Private sector hurts Interserve
By Alistair Gray
Published: January 12 2010 23:02 | Last updated: January 12 2010 23:02
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The UK public sector remains keen to outsource work as budgets come under pressure, according to Interserve, but the support services group cautioned that their private sector counterparts were more reluctant to farm out big projects.
Interserve said it had won £350m of work since its update in November, including contracts with the Ministry of Defence, NHS and local authorities.
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However, the shares fell 8.8p to 221.1p on Tuesday as the FTSE 250 company said that the market for private sector outsourcing was challenging. Cazenove, its broker, shaved 3 per cent off its earnings per share forecasts for 2010 due to the risk of slowing growth at its equipment services business in the Middle East.
The services sector has fared relatively well during the recession as organisations turn to outsourcing specialists for non-core activities to cut costs. However, lower capital spending among clients has put a lid on growth.
Adrian Ringrose, chief executive, said many of Interserve’s private sector customers – which include J Sainsbury, Toyota and BP – were “doing what needs to be done” but not “what’s nice to do”.
For example, he said, retailers were more reluctant to undertake refurbishment work, denting Interserve’s income from facilities management.
Although it has cut costs, including shedding up to a fifth of staff in some parts of the business, analysts at Oriel said that had “not been sufficient to alleviate all the pressure”.
Mr Ringrose added: “It has not been an easy year for anyone, but we are serving a variety of markets and many of these are giving us opportunities.”
Interserve said it had enjoyed stability in public sector markets and a strong performance overseas.
The company said its net debt position had improved and some analysts estimated it was less than £70m at the turn of the year – better than expected.
Mr Ringrose said that Interserve was considering entering the Indian or Libyan markets, most likely through a joint venture with an existing operator.
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