Outsourcing firm Interserve is not in a similar position to the collapsed construction and services company Carillion, the government insisted on Wednesday.
It followed a report in the Financial Times that said the Cabinet Office had set up a team of officials to monitor the company, following concerns over its financial health. Interserve shares initially tumbled 15% after the report, before recovering with a fall of just 1%.
A spokesperson for the Cabinet Office said: “We monitor the financial health of all of our strategic suppliers, including Interserve. We are in regular discussions with all these companies regarding their financial position.
“We do not believe that any of our strategic suppliers are in a comparable position to Carillion.”
Interserve is a major supplier to the government across a range of areas including health, education and defence.
The company issued profit warnings in September and October last year, after it ran into difficulty on a number of waste-to-energy contracts that deals with generating energy in the form of electricity and/or heat from the primary treatment of waste. It had net debts of about £513m a the end of 2017.
However, in a trading update on 10 January, the company said it expected operating profit in 2018 to be better than City analysts were forecasting.
Responding to the FT report, a spokesperson for Interserve said: “Last week we announced that we expect our 2017 performance to be in-line with expectations outlined in October and that our transformation plan is expected to deliver £40m-£50m benefit by 2020. This remains the case and we expect our 2018 operating profit to be ahead of current market expectations and we continue to have constructive discussions with lenders over longer-term funding.
“We are keeping the Cabinet Office closely appraised of our progress as would be expected.”
Neil Wilson, senior market analyst at ETX Capital, said Interserve had had its problems but was “no Carillion”.
He added: “Comparisons with Carillon are all too easy to make of course – a diverse business operating on thin margins. It has faced pressure from employment and contract mobilisation costs and margin deterioration from a cost base which has not been flexible enough. It’s one of the most heavily shorted FTSE stocks and it has a lot of debt.
“However in the case of Interserve, the arithmetic doesn’t look anything like as bad as Carillion.”