Interserve Share Discussion Threads

[fenners66] 09/7/2018 22:07

They said that last time

[windrushg] 09/7/2018 19:52

Don't worry about Corbyn (the crypto-communist) as he's just an unelectable chancer IMV. Old Labour-already wrote their own suicide note.

[cfc1] 09/7/2018 17:25

blimey fenners! Well I have no confidence in any of them but it looks like a leasdership fight and perhaps even a vote of confidence and then OMG Corbyn close to power....
What a shambles!!!

[fenners66] 09/7/2018 17:07

cfc1 at that we are in agreement for once !

[jeffian] 09/7/2018 17:06

"....suppliers who were happy to take on jobs regardless of the risk profile.....IRV I'm not sure because although it has a few loss making government contracts it has plenty of profitable ones. Let us not forget that IRV's issue stems from private sector contracts in EfW not public sector ones."

Eh? (on 2 counts)
1) It pitched for significant contracts in EFW despite that being a very specialist area of new technology in which they had little (no?) knowledge or experience leaving themselves completely exposed when the sub-contractor went under and
2) in what way were they "private sector contracts"? I thought they were all for Local Authorities?

[cc2014] 09/7/2018 16:57

What are the directors in these large companies doing accepting excessive risks? They don't have to bid the work. And it seems the same names that come up again and again that are taking these risks.

It seems to me that we have around three suppliers who were happy to take on jobs regardless of the risk profile. Certainly CLLN was one. IRV I'm not sure because although it has a few loss making government contracts it has plenty of profitable ones. Let us not forget that IRV's issue stems from private sector contracts in EfW not public sector ones.


I'm not sure today's price action relates to this news as clearly Capital and Serco had very good days and IRV should have followed. This suggests to me something else is going on.

[fenners66] 09/7/2018 16:51

Not only is cost plus inviting inefficiency - in my experience it is also relatively easy to pull the wool over the eyes of govt auditors as to what actually constitutes cost.

[jeffian] 09/7/2018 16:50

I think you are misunderstanding my use of "corporate structure". I didn't mean the management structure, I meant the shareholding structure. That £100m is going to be divided between a completely different number of shares in issue.

[aendjo] 09/7/2018 16:45

Thanks Jeffian. A cost-plus model would incentivise spiraling costs, not an option. A redistribution of risks and a focus on QPIs rather than cost would go a long way in the right direction. You are correct about the uncertainty of IRV corporate structure in 3-5 years time. In my opinion, what is there today is worth considerably more than 100m. The company will keep on trading. A return to 5% margins on revenue would deliver a TOP of 150m. We shall see how the Board is progressing with debt reduction and margin improvements - any momentum in the right direction will drive share price up considerably in my opinion. The 52 week high is 240p - we shall see how much road we can cover back to that level.

[losses] 09/7/2018 16:43

Added more under 62

[fenners66] 09/7/2018 16:35

Do you not think most business in the globalised economy is wafer thin.

I have presided over increasing margins from 2-3% to a more meaningful level and its takes nerve and of course knowing your cost base intimately.

But the risk remained - get it wrong and its our fault not the procurer's.
If contractors cannot identify the risks and work that needs doing then sign off the job and give carte blanche then they get what they deserve and in the real world there is someone else smarter and leaner to take their place.

Size gives no divine right - IBM, Canals.. ?

Perhaps that is the real lesson - if they cannot make any money - don't bid close the loss making unit , cut some directors , remove bonuses and save the shareholders cash.... oh of course they can't do that !

Cut directors remuneration , perish the thought , they are building empires !

[jeffian] 09/7/2018 16:23

The trouble is, aendjo, that Government Commissions can say whatever they want but time and again Governments (of all colours) and almost all civil servants and politicians are completely clueless when it comes to business. They simply don't understand how it works. What are the chances of anyone in Government organisations being able to assess whether a bid is realistic or fair? Look at the vast array of contracts - from NHS and HMRC IT procurement to defence contracts for building aircraft carriers etc - which have gone badly wrong while under Government "scrutiny".

The only sure-fire way to avoid contractors getting it wrong and going bust is to enter into "cost plus" contracts, where you agree to cover the cost of the work and pay a commission on that. The risk is that the customer (the Government) has to carry cost over-runs and it also removes the incentive on the contractor to achieve the most efficient working method and drive the hardest bargains with his suppliers and sub-contractors, but it removes the risk of large-scale public contracts coming to a grinding halt and mayhem when a main contractor goes bust. The answer is to build up a list of 'preferred bidders' who can show a history of performance and efficiency and hope they go on providing it.

Having said all that, I still think you are looking through the wrong end of the telescope in respect of IRV as an investment. Even if all your claimed "good news" has the desired effect, in the short- to medium-term all the fruits of these labours will be directed back to the banks and other lenders before the eventual refinancing/restructuring. You are investing today without having a clue what the corporate structure will look like in 3-5 years time.

[aendjo] 09/7/2018 15:53

Fenners,you are clearly entitled to disagree with the conclusions of the commission. They collected evidence and interviewed experts for two years. They argue, in my opinion convincingly, how a system that focuses primarily on wafer thin margins is detrimental to the tax payer. All the big players are on their knees, Carillion is bust. I remember Ringrose commenting under his breath “we are not another Carillion” at HY2017 result presentation but it’s undeniable that the government had screwed them (as well as competitors) on a number of rehabilitation contracts (a number of which have been renegotiated since). When I said screwed, I meant that the government didn’t precisely assess or know the extent of work needed and shaped contracts in such a way that the subcontractor has to deliver, even at a loss, or face heavy penalties. This is something that Serco is currently doing on a number of a loss making contracts with the Department of Justice. As the only buyer for these services, the Government’s interests are aligned to some extent with the interests of its outsourced services providers. If they bully providers in risky contracts, asking suppliers to work on a 3% margin whilst being exposed to a 300% risk, government departments will son find themselves without providers.

[fenners66] 09/7/2018 15:29

Self interest, what self interest .....

As a tax payer I am very happy to see the emphasis on the contractor who won a competitive tender , take the risk.
That's the REAL world and should always be the case.

I have turned down business in a competitive tender because it was not profitable and awaited the news that if it was awarded at stupid prices then the "successful " bidder would go bust.

It is up to the govt dept etc. to be sure before awarding the contract to the "winner" that they actually can deliver at the price - sometimes its not hard to tell when 1 tender is wild of the mark.

But to advocate that the tax payer should take more risk just to allow greater profit margin for the contractor is perverse.

I suspect their is a political dogma here - move the goalposts far enough and they may as well create more public sector jobs. We know who supports that theory.

[aendjo] 09/7/2018 13:54

Capita up 4% today, G4S up 2%, Serco cuurently on a rally... I don’t really care about daily share price but just for the fun of it - see IRV.L reverse losses and close positive today.

[obiwoncanary] 09/7/2018 12:47

Nice, I already have all
My available cash in this share. Shorts will close soon I’m sure. Then it’s hello 100’s

[da vinci1] 09/7/2018 12:46

The report alluded to is very good news overall. In addition, the new pragmatic approach towards a soft Brexit I take as a very positive sign for forward prospects for Interserve (and indeed the whole economy).

[aendjo] 09/7/2018 12:34

I would add too if I had any liquidity

[da vinci1] 09/7/2018 12:13

Purchased £10k worth for sub 62p. Could'nt resist! GLA!!

[aendjo] 09/7/2018 11:11

Hugely positive news. Notes on the Report published today. Abridged, non-edited from the original document.

Public Administration and Constitutional Affairs Committee Report “After Carillion: Public sector outsourcing and contracting.



* SUMMARY *

- The UK Government spends £251.5 billion per year on outsourcing and contracting. The UK spends 13.7% of GDP on public procurement, which is not significantly different from countries such as Denmark (14.16%) or Germany (15.05%).

- Government ineffectiveness has contributed to the problems that Carillion and other companies have faced.

- The Government has deliberately promoted an aggressive approach to risk transfer to the private sector - often even attempting to transfer risks that the government itself has completely failed to analyse or to understand.

- We recommend a fundamental change of attitude by the Government towards its partners - ensuring that risk transfer is realistic and that quality, an appreciation of systemic risk and economic impact as well as price drives decision making.

- Contracting and outsourcing with the private sector is a permanent feature of governments in mature economies across the world and it will remain so, whichever government is in power.

* PFI *

- PFI financing costs more than government financing because the state can borrow at a cheaper rate than the private sector. While we are confident that PFI cost more than conventional procurement, neither we nor the National Audit Office nor the Public Accounts Committee can find any evidence of the benefits the Government claims for it.

- The Treasury and the Government should not approve any further PFI projects until they can clearly justify, based on evidence, their claims about the benefits of the scheme.

* MANAGING RISKS *

- The Government should recognise in its response to our report its position as a monopolistic buyer in some markets and commit to publishing a strategy which would identify what it thinks the risks that arise from this are, how it can mitigate them and what it can do to improve these markets and render them more stable.

- the Government has contracted with the private sector without knowing key data about the services it was asking companies to bid for. In these circumstances, the Government has asked the contractors to absorb any losses resulting from its own ignorance of the initial condition of the service.

- UK governments have often transferred risks to contractors that they cannot possibly manage. This is driven, in part, by the decision to use contractual model such as payment by results which involve risk transfer on a huge scale. The transfer of large amounts of risk is often counter-productive.

ON COSTS

- The Government appears to focus unduly on cost in its contracting decisions, with a detrimental effect on service quality.

- The Government’s preoccupation with price has been noticed by the market and is a matter of grave concern. The Government’s failure to assess the quality of services as well as their cost is lamentable. There needs to be a complete reappraisal of how the Government assesses quality of the work it commissions.

RENEGOTIATING CONTRACTS

- Transforming Rehabilitation is not the only example of a programme in which the Government has had to renegotiate contracts. The Government has written to the Committee saying that, since 2016, there have been 12 contracts worth more than £10 million each which have been altered in this way.

EFFECT OF GOVERNMENT MONOPSONY

- The Government agreed that recently “all the household names” in the sector had struggled and had “in the last year or two changed their management, changed their strategies” in response.

- The Cabinet Office told us in correspondence that their current due diligence for contractors differed depending on the size of the contract. On smaller contracts the tests would be “limited to a turnover test and a test of ratios to determine solvency”

ON COMPETITION

- The Minister told us that in some markets, for what he described as “the provision of complex public services” there was significant concentration, as the top five suppliers have nearly “60% of the market by value”.

- Barriers to entry however do appear to exist in public sector markets. Small and medium sized enterprises (SMEs) have difficulties in gaining in government contracts.

- The Government needs to ensure that the market for Government contracts remains contestable from within the public sector, from existing companies and new entrants.

CONCLUSIONS

- Government outsourcing is now more important than ever.

- All the witnesses to our inquiry accepted that the public sector should buy in some goods or services from the private sector.

- The Treasury and the Government should not approve any further PFI projects until they can clearly justify, based on evidence, their claims about the benefits of the scheme.

- The Government should recognise in its response to our report its position as a monopolistic buyer in some markets and commit to publishing a strategy which would identify what it thinks the risks that arise from this are, how it can mitigate them and what it can do to improve these markets and render them more stable.

- UK governments have often transferred risks to contractors that they cannot possibly manage. The Government’s guidance on risk transfer is sensible but too often that guidance appears to have been ignored in Departments. The Government must ensure that in the future this guidance is followed.

- The Government’s preoccupation with price has been noticed by the market and is a matter of grave concern. The Government’s failure to assess the quality of services as well as their cost is lamentable. There needs to be a complete reappraisal of how the Government assesses quality of the work it commissions. This will both incentivise providers of services to focus more on quality and ensure there is less chance of providers aggressively undercutting bids deliberately with the intention of potentially renegotiating the contract later on.

- We welcome the Government’s intention to publish a number of key performance indicators. We also welcome the comments from the private sector in support of this.

[cumftablie num] 09/7/2018 08:59

Yeah right and "England could win world cup again" https pieinsky.com

[losses] 09/7/2018 04:22

Carillion crisis 'could happen again'https://uk.finance.yahoo.com/news/carillion-crisis-could-happen-again-230100129.html

[losses] 09/7/2018 04:21

Carillion collapse exposed government outsourcing flaws – reporthttps://uk.finance.yahoo.com/news/carillion-collapse-exposed-government-outsourcing-230116335.html

[cjl62] 06/7/2018 13:44

Personally i think a solution was found that was suitable to all parties as they were all in the proverbial anyway, the banks have gone into this with their eyes wide open and i really dont think DW is there to improve her bank balance for the fun only but to enhance her reputation slightly. If she turns this around (which i sincerely hope she does) she is destined for far greater things.
It wouldn't actually surprise me if a lot of large government contracts get awarded to interserve in the near future.
Who would have benefited had IRV had going bust anyway (Shorters)
GLA