Interserve: 3% profit margin in UK, 63% margin in Middle East

Interserve has put its financial performance back on an even keel with a margin of 4%.

Interserve’s latest pre-tax profit of £69m in 2007 is well up on the £15m figure in the previous year, the latter having been laid low by hits costing a total of £43m.

Latest financial results covering the 12 months to 31 December 2007 show Interserve’s turnover higher at £1.7bn, a 23% rise on the 2006 figure of £1.4bn.

The overall margin of 4% is the result of a relatively small jewel tucked away in the mighty Interserve empire.

Virtually all Interserve’s £1.7bn turnover is in the UK and here the margin was a more customary 3%.

But the icing on the cake was the £40m-worth of work undertaken in Interserve’s Middle East & Africa unit which generated an operating profit of £25m which amounts to a staggering margin of 63%.

The financial hits back in 2006 were the result of goodwill charges, costs associated with integrating MacLellan and “professional costs associated with the accounting misstatements” in the Industrial Services division.

Interserve now operates in five business segments and their contribution to profit (before allocation of £17m-worth of central costs) was:

• £29m - Project Services
• £28m – Facilities Management
• £24m – Equipment Services
• £7m – Specialist Services
• £2m – Joint Ventures (PFI Investments)

The group’s future workload stands at £5.7bn, which is much the same as a year ago, and Interserve has already secured £1.8m-worth of work for 2008.

Cash generated from operations in 2007 ran to £65m.

Interserve offers insights into the performance of its various operations:

Facilities management

A key task was to complete the integration of MacLellan. New clients won during the year include CB Richard Ellis, Department of Health, BAA and Abbey.

Specialist services

This was a curate’s egg. While its security and M&E installation/maintenance operations all traded well, Interserve had to “address the issues in the underperforming heating, ventilation and air condition (HVAC) and working-at-height operations.”

The somewhat superficial explanation of the cure is that Interserve has repositioned them and has made changes to the management team. No clues here as to whose heads rolled. Anyone know?

Project Services

The division operates in both the UK and the Middle East. The margin in the UK was 1.8%.

In the Middle East, the leisure and tourism sector remained buoyant in Dubai and Interserve completed the 255-room Raffles Hotel while three others in a roll-out programme for Majid Al Futtaim Group are making progress.

The Qatar-based Madina group, which Interserve now has a 49% interest in, more than met expectations in its first six months of trading.