From Carillion to Interserve: the construction sector struggle

Just over a year after the collapse of Carillion, fellow construction company, Interserve Plc, has gone into administration due to owing over £775m to creditors.

On Friday 15 March, Interserve Plc released a statement that said:  “Administrators have been appointed to Interserve Plc (in administration) (“Plc”) and the completion of the sale of Plc’s business and assets (i.e. the entire group) (the “Group”) to a newly incorporated company to be controlled by the Group’s lenders has occurred.”

“A deleveraging transaction will now be implemented, and is expected to complete shortly after the sale of the Group, and will involve the equitisation of approximately £485m of existing debt and £110m of additional liquidity.”

Cutting through the media circus to the heart of the matter, Interserve Plc is a high-profile example of the struggles within the construction sector as they pitch low prices to their prospective clients to win the competitive contracts. It is an unsustainable practice, and the sector is feeling the pinch.

In the statement, they continued: “A deleveraging transaction will now be implemented, and is expected to complete shortly after the sale of the Group, and will involve the equitisation of approximately £485m of existing debt and £110m of additional liquidity.”

“The sale of the Group completed on Friday 15 March immediately following the appointment of the administrators, minimising any disruption to the business, providing continuity for customers and suppliers, and protecting the Group’s employees (including the beneficiaries of the Group’s pension schemes).”

In 2017, the construction company reported a staggering pre-tax loss of around £244m. Although this improved to a pre-tax loss of £111m the year after.

The statement added: “Interserve, the international support services, construction and equipment services group, announces the appointment of Alan Hudson and Hunter Kelly of Ernst & Young LLP as administrators to Plc and the successful completion of the sale of the Group, other than Plc, to a newly incorporated company, Montana 1 Limited (which is in the process of being renamed as Interserve Group Limited) (“Interserve Group”).

“The sale of the Group completed on Friday 15 March immediately following the appointment of the administrators, minimising any disruption to the business, providing continuity for customers and suppliers, and protecting the Group’s employees (including the beneficiaries of the Group’s pension schemes).”

“Interserve is fundamentally a strong business and with a competitive financial platform in place we see significant opportunities ahead as a best-in-class partner to the public and private sector.”

Carillion, Patisserie Valerie, BHS, and Debenhams are all examples of big corporations feeling the effects of an unstable economy as global trade wars rage, gross business rates continue to run above the general rate of inflation, and Brexit uncertainty proves to be an unavoidable issue.

In a recent report released by ICAEW, the accounting body has considered ways in which construction companies can introduce some stability to the foundations of their organisation.

Debbie White, chief executive officer at Interserve Group, concluded: “With a stronger financial platform in place, Interserve will be able to concentrate on delivering value for our customers.

“The Group’s transformation programme will continue, focused on improving our value propositions for customers, standardising our operational delivery, making Interserve simpler and more efficient through our Fit for Growth initiatives, and embedding a culture of ownership and openness throughout the Group.

“Interserve is fundamentally a strong business and with a competitive financial platform in place we see significant opportunities ahead as a best-in-class partner to the public and private sector.”

This article was amended at 11:12am on Friday 29 March 2019