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Interserve grows profit and revenue, but seeks client talks over national wage hike

Interserve will pay out up to £15m extra in 2016 as a result of the new national living wage, the firm revealed today.

In its half-year results, the group revealed revenue and pre-tax profit increases of 16 and 19 per cent respectively.

The group continues to perform strongly, but chief executive Adrian Ringrose admitted the premium for the new national wage announced by George Osborne in the Summer Budget would cost them between £10m and £15m extra next year in its support services division.

He said the impact would recede post-2016, as “the change is priced into relevant contracts”.

The company has begun talks with public sector clients over more than 10,000 staff working in UK support services on contracts with an average duration of four years.

Numis today predicted the cost would reduce Interserve’s pre-tax profit in 2016 by 12 per cent.

Financials

  H1 2015H1 2014 
Revenue £1.6bn£1.37bn+16%
Headline total operating profit £60.3m£53.7m+12%
Profit before tax £33.7m£28.3m+19%
Headline earnings per share 30.3p27.5p+10%
Future workload £8.3bn£7.5bn+11%
Interim dividend 7.9p                   7.5p+5%


The group increased its interim dividend by 5 per cent on the back of revenue growth, while its order book now stands at a record £8.3bn.

Interserve’s trading statement showed that while performance overall was good, margin performance in UK construction was “below medium-term expectations” due to the impact of “supply chain volatility and inflation, together with the pressures on contract close-outs in the current challenging contracting environment”.

In support services, the group boosted revenue by 15 per cent to £933.1m, while its total contribution to operating profit grew by 19 per cent to £44m.

Support services results summaryH1 2015H1 2014Change
Revenue   
-     UK (Consolidated revenue)£933.1 m£808.5m+15%

-     International

(incl share of associates)

£102.6m£76.1m+35%
Contribution to total operating profit£44.0m£37.1m+19%
UK£40.0m£33.9m+18%
International£4.0m£3.2m+26%
Operating margin (UK)4.3%4.2% 
Operating margin (International)*4.2%4.3% 
Future Workload   
-     UK£6.2bn£5.8bn+7%

-     International

(*including share of associates)

£0.3bn£0.1bn+83%


Mr Ringrose said: “We have made good progress in the first half of the year in markets that offer both opportunities and challenges.

“We have delivered volume growth across the board, and strong profit performances in our support services, equipment services and international construction businesses.

“Market conditions in UK construction have remained challenging, although demand continues to strengthen and the expanded future workload is encouraging.

“Our focus on providing high-quality services for both new and existing clients resulted in strong work-winning during the period, with our future workload rising 11 per cent over the 12 months to June to stand at a record £8.3bn.”

RMD Kwikform grew revenue by 15 per cent to £104.2m in the first half of the year, while its margins grew from 15.4 per cent to 17.9 per cent.

Net debt at 30 June was £297.9m, up from £268.9m this time last year.

Interserve said this was due primarily to its “continuing investments in net capital expenditure (HY2015: £28.9m) and working capital (HY2015: £20.4m)”.

Its group services’ costs in H1 2015 were £12.5m (H1 2014: £9.7m), due to increased investment in back office capabilities, IT infrastructure, people development and communications.

Interserve has started construction of a new Midlands office where it will consolidate back office activities.

Revenue   
-     UK (Consolidated revenue)£500.7 m£432.6m+16%

-     International

(share of associates)

£130.3m£99.4m+31%
Contribution to total operating profit£10.2m£12.3m-17%
UK£5.3m£8.0m-34%
International£4.9m£4.3m+13%
Operating margin (UK)1.1%1.9% 
Operating margin (International)*3.3%2.4% 
Future workload   
-     UK£1.7bn£1.4bn+22%

-     International

(*share of associates)

£0.2bn£0.2bn+2%

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