Trading
At this stage the overall trading position of the Group is broadly in line with current expectations for the year, with the majority of the Group’s operations making satisfactory progress.
Underpinning the longer-term position are a significant number of major new contracts in Facilities and Project Services which, combined with recent contract awards and enquiries in Industrial Services, provide a strong longer‑term platform for the Group’s services activities.
In Equipment Services, whilst the Far East market remains tough this year the overall performance is satisfactory, with Australia performing particularly well. The longer-term opportunities for this business, particularly in the Far East, remain exciting.
In PFI/PPP the Group continues to win projects within our chosen sectors of education, healthcare, custodial and defence, with current bids in hand of over £4 billion.
The Group’s forward order book has advanced to a record £3.6 billion, of which £2.1 billion is in PFI/PPP projects, strongly underpinning the Group’s prospects for future long-term growth.
Against this background the Board is strengthening the overall position of the Group by addressing underperforming and non-core businesses.
Proposed closure of non-core operations
The Board proposes to implement the closure of the Group’s operations in tube and fittings townwork scaffolding, within Industrial Services. This industry, with its low barriers to entry and susceptibility to cyclical market conditions, has become extremely competitive and the business is no longer capable of generating appropriate returns.
Interserve is also proposing to cease operations in two smaller peripheral activities in Industrial Services and Project Services. Firstly, the installation of low voltage electricity distribution lines, which has no real prospects for profitable growth, and secondly, the installation of rail cabling and signalling, where margins and available volumes of work in our capacity as a subcontractor are inadequate.
The impact of these actions will be to eliminate from the Group three low‑quality, loss-making activities. In the first half of the year these activities will contribute an operating loss of some £2 million, and an expected £5 million over the full year. Closure of these operations will enable increased focus by Industrial Services’ management on the long-term growth opportunities in support services in the petrochemical, pharmaceutical, food & drink and general industrial sectors.
The financial impact of these actions is expected to lead to an exceptional charge in the second half of the year of approximately £14 million, of which £11 million relates to the cost of closure and £3 million to projected trading losses during the second half of the year. However, in due course a net inflow of cash of some £10 million is anticipated as assets are sold and debts collected from within these businesses.
Board appointments
The Board is pleased to announce the appointment of two non-executive directors on the 11 July 2003. David Trapnell, 58, was formerly the Group Chief Executive of Marley plc and is a non-executive director of The Royal Mint. Nicholas Keegan, 47, is Group Finance Director of Evenser Group Ltd and was previously Group Finance Director of Frederick Cooper plc and prior to that of Newman Tonks Group plc.
Mike Bottjer, Chairman, said:
“We continue to strengthen the long-term earnings platform and growth potential for the business with the proposed actions announced today. In the short term, overall trading in the current year remains broadly in line with expectations, whilst in the longer term, contract wins across the business gives us confidence for the future.”
