Perils of public contracts

THE collapse of outsourcing and construction group Interserve, with a workforce of 80,000, would be a calamitous blow to Theresa May’s government when it is most vulnerable.

After the failure of Carillion at the start of the year amid recriminations over pay- outs to directors and faulty accounting, Interserve was seen as the next domino likely to fall and put under supervision of the Cabinet Office.

Directors need to be held responsible for the mess that they create. But some culpability must rest with former chancellor George Osborne and Cabinet Office minister Francis Maude, who in enthusiasm to restore the public finances cut the headroom on government contracts to the bone.

Carillion’s response was to double up on under-priced contracts in what essentially became a giant pyramid scheme.

There has been all manner of effort to prevent the same happening at Interserve.

The Cabinet Office brought in Deloitte to act on its behalf and has kept in touch with the major re-financing of its £500m to £600m of estimated debt. In spite of being involved in prestige projects such as restoration of the Albert Bridge in London and Tilbury docks, problems have continued to mount.

Interserve ran up losses at the half year and a recently compiled survey by Building Magazine found that the firm was querying 80pc of its invoices. That may indicate careful stewardship but could be a delaying tactic because of cash flow difficulties.

The sharp fall in the company’s shares on Monday followed by a big fall in early trading after a BBC report claimed insolvency might be imminent, suggests deep concerns. A short statement from the company reassuring investors that there would be an ‘operating profit improvement’ in 2018 was enough to scythe share price losses.

Chief executive Debbie White, a year into the job, has her work cut out.

Good Read

EVERYTHING about vodafone is outsized: its dividends, its debts and its write-downs.

The telecom company’s history of doing very big deals, going back to the £112bn acquisition of Mannesmann in 2000, means that ridding the balance sheet of goodwill is a way of life.

nick read, who took over from vittorio Colao as chief executive in September, has been dealt a tricky hand.

He is seeking to shore up sagging shareholder support by maintaining the dividend and plans to pay for it by vigorous cost cutting and digital expansion.

Sensibly read wants to end vodafone’s old approach of running the enterprise on a nation-by-nation base and bring its sprawling European operations together on one platform.

He recognises that if vodafone can knit its vast network of phone masts together in a separate enterprise, it will be more easily monetised, with a potential value of up to £15bn. After a lot of hard technical and legal work it could be the basis for a hiveoff or a joint venture.

What catches the eye is the £3bn writedown of existing assets in Spain, romania and India as well as a near £3bn loss arising from the merger of vodafone in India with local rival Idea Cellular. Customers are likely to look at the cost cutting as the enemy. read’s case is that it is possible both to cut costs and make life better for customers at the same time.

His plan is to provide more digital advice on service problems with experts on the end of the line to deal with the hardest questions. vodafone looks as if it might be learning something from 02, which is pioneering simpler and more transparent billing.

All of that sounds time consuming which is just as well, as read is unlikely to get his hands fully around the Liberty Global network until next year when the European Commission has finished its scrutiny.

The intention is to upgrade the network to super-fast speeds and buy-in as much content as it can from HBO, netflix et al.

It sounds like a plan and immediate market reaction was positive.

Pity, it shouldn’t be after a 40pc shellacking for the stock this year.

Comic hero

DISNEY’S Bob Iger has reason to be grateful to Spider-Man creator Stan Lee who has died at 95.

His £3bn investment in Marvel comics in 2009 proved an earnings gusher.

This year alone two Marvel movies Black Panther and Avengers: Infinity War earned £2.3bn in ticket sales.

Excelsior!