day, was increasing. That’s what we found – I say ‘we’ because the group CFO joined around the same time as I did.”
The former Sodexo boss said she had joined the company because of its “people values” and its “strong core business”.
Ms White said that when she started in September she had three priorities: make sure the business had enough cash to keep trading; that contracts were performing well; and produce a long-term business plan.
She told the MPs she was confident these points had been achieved.
Interserve has contingency plans in case of failure
A report from the National Audit Office revealed last week that Carillion warned the government of dire consequences for public services if it did not give the company the support to keep afloat.
With this in mind, PAC chair Meg Hillier asked whether Interserve thought it was “too big to fail”.
“I don’t think any company is too big to fail,” Ms White replied. “What I think is important is that the company and all their clients, including the UK government, have the right contingency plans in place for the most serious eventualities.”
“Do you have contingency plans in place?” Ms Hillier asked. “Yes. Yes, we do,” Ms White responded.
Short sellers don’t worry the CEO
Interserve is the most heavily shorted publicly listed construction company stock in the UK as of 6 June, according to the Financial Conduct Authority.
Asked what she thought of this, Ms White said: “I’m not that concerned about it.”
She added: “We have got to deliver our recovery plan, and I think the share price will respond accordingly.”
Around 5.5 per cent of the company’s issued capital is currently being held by those betting that its share price will fall.
This has come down from the high of 9.3 per cent on 10 January this year, the day Interserve announced it expected its net debt for 2017 to stand at £513m.
It is also significantly below the 14 per cent of Carillion’s shares that were shorted at the time of its collapse.
When the FCA investigation might conclude
On 11 May Interserve disclosed it was being investigated by the FCA over its handling of inside information and its stock market announcements related to its EfW projects.
Ms White told MPs the outcome of this wouldn’t be known any time soon.
She said: “I’ve been advised that it can take quite a considerable period of time and not to expect anything before the end of the year.”
The CEO added: “The investigation has commenced and we are co-operating with them fully, as are the previous executives.”
Ms White also revealed during the session that the company had a ‘red’ rating from the government, and that Ms White talked the Cabinet Office out of giving it a ‘black – high risk’ rating.