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Organic growth continues as Interserve sees strong half year results

Interserve has hailed RMD Kwikform’s contribution to a first half of the year in which it saw organic revenue growth of 9.1 per cent and operating profit rise by 15.4 per cent.

Including its acquisitions, Interserve said pre-tax profits had soared 36.4 per cent to £50.2m in H1, with revenue up 28.7 per cent to almost £1.38bn.

Its equipment services business RMD Kwikform’s contribution to total operating profit grew by 64.7 per cent to £14m and recorded revenue of £90.9m, up 8.7 per cent.

During 2014, the group placed 12.9m shares which generated £74.8m from new and existing investors to fund the acquisition of Initial Facilities for £250m.

Interserve, Construction News Contractor of the Year for 2014, said it paid an exceptional charge of £11.7m relating “principally” to the costs of the Initial acquisition. It expects more restructuring costs in H2.

Numis Securities analyst Howard Seymour said: “Management actions have been key reasons for improvement… but we also believe that Equipment Services provides a good lead indicator for the rest of the group as an early-cycle activity.

“Rising order books and better pricing in this division therefore provides further comfort about the outlook across the group.”

The group also raised US$350m during H1 from a series of corporate bonds, via a US Private Placing, in order to repay short-term bank debt.

It has also reduced its exposure to pension liabilities by placing an insurance contract with Aviva plc for £300m.

Interserve’s share price opened up 2.1 per cent this morning.

Construction margins in the UK were stable at 1.9 per cent and the group said “demand is beginning to improve, although margins remain tight as supply chain pressures feed through”.

Organic revenue growth in Construction was 4.9 per cent compared with H1 2013, boosted to 11.6 per cent when taking into account specialist fit-out and refurb business Paragon, acquired in May 2013.

UK construction contribution to total operating profit increased by 8.1 per cent to £8m and future workload rose to £1.4bn (FY 2013: £1bn).

Liberum analyst Joe Brent said: “At Construction UK, we expect early-cycle recovery.

“Due to the regional exposure tender prices are lagging input prices as expected, but we view this as a growing pain and average contract length of [less than] one year at least means Interserve tends not to be stuck with unprofitable loss-making contracts.”

Internationally, construction saw revenue growth of 3 per cent but “timing and to continued competitive trading conditions” saw its operating margin halve to 2.4 per cent in the period.

In support services, UK margins were stable at 4.2 per cent but international margins fell from 6.4 to 4.3 per cent.

Overall, support services revenue grew by 35.3 per cent in the UK to £808.5m, of which 8.4 per cent was organic growth.

More to follow.


Results summaryH1 2014H1 2013Change
Total operating profit£53.7m£39.5m+35.9%
Headline pre-tax profit£50.2m£36.8m+36.4%
Headline Earnings per Share27.5p21.4p+28.5%
Future Workload£7.5bn£6.4bn+17.2%

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