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Interserve forecasts better-than-expected 2018 operating profit due to lower costs

In a year-end update, the FTSE small cap firm company said it was making good progress with its 'Fit for Growth' three-year initiative, focused on boosting efficiency and improving its company-wide procurement processes
Interserve van
Interserve said it expects cost savings of at least £40mln to £50mln by 2020 from the plan, with 2018 savings estimated to be £15mln

Interserve PC (LON:IRV), the construction and services company which issued multiple profit warnings last year, today forecast better-than-expected operating profit for 2018 due to lower costs.

In a year-end update, the FTSE small cap firm company said it was making good progress with its 'Fit for Growth' three-year initiative, focused on boosting efficiency and improving its company-wide procurement processes.

READ: Interserve shares tumble as it issues profit warning and says it could breach banking covenants

Interserve said it expects cost savings of at least £40mln to £50mln by 2020 from the plan, with 2018 savings estimated to be £15mln.

The firm said: “As a result of the 'Fit for Growth' initiatives, the Group's operating profit for 2018 is now expected to be ahead of current market expectations.”

It also added: “Overall 2017 trading performance before exceptional items is consistent with the trends outlined in the October market update and in-line with market expectations.”

The company, which is reviewing its contract portfolio and non-trading balance sheet items, also said that discussions with lenders over longer-term funding were progressing.

The group said it expects its net debt to peak in the first half of 2018, partly due to ongoing refinancing activity. It expects net debt at year-end 2017 to be about £513mln.

Providing a sound foundation

Debbie White, Interserve’s chief executive, said: "The new management team, and the Board, have been working to stabilise the business and provide a sound foundation to continue to serve our customers effectively, underpin our future growth and to restore shareholder value.

“This work has focused on managing the balance sheet, conducting a thorough assessment of the contract portfolio, and introducing new management disciplines, processes and cost controls under the 'Fit for Growth' programme."

In an initial note to clients, analysts at Liberum Capital called the firm’s upgrade “surprising” and reiterated a ‘buy’ rating on Interserve shares, raising their target price to 180p from 150p on a sum-of-the-parts basis.

In opening deals, Interserve shares were steady at 99.55p.

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