In light of the recent trading update from Interserve and the resulting drop in share price. I feel there is a need for useful analysis of the company’s divisions to better understand the profitable divisions and those that are dragging down the business.

To analysis their segment results, I will use the following ratios:

-EBIT margins;

-Return on segment assets;

-Capex to depreciation;

-Capex to sales;

-EBITDA less capex; and

-EBITDA less capex as % of EBIT.


Let’s get started.


Overview of Interserve’s divisions

First, we start with the EBIT MARGINS.

Looking at the different divisions, the equipment services stood out with EBIT Margins growing to 20% from 10%

in six years. Meanwhile, their worse is the UK construction division because it makes less profits, while being burdened with too much liabilities.

Another division who was a rising star, their international support services fell from grace as margins fall from 14.4% to 3.06%, while their international construction division is making a recovery from a three-year hiatus. 


Before we declare that equipment services, let’s look at their return on segment assets.  


The equipment services saw improving returns increasing to 17%, but lacks behind UK Support Service and International Construction, both reporting 21.7% and 26.6% respectively.



Biggest Divisional Contribution

Which division(s) contribute more in profits than the rest?

There are two divisions, one is the UK support services division and the other is their equipment services division. 


Starting with UK support services, which is their biggest division, it makes upto 47% of total group sales. Full-year profits have fallen by £11m from last year to £80.8m but it accounts for 70% of group operating profits.

The biggest EBIT margin earner, equipment services division manage to contribute 35% of group profits or £48.6m, despite having sales of £224.1m. That is impressive and would fetch a lot of money if Interserve decides to sell it off.  Let us compare both these divisions profits together with group profits, using normalised operating profits. 


You see both these divisions make up the majority of profits, despite accounting for 55% of group…

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