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鈥淵ou see before you a faded shell of the person I was six months ago鈥� 鈥� so joked chief financial officer Mark Whiteling as he opened Interserve鈥檚 full-year results presentation this week. Laughs aside, looking at the frankly horrible set of figures it鈥檚 not hard to believe him. Having delayed releasing the contractor鈥檚 2017 results since March while chief executive Debbie White secured backing for its 拢834m borrowing limit, the markets initially reacted to the news of 拢244m of losses and net debt at over 拢500m with a share price nosedive of 17%.

Interserve CEO Debbie White was clear that much of the company鈥檚 pain has been self-inflicted  鈥� basically it has bid too low for too long on jobs that pose too much risk and is suffering the consequences. Sound familiar?

To put that into perspective, in 2016 Interserve netted losses of 拢94m and net debt was 拢274m, so when CEO White says 鈥�2017 was an extremely challenging year鈥�, few would argue.

The extent of the problems is deep and wide, ranging from another writedown of 拢35m in its ill-fated energy-from-waste business, to its loss-making construction business (拢19.4m) and poor performance from its support services division. Of course, difficult market conditions have played their part 鈥� the latest ONS figures show that construction activity has declined so far it is starting to act as a drag on the rest of the UK economy. But White was clear that much of the pain has been self-inflicted, stating that the UK construction business has suffered historically from 鈥減oor decision making in project targeting and inadequate project control鈥� 鈥� basically it has bid too low for too long on jobs that pose too much risk and is suffering the consequences.

Sound familiar?

From the government鈥檚 point of view, another Carillion-style company failure would be a headache it could well do without.

So it鈥檚 understandably keeping a close eye on developments, apparently convening fortnightly audits to review Interserve鈥檚 balance sheet and to check progress on key public sector contracts. And those representing the supply chain will no doubt be seeking assurances that Carillion鈥檚 approach of starving its suppliers of cash is not part of Interserve鈥檚 recovery plan. Perhaps in a bid to allay this fear, Interserve鈥檚 chair has said 鈥渁ggressive working capital management [would be] unfair on our suppliers and unsustainable鈥�.

So what is Interserve鈥檚 plan?

It already secured its 拢300m refinancing deal with lenders back in March, giving it breathing space of at least 18 months. The next challenge is getting a tight grip on its pipeline of work. To that end, the CEO and the CFO have both said they will sign off every potential project, and will have a 鈥渓aser-like focus鈥� on bidding for work. The upshot for the UK construction business is that work will be scaled back, revenue will be sacrificed for the sake of healthier profit margins.

Energy-from-waste jobs have been a persistent problem, but White hopes to be rid of them this year. A swift exit from this sector cannot come soon enough. Meanwhile the company鈥檚 Fit for Growth efficiency drive is being cranked up with the aim of annual savings of 拢50m that will feed through to the bottom line by 2020. And it鈥檚 focusing on making the business overall less 鈥渇ragmented and federalised鈥�, with an emphasis on standardising approaches and processes.

As recovery plans go, this all makes sound business sense, and with a fair wind it could be enough to turn Interserve鈥檚 fortunes around. It鈥檚 been done before, after all. Balfour Beatty 鈥� which just three years ago posted a 拢304m pre-tax loss pulled down by a string of problem jobs 鈥� this year saw profit leap from 拢10m to 拢117m. And it did it under Leo Quinn by overhauling the management, pulling out of sectors it couldn鈥檛 make work, and injecting some much needed discipline into its bidding processes. 

Clearly, there鈥檚 no quick fix for Interserve 鈥� by its own admission things could get worse before they get better, with net debt predicted to peak at around 拢680m in the first half of this year. But if it can bring about a root-and-branch culture change and apply the discipline shown by some of the success stories in our industry, it has as good a chance as any.